DIFFICULT MORAL QUESTIONS

Question 144: Must sellers and buyers reveal relevant information?

As a real estate broker, I often encounter moral problems that center on whether one party can legitimately take advantage of information unavailable to the other. Lying plainly is wrong, and concealing facts that affect the value of the property to be sold seems tantamount to lying. But what about a case where one party has information the other lacks? Here, it seems to me, finer lines are needed. Consider three examples.

Betty, who is single, is promoted and receives a substantial raise. She decides to offer to buy the house she has been renting from Ben, who has been working abroad for several years. Since he left the country, the opening of a technology park that brought many new jobs to the area has caused properties in the neighborhood to appreciate by about twenty percent, though real estate prices in the United States as a whole have been stagnant. Betty sends Ben a contract offering $134,950—about $10,000 dollars more than the house was worth when he left the country. Expecting he will check out current prices and make a counteroffer somewhat above $150,000, she hopes they will agree on a price between the two figures. But Ben simply signs the contract Betty sent, and so accepts substantially less than he could have got for the house.

The second case. Cecilia has been operating a very successful independent pizza shop in a rather remote, but growing, suburb of a large city; her profit on the investment and compensation for her time have increased every year. Still, because she is in her mid-sixties and has adequate savings, she has been toying with the idea of selling the business. The local newspaper reports the sale of a nearby piece of property to the Clemens Corporation, which Cecilia happens to know is a large franchiser for a major pizza chain. The competition is likely to result in at least a temporary drop in sales and may make her business unprofitable. Cecilia investigates and learns that construction will begin in six months. She decides the time has come to sell.

In advertising the business and talking with prospective buyers, Cecilia discloses all information relevant to her own operation, neither exaggerating nor concealing anything. She shows how well the business has grown and how profitable it now is, but she also makes it clear that many of her regular customers are friends and neighbors, who enjoy the highly personalized service she has provided by varying ingredients and recipes to satisfy each family’s preferences. She answers every question asked of her with complete and accurate information. But nobody asks about possible future competition, and she says nothing about what she has learned.

The third case. The county’s zoning commission has been divided three to two against rezoning a parcel of agricultural land for multifamily dwellings. The parcel is about one-half mile beyond local water and sewer lines; if it is rezoned, service will be extended. The commissioners who up to now have opposed rezoning decide the time has come. Their decision is entirely honest. They have no personal interest, but more housing is needed, and the would-be developer is making a proposal that seems fair to the community. The rezoning will be unexpected, since the three commissioners have just met informally and arrived at their decision, which they will announce in two weeks, when the commission next meets. However, talking with elderly neighbors thinking of selling their house and moving into a rather unsatisfactory apartment, one of the three, Donald, tells them new apartments will be available within a year on the parcel whose rezoning is imminent.

The neighbors mention this conversation to their nephew, Ed, who owns a home on the road along which the local sewer and water lines will be extended. Naturally, he considers the impact of the extension. Up to now, the scattered homes on that stretch of road have had wells and septic systems, and have required one-acre lots; now owners will be able to tie in to sewer and water lines, and can subdivide their lots. While each owner will have to pay assessments for the new service, Ed calculates that by subdividing he will make a great deal of money.

A neighboring couple have just listed their home for sale. Ed is about to tell them what he knows, so that they can hold off until the rezoning goes through, but he decides instead to explain the situation to his wife’s sister and her husband, who have been looking for a house to buy, so that they can contract at once to purchase the property, contingent on obtaining the necessary financing, with a view to profiting from the property’s expected increase in value.

Are Betty, Cecilia, and/or Ed violating any moral standard by not revealing information relevant to the transaction in which they are interested?

Analysis:

This question calls for application of the norm requiring candor and clarification of the proper application of the Golden Rule. Market prices, though generally perceived to be fair, often are unfair, especially to the poor. A price negotiated by bargaining in the absence of a market or an optimum market may be fair even though it differs from the price in a market that is not available or in a hypothetical, better market. Lying is common in negotiating and is always wrong. Withholding relevant information sometimes is justified, but also can be wrong. A prior relationship may ground a duty of candor; the end for which the information is withheld may be bad; or the transaction may be unfair. Mercy also may be required of Christians. Since love of neighbor requires taking differences among persons into account, and not treating everyone alike, one cannot soundly apply the Golden Rule without considering everything one knows about a possible action’s impact on everyone concerned.

The reply could be along the following lines:

If buyers and sellers are said to be better off when they think their wants are more adequately satisfied, a buyer and a seller both hope to be better off by means of the transaction than they otherwise would be. Differences in skill in bargaining, eagerness to deal, and the ability to appraise the qualities of items to be sold and bought can enable one of the parties to get more than the other out of the transaction. But when a market exists—that is, when many potential buyers and sellers of similar items can make and compare tentative offers before dealing—the difference between the advantages gained by the parties to each transaction tends to decrease. Generally, buyers and sellers who consider the mutual advantages gained from a transaction to be roughly equal regard it as fair, and they would be willing to trade places if their current wants were those of the other party to the transaction. Therefore, a market tends to result in transactions perceived as fair.

But market prices in many cases are not just. Major participants in a market sometimes manipulate prices; holders of copyrights and patents sometimes exact excessive prices; both producers who exploit workers and importers who exploit poor communities unfairly drive down prices; and some people’s self-indulgent and/or wasteful consumption of items whose supply is inelastic unjustly raises their prices. Though the parties to particular transactions often can be fair to each other even in a market shaped by injustices, those who wrongly contribute to those injustices cannot fairly obtain any advantage resulting from them. Thus, when they do take advantage, the market prices at which they sell are unjustly high and those at which they buy are unjustly low.

The behavior of wealthy people generally affects a market more than that of poor people. The wealthy not only have and exercise more economic power but sell and consume more than the poor do. So, the wealthy are generally responsible for market injustice and the poor are generally its victims. Then too, since being cheated out of a given amount of money injures a poor person more than a wealthy one, injustices shaping a market result in more harm, and so do greater injustice, to the poor than to the wealthy.

Sometimes no market for an item exists or is available to a buyer or seller. Items to be sold and bought may be unique, or no one may be competing to engage in a transaction with a potential seller, buyer, or both. Available markets also may more or less lack features required for an optimum market. Various potential sellers may offer items that, though more or less similar, also differ significantly; communication about available alternatives to a potential transaction may be impeded; the participants in the market may not be numerous and diverse enough to exclude the effect on market prices of characteristics that would make no difference in a large market with participants more nearly representative of everyone who might be interested in buying or selling similar items.

When a market is unavailable or the available market is lacking in some respect, bargaining to negotiate a price is common and sometimes necessary. People sometimes suppose that a price reached by negotiation is unfair if it differs from either the actual price of a similar item in some unavailable market or the price they suppose would be reached in a market free from limitations such as those mentioned in the preceding paragraph. Such suppositions are not likely to be sound. As has been explained, in a market free of such limitations, prices may be unfair, especially to the poor. Then too, getting access to a market that is unavailable or improving an existing market can require time, effort, risks, and costs whose avoidance sometimes fairly compensates those who negotiate less advantageous prices. Moreover, the features required for an optimum market that can be more or less lacking may offset one another, so that improving a market in one respect might lead to or increase unfairness rather than reduce or eliminate it.

In bargaining, people often lie to or deliberately deceive the other party about the availability or unavailability of alternative transactions or about features of the item to be conveyed. Since lying and deliberate deception are wrong in themselves, they may not be used even to limit the other party’s injustice. But since withholding relevant information is not wrong in itself, one is justified in doing so provided (1) one has no duty arising from one’s role in some existing relationship to convey the information, (2) one withholds it for a morally acceptable end, and (3) one reasonably judges that the transaction will be fair. Justifiably withholding information should not be regarded as an omission, since omission implies a duty to communicate. Of course, Christians should practice mercy; when they can fulfill their other responsibilities while conceding their rights they should concede them if doing so seems likely to overcome or mitigate some evil.

Consequently, no simple answer can be given to your question. By not revealing information relevant to the transaction in which they are interested, Betty, Cecilia, and Ed may or may not be violating a moral standard and, if not, may or may not be acting with appropriate mercy. However, by applying the preceding explanation in discussing your three examples, I shall try to show how reasonable judgments can be reached in such cases.

If any of the three had the relevant information in virtue of holding a position of trust—as, for instance, Donald, the zoning commissioner, does—she or he might have a duty not to use it for personal or family advantage. (Note that Donald should not have divulged his and his colleagues’ change of mind to anyone before it was announced officially.) But none of them has such a responsibility not to use the information she or he has.

Ben should have known Betty’s initial offer was likely to be low. Perhaps he was aware that he might get less than the property’s market value by accepting it, but preferred to save the trouble and expense of engaging an agent to obtain an appraisal and negotiate a fair price. So, it hardly seems that Betty took unfair advantage of his ignorance.

But suppose he was a soldier assigned to overseas duty, she was comparatively well off, the two had known each other since childhood, and they had agreed to handle their tenant-landlord relationship directly to save Ben the cost of an agent. He has regularly taken her word for the costs of maintenance and repairs deducted from the rent. Within the context of such a relationship, based on Ben’s trust, Betty, in my judgment, would violate the Golden Rule by acting as she did, even though her action did not violate their agreement, inasmuch as purchasing the property did not pertain to Betty’s role as a tenant.

In many situations similar to Cecilia’s, sellers who disclose information that would discourage buyers still can obtain a good price by assuming or limiting the buyer’s risk—for example, a seller might provide some sort of warranty or insurance policy to cover the risk. Cecilia could do that, but I do not think she must. If potential buyers of Cecilia’s pizza business can afford investment risk and are as shrewd as people making such an investment typically are, she does not seem to violate the Golden Rule by remaining silent about the prospective competition.

For one thing, such buyers would realize that in a growing suburb a business like this probably will have competition before long. A prudent potential buyer would check recent real estate transactions and ask the major chains whether a franchise is available for that town, and so probably would learn what Cecilia already knows, since the information is publicly available.

In the second place, the effect of competition on Cecilia’s business is not entirely predictable. The new competitor might not so much cut into her market as generate more business with its somewhat different product; its advertising also might stimulate more hunger for pizza and boost sales volume for both shops. Besides, as Cecilia warns potential buyers, her business has been built on personalized service; if a buyer fully heeds that warning, he or she may be able to compete very effectively with a franchise offering only standard service. And even if Cecilia’s successor in the business suffers a short-term decline in business that makes the shop unprofitable for a time, the business might well regain profitability before too long as the suburb continues to grow.

Someone might object that Cecilia’s silence will be to her advantage only if it causes a potential purchaser to misjudge the true value of the business, which would be determined by the bids of fully informed parties. That, however, assumes an optimum market in which real values are established by many free and fully informed parties’ offers to buy and sell, but the real market never is optimum. In this context, the original question can be restated: Does the Golden Rule require Cecilia to supply the information she has to improve the market? In my judgment, it does not, since she cannot reasonably expect others to be entirely rational and/or to cooperate in creating an optimum market. Some potential buyers might overestimate the significance of the coming competition, and others might see possibilities Cecilia has overlooked for making the business more profitable or have some other information she lacks indicating that it is potentially more valuable than she realizes.

Nevertheless, she should be alert to the special circumstances of some potential buyers making it unfair for her to sell her business to them without either helping them succeed or telling them about the prospective competition. Suppose the first acceptable offer comes from a rather unsophisticated young couple who have worked very hard—they met when both took second jobs, working evenings and weekends at a pizza parlor in a nearby town. Having saved only enough for a down payment, they plan to mortgage the business so as to buy it, and could easily lose everything if profits fall significantly even for a year or two. Considering Cecilia’s comparative affluence, she hardly can judge that she will meet the standard set by the Golden Rule in selling to them, taking the proceeds, and leaving them to discover their problem and struggle to keep the business going.

What if such a sale were not unfair? Assuming Cecilia is a faithful Christian, mercy and the opportunity to bear witness to her hope for more than worldly goods should lead her to prefer to her own interests the well-being of any potential buyer who would be likely to be hurt, for she apparently is reasonably secure and free of responsibilities to others.

Someone might point out that she will be unable to investigate the financial condition and business experience of everyone who expresses an interest in buying her business, and argue that she should therefore ignore differences among potential buyers, and simply ask a “fair” price. To set a fair price, though, Cecilia must put herself in the place of potential buyers, and so must make some assumptions about their capacity to operate the business successfully. Knowing nothing about their differences, she would be compelled to base her assumptions entirely on generalities. True, her information about the differences among potential buyers will be limited; but in dealing with them, she may well learn a good deal about them. If she learns anything that will greatly reduce the value of the business to some potential buyer, to ignore that would be to refuse to put herself in the other’s place, and so would be unfair.

If one assumes Ed’s neighbors and his in-laws are about equally able to meet their respective responsibilities, he does seem to violate the Golden Rule by sharing the information he happens to have with his in-laws rather than passing it on to his neighbors. Though he does not have that information about a prospective increase in the property’s value by virtue of holding a position of trust and did no wrong in acquiring it, and though he and his in-laws can use it without lying or deceiving anyone, the information is not publicly available, and Donald should not have divulged it. If neither Ed nor his neighbors knew about the impending rezoning, it may be that no one would purchase the neighbors’ property before its increase in value became known. When Ed learns that he will enjoy a windfall by subdividing his own property, his first impulse is to help his neighbors share in the windfall. Family partiality, however, apparently motivates Ed to tell his in-laws so that they can purchase the property before the neighbors find out what is happening.

Nevertheless, in this case, too, I believe factors significantly differentiating the situations of the neighbors and the in-laws could make a difference so that Ed’s action would be fair. Suppose, for example, that the in-laws have several children, including one who is severely handicapped and requires a great deal of care and special education; suppose, too, that this family lives very modestly and needs a house like the neighbors’ place but can afford only something less adequate; and suppose Ed’s wife helps her sister when possible and could do that more effectively and more often if the family moved into the neighbors’ place. And suppose the neighboring couple, by contrast, are childless by choice, are moving to a larger and fancier house in the country, regularly entertain lavishly and take expensive vacations, drive a Porsche and a Mercedes, and both have highly paid jobs that make their lifestyle possible but by no means require it. In this case, Ed may have put himself in his neighbors’ and in-laws’ places, set aside his neighbors’ materialistic values, and judged that the neighbors should be willing to settle for the price they were expecting and allow the windfall to go to meet Ed’s in-laws’ genuine needs. If that was the basis on which Ed decided to give his in-laws the information rather than reveal it to the neighbors, it seems to me his second thought is motivated, not by partiality, but by reasonable considerations, which make it clear to him that his neighborly impulse need not settle the question.

Someone might argue that, since Donald should not have divulged his decision before announcing it officially, nobody learning of the imminent rezoning can use the information without being unfair to people not aware of it. But that hardly seems true. If Ed told his neighbors, would they be unfair to potential buyers in taking their property off the market until the rezoning is announced and then repricing it in accord with its increased value? I do not think so.

Again, someone might object that Ed cannot compare his neighbors’ situation with that of his in-laws without judging and condemning the neighbors—something Christians are forbidden to do. It might also be argued that the neighbors could have good reasons for living as they do and financial obligations of which Ed knows nothing. The answer to the first point is that the prohibition of judging others must be correctly understood: “God alone is the judge and searcher of hearts; for that reason he forbids us to make judgments about the internal guilt of anyone” (GS 28; emphasis added). Ed need not judge his neighbors’ internal guilt to conclude that they have chosen to avoid parental responsibilities, are very prosperous, and live luxuriously, while his in-laws are devoted parents hard pressed to meet their children’s needs. The answer to the second point is that, while Ed’s information about his neighbors’ financial situation may be imperfect, it can be adequate for reasonable judgment, and while the neighbors may not be blameworthy for living as they do, their lifestyle is objectively self-indulgent and unjustifiable.

Someone might object to all three answers: Betty need not tell Ben the value of his property even if she is better off and their relationship has been based on trust; Cecilia need not tell the unsophisticated young couple more than she ought to tell everyone; and Ed should act the same even if his neighbor’s and in-law’s financial situations are very different. The argument: Sound morality, being a matter of objective truth, is not relative to diverse situations; so, all buyers and sellers ought to be treated alike. This is true up to a point: Sound morality is a matter of objective truth, and some moral norms—for example, never intentionally kill the innocent—must be followed regardless of any situational differences. But love of neighbor requires that one take into account differences among relationships and persons, not treat everyone exactly alike. One always ought to love every neighbor, but fairness and mercy to various persons requires paying attention to differences and treating each person appropriately. For example, professionals rightly bill people well able to pay them at their regular rates, but reduce these rates for the poor and provide service without charge to the indigent. Similarly, if buyers and sellers are aware of and can take into account relevant differences among those with whom they deal, they generally may and sometimes ought to do so.

A final objection: Christian love of neighbor requires the same treatment by Cecilia toward all potential buyers and by Ed toward his neighbors and his in-laws. The argument: Christians should love all those called to the kingdom—and that includes everyone, even the worst sinners—as brothers and sisters, and no decent person would treat his or her own brother or sister less well than someone else. This, again, is true up to a point: Love efficaciously wills goods to those loved, and Christian love wills that everyone enjoy all the blessings of heaven. Still, a Christian need not—and must not—efficaciously will that anyone and everyone enjoy any particular good he or she owes others. Thus, a Christian husband does not owe every woman the affection and care he owes his wife. And Christians do not owe everyone the consideration the more vulnerable deserve, or owe others the help they should give to extended family members.