Real Estate - Unsettled Problems
( Originally Published 1911 )
Organization of real estate interests.—In the real estate business there are a number of problems and questions upon which the people in the business disagree, and others upon which, if they do not actually disagree, they have at least not yet made up their minds.
There are organizations of real estate owners, organizations of tax payers, organizations of tenement house owners, boards of brokers, each looking out for their little special interests. There are also organizations like the Allied Real Estate Interests in New York City, which make it their business to look after the larger general problems affecting the business, such as the watching of legislation. But all of these organizations are now alive with the idea that while each of them is caring for its specialty, they have a general interest—the interest of those, dealing and making their living out of real estate and the various pursuits which relate to it, and the idea of general organization in the real estate business is spreading—not that there is any necessity for individuals engaged in the business to protect their interests as against others, but that it is necessary that they protect their mutual interests. This is a problem of growing importance.
284. Expressing consideration of conveyances.—Another problem that is before the real estate world is the question of whether or not it is proper and feasible to disclose the considerations of conveyances. There are two questions involved in that problem: first, the question of taxation; and, second, the business question as to whether or not it would tend to the advantage of the business.
As to the first question: We raise most of our money for local taxation by direct tax on real estate, and in order that that tax may be just, the assessment must be equitable. The taxing officers would like to know what is paid for each piece of property in every transaction so that they may, if possible, out of the multiplicity of transactions draw an average price. The objection to that is, on the one side, that prices are not necessarily values. Prices may be indexes of values, if enough of them not only in number but also in time can be obtained from which to draw an average of the actual value, but value economically consists in and is measured by earning capacity, so that the man who wants to buy investment capacity only, is the man who governs values.
Whether, as a business proposition, it is desirable or not that values be disclosed, the assessors could get a better index of the value from an intelligent study of the record of mortgages, for here there is no reason for using fictitious amounts, and they have the opinions of the most expert appraisers in the market—the advisers of the lending institutions.
The other question involved in this matter of disclosing the actual considerations is the question of its influence upon the trade and the lending markets. It is contended, on one side, that the disclosure of the actual price will encourage purchasers to offer reasonable prices, and that they will be encouraged to know that the property is supposed to be worth quoted prices. On the other hand, it is claimed that to disclose prices will absolutely discourage trade, that when a man knows what the seller has paid, he will not give any more than a mere trades profit; and that in no other business is it seriously contended that the seller should be required to apprise the purchaser of what he has paid for the thing he is offering for sale. It is said, on one side, that every store discloses its price, the price at which it desires to sell; but the answer to that is, that no store discloses the price at which it buys, and, while every store discloses the prices which it asks for staple goods, few stores disclose except to a possible purchaser, the price asked for specific goods.
Tax on mortgages.—Another question which is still unsettled in many states is that of taxation of mortgages. The taxing of debts, and especially of interest-bearing debts, is taxing for the support of the government the most needy part of the community, that is, the part of the community which must borrow. It is placing a tax upon industry, and is a discourager of enterprise. The man who is satisfied to do business only on such capital as he has, without borrowing upon his security, is circumscribing his business, and is not enter-prising. The man who keeps his security working in the world by borrowing upon it to a reasonable extent, and using that capital in other enterprises, is helping to carry forward the world's work. When a tax is placed upon debts, , the result is that the interest rate is increased. The lender never really pays the tax and the enterprising and needy are required to contribute more to the support of government than the wealthy. The mortgage tax would seem clearly to be a misdirected and harmful effort. All taxation upon debts, as a : matter of public policy and public economy, is wrong.
In the State of New York, the mortgage taxis one half of 1 per cent upon mortgage debts, which is paid once, and thereafter the mortgage is free of all taxation for state, county and local purposes. In other states the problem is still an unsettled one, and wherever it comes up for discussion, it will have considerable influence upon land values.
The single tax.—Another question which is up for consideration is the question of the abolition of general taxation on personal property, leaving real property the only object of direct taxation. This subject involves numerous considerations. It is true that it is difficult to frame a just tax law applying to personal property generally. On the other hand, it should be remembered that real property is not the only property which gets the safeguards of the State's protection and the benefits derivable from civilized government. Nor is the argument valid which claims that all persons use real property and, therefore, taxation on real property will fall on everybody, for the tax will not fall on every-body in accordance with the benefits derived. For example, a diamond merchant can do a much more lucrative business in a small office than a produce merchant can do in the same space. The topic will have to be considered with regard to local conditions and tax laws in each state.
Confidence and good-will.—It should be remembered that the real estate business is one in which the only stock in trade is confidence and good-will. The greatest problem of the business is so to conduct it as to gain the respect, goodwill and confidence of the community. The man who has done satisfactory business with you is your best advertising medium. Never try to get a man to do a piece of business which you think will turn out to his loss, even though you may make a commission on it. The man who has made money from the transactions into which you have put him, is the man who will let you make money again. Try to have as large a number of such customers as possible.