Thoughs on Craigslist

Having spend 3 whole days scouring craigslist looking for a place to live in New York for 2 month, I have to say that it really really amazed me. As an rookie economist with keen interest in the buying and selling business of all kind, CL strikes me as a market place that is the best solution out there of pairwise searching-and-matching problem for real estate trades.

The goods under transaction are temporary usage of a room or house. Sellers want to transfer the right of usage for a specific time span in exchange for money. Buyers want to acquire such right of usage at a price lower than alternatives such as hotel. This type of two sided matching is historically inefficient since both the buyer and seller would have to incur large searching cost, which include advertising fee or time spent on scouring through classified column of relevant newspaper. This is even harder when buyers and sellers do not reside in the same states while news ad typically appears in local newspaper. A internet based poster overcame such barrier.

What is great about CL is its volume and liquidity. With an early lead in the classified business, CL is able to attract more and more visitors and became the dominant player in this field. As economist argued, “liquidity attracts liquidity”, knowing that most others (and potential matches) are using CL, one is more willing to put his property on CL for sell.

To give you an idea about the liquidity, from my observation of the specific category “ temporary sublease of rooms in New York City ( Manhattan area), it take only 3-5 minutes for a new post to appear, and the time frame from posting to final transaction is usually less than a day ( including private contact, showing the room and making the deal).

The mechanism of selling is “posted ask price”. This price is firm and non-negotiable most of the time. This is a result of the imbalance between supply and demand. Sellers who posted the price would rather wait a little bit for a next buyer who’s willing to buy at the ask price than striking a deal at a lower price with a negotiator buyer.

The asking price is usually a unit price ( eg, rent per month). However, the time span that buyer and seller have in mind may be different. For example, the seller will be away for 2 month, while the buyer only need a place for 1.5 month. In this case, the seller and buyer can negotiate on the length ( days/weeks of occupancy, or quantity) of the deal. As the unsold period (difference between transaction quantity and quantity available) is usually not used, and have no value, the seller has incentive to minimize it. Again, when the market is a seller market (supply smaller than demand), we usually see the buy side making the compromise in buying the whole period, which is longer than what they need.

Sellers usually get multiple inquiries immediately after posting, and buyers typically inquire about multiple posts at the same time. Seller has the right to discriminate buyers by not responding to the inquiry (the anonymity of the listing service make it easy to do). As there is a cost in showing the room and responding to email or phone calls, dealers carefully discriminate buyers by their seriousness and financial stability. One signal of seriousness is making a phone call instead of email response. The action of the buyer dialing up the number reveals more identity about him than email reply. Phone call also make is possible for the seller to observe more about the buyer through spontaneous conversation. This helps reduce the risk of default.

When phone number is not provided in the ads, then it is less obvious how seller discriminate across all email inquiries. Time precedence certainly plays a bigger role. Yet, interestingly, from my personal experience as being a buyer and seller at the same time ( I was also posting as a seller to sublet my apartment in Pittsburgh for the period when I will be in New York), it is better to ask less questions in such inquiry, especially nothing that will require effort from the buyer in replying. Taboo list:
Asking for pictures (they are not their because they do not have them easily available)
Asking to negotiate the price in the first inquiring letter
Asking vague questions such as “can you tell me a little more…” ( don’t give him a hard time)

Finally, suggestions for all desperate buyers (apartment seekers), act quickly and act decisively, use Craigslist.