Can the “lemons model” exist in real estate

Lemon model asymmetrical information is available for the buyers and the sellers. This is best explained by Gresham’s Law which says that the bad things in the market drive out the good. Since there is asymmetry of information, the buyers are unable to assess the value of the product before buying.

On the other hand, the sellers can assess the value of the product before the sale is made. There exists an incentive for the seller to pass off the low value product as well as the high quality ones.

This is actually a lemon market and the sellers are devoid of any authentic disclosure technology and therefore they cannot disclose the real condition of the cars to the buyers. Another important thing is the lack of ideal quality assessment and assurance by the government.

Since the consumer is less informed than that of the seller, lemon market cannot effectively exist in the real estate. The buyers and sellers of the real estate depend entirely on local recommendations and therefore, it is highly improbable that lemon market would exist in such condition.

There are relocation companies which operate as sentinels in a principle-agent association, providing assurances to the buyers and sellers of real estate.