Transaction cost and transparency on the owner-occupied housing market An international comparison

Abstract: This dissertation consists of four essays with specific objectives. The overall objective is, however, to seek a further understanding of the issue of cross-border residential transaction markets. While the first two essays focus specifically on transaction processes and costs in a number of selected countries, the two subsequent essays shift their attention towards the EU’s Internal Market and the impact of differences between the countries, with relation to the transparency of transaction markets. The research is primary based on studies of written sources, subject-specific literature and legislation. The main message is that organization of the transaction process affects transaction costs in different ways. It can be argued that efficiency is associated with a lowering of transaction costs. The efficiency of different structures depends on our perspective. Transparency is associated with the organisation of transactions and their needs, though the term is somewhat unclear. Generally, the term may refer to the ability of transaction participants to observe information concerning the transacting process, thereby increasing their knowledge to make informed decisions. Thus it can be argued that a better basis for the decision-making process presupposes information disclosure, more standardized transaction practices, synchronized legal systems, and both legible and transparent regulations. This leads to the design of a transparency system, which is based on an understanding of the need for the system and its goal. Although reaching transparency will be both complex and time-consuming, this study draws attention to certain key aspect of the need to encourage transparency.The first two essays focus on how residential transactions are organized in selected countries and on the costs for carrying out these transactions. Essay II works with two hypotheses concerning the relation between the organizational structure and the transaction costs. The study shows that transaction processes and costs differ considerably between the countries and as a result it is difficult to arrange the countries in a clear way according to their rules. Moreover, there is no clear connection between a broker’s education level and how large a part in the process s/he plays. The total transaction costs excluding taxes vary from approximately 3 up to 8.5 percent. The costs are lower when the recording system is well arranged, when a broker has a bigger part in the process and when a conveyancer is impartial. In the countries where a broker has a higher education level and plays bigger part in the process, the broker’s commission is not any higher when compared to other countries in the study. The study shows also that transaction costs are lower in the countries where the broker has a more neutral role and where fewer parties are involved in the process. Thus in order to avoid high transaction costs, it is important to avoid situations where both buyer and seller have their own agents. Furthermore, the availability of standardized information about properties may increase the efficiency of the market even though it increases the short run transaction cost.Essay III provides a theoretical framework for an analysis of the concept of transparency in residential property transactions within the EU’s internal market and tries to identify the essential factors that need to be addressed with respect to transparency of procedural, regulative and economic features. Essay IV seeks a further understanding of the issue of transparency in the residential property transaction market and attempts to define the state of transparency on the basis of selected EU-countries, in accord with five specific dimensions. The essential points are that an increase in cross-border transactions increases demand for easy access to information in other countries, and that the studied literature focuses on the coordination of legal systems, which produces systems that are more uniform and legally secured, and on broadening the mortgage market. Some of the aspects analysed in the study are far from transparent while others may be considered relatively transparent. The degree of transparency in the EU’s internal market is determined by how transparency is defined, since something may be transparent based on a certain criteria but not on others, especially when the concept is a relative one and subject to changes. The study raises some key aspect as a basis for discussion about the encouragement of transparency.