Back when I first wrote that my neighbors were moving, I didn’t think it would take so long for them to accomplish the task. The recent “Sale Pending” notice in their yard is evidence of success at last, but it is also evidence that until recently, they haven’t understood the market advantage in specialization and the division of labor. The neighbors recently decided to put their home sale into the hands of experts. And soon after “For Sale By Owner” notice gave way to a professional realtor’s sign, they had a prospective buyer.
Neither of the neighbor couple is a realtor. I’ll assume they know their own home pretty well, but evidence is, they weren’t able to effectively tap into the market for home-seekers. While I don’t doubt that FSBO works for some people, this is an example of the kind of production problem that Adam Smith described in his famous pin factory example. The manufacture of a straight pin requires surprisingly many steps; each one of them takes practice. Developing expertise, something each of us do when we pick a major in college or a profession in the work world, means we acquire “specialized knowledge of time and place” within a narrowly focused area. Whether straightening the wire for a pin, or knowing where and when to place an advertisement and how to talk to a potential client, success in any market depends upon skill plus our tacit knowledge of the process.
Nobel-prize-winning economist Friedrich Hayek’s essay on “The Use of Knowledge in Society,” along with essays like Leonard Read’s “I, Pencil,” explains why the process of coordinating plans through market activities is a process of discovering where and what the information relevant to market participants is, not how to use a “given” set of data. Markets coordinate diverse peoples’ plans because they bring together individuals with dispersed and specialized bits of information, much of it tacit, or inarticulate, knowledge. It’s the inarticulate knowledge that is particularly valuable, because it only comes with experience—getting a “feel” for a situation. In home sales, this means that a homeowner doesn’t necessarily have the specific knowledge that will uncover potential buyers. More houses sell through agents because agents have time, better tools, and special knowledge of the specific market than do owner/sellers.
Experiential knowledge is so common, in fact, that we may fail to recognize how important it is. Timing the swing of a bat, tying a shoelace, speaking a foreign language, or recognizing a good piece of property for investment potential are all processes that can be broken down into explicit steps, yet success will always involve a tacit component that only comes with trial and error, and experience. It doesn’t matter how many times someone tells you how to tie shoelaces, you’ve got to do it yourself to really understand the process.
Do other market concerns, like the condition of a nearby neighbor’s house, or the look of the housing development affect home sales? Certainly. But I’m pretty sure it’s not the new roof on my house, the power wash on the siding, or my spiffy weekend yard work that’s selling the house next door. Those are an owner’s normal responsibilities for property maintenance. (Insurance companies look for it when writing policies; they call it “pride of ownership” — another topic).
Specialized knowledge seems to have made the difference in this situation, meaning I’ll have some new neighbors soon. The current neighbors seem confident that the sale is going through, too. Now that a contract is pending, some of the dandelions over there are starting to get pretty tall.