freakonomics

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Within five minutes, a zooming market had tanked. Such are the marvels that can be conjured by an agent in search of the next deal. Consider now another true story of a real-estate agent’s information abuse. The tale involves K., a close friend of one of this book’s authors. K. wanted to buy a house that was listed at $469,000. He was prepared to offer $450,000 but he first called the seller’s agent and asked her to name the lowest price that she thought the homeowner might accept. The agent promptly scolded K. “You ought to be ashamed of yourself,” she said. “That is clearly a violation of real-estate ethics.” K. apologized. The conversation turned to other, more mundane issues. After ten minutes, as the conversation was ending, the agent told K., “Let me say one last thing. My client is willing to sell this house for a lot less than you might think.” Based on this conversation, K. then offered $425,000 for the house instead of the $450,000 he had planned to offer. In the end, the seller accepted $430,000. Thanks to his own agent’s intervention, the seller lost at least $20,000. The agent, meanwhile, only lost $300—a small price to pay to ensure that she would quickly and easily lock up the sale, which netted her a commission of $6,450. So a big part of a real-estate agent’s job, it would seem, is to persuade the homeowner to sell for less than he would like while at the same time letting potential buyers know that a house can be bought for less than its listing price. To be sure, there are more subtle means of doing so than coming right out and telling the buyer to bid low. The study of realestate agents cited above also includes data that reveals how agents convey information through the for-sale ads they write. A phrase like “well maintained,” for instance, is as full of meaning to an agent as “Mr. Ayak” was to a Klansman; it means that a house is old but not quite falling down. A savvy buyer will know this (or find out for himself once he sees the house), but to the sixty-five-year-old retiree who is selling his house, “well maintained” might sound like a compliment, which is just what the agent intends. An analysis of the language used in real-estate ads shows that certain words are powerfully correlated with the final sale price of a house. This doesn’t necessarily mean that labeling a house “well maintained” causes it to sell for less than an equivalent house. It does, however, indicate that when a real-estate agent labels a house “well maintained,” she is subtly encouraging a buyer to bid low. Listed below are ten terms commonly used in real-estate ads. Five of them have a strong positive correlation to the ultimate sales price, and five have a strong negative correlation. Guess which are which. Ten Common Real-Estate Ad Terms
Fantastic Granite Spacious State-of-the-Art ! Corian Charming Maple Great Neighborhood Gourmet A “fantastic” house is surely fantastic enough to warrant a high price, isn’t? What about a “charming” and “spacious” house in a “great neighborhood!”? No, no, no, and no. Here’s the breakdown: Five Terms Correlated to a Higher Sales Price Granite State-of-the-Art Corian Maple Gourmet Five Terms Correlated to a Lower Sales Price
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Page 11 and 12: $10,000—is a mere $150. If you ea
Page 13 and 14: per year—which sounds like a lot
Page 15 and 16: greater moral plane in which man op
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Page 29 and 30: It is true that sports and cheating
Page 31 and 32: 7-7 WRESTLER’S PREDICTED WIN PERC
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Page 35 and 36: agels cost one dollar each, cream c
Page 37 and 38: “kuklux,” a slight mangling of
Page 39 and 40: y the Ku Klux Klan. Kennedy saw the
Page 41 and 42: more lynchings of blacks between 19
Page 43 and 44: Kennedy couldn’t wait for the fir
Page 45 and 46: perfectly good year-old cars, and t
Page 47: Armed with information, experts can
Page 51 and 52: It would be naïve to suppose that
Page 53 and 54: Elderly players, meanwhile, are vic
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Page 71 and 72: drug dealers. In the past, the blac
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Page 77 and 78: commit a crime, the incentives were
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Page 81 and 82: percent. Rudolph Giuliani, however,
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Page 87 and 88: earliest years of legalized abortio
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Page 95 and 96: factor. Just as most people spend m
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The answer will not be heartening t
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Correlation is nothing more than a
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samples of twenty children from eac
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The child’s parents speak English
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Doesn’t: The child attended Head
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To overgeneralize a bit, the first
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Amcher, had been named for the firs
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girls are given a name that is uniq
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19. Hunter 20. Colin The Twenty “
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So does a name matter? The data sho
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6. Sarah 7. Kayla 8. Amber 9. Megan
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5. William Most Common White Boy Na
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(2003); also presented in Manuel Ei
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SUPREME COURT JUSTICE LOUIS D. BRAN
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NOT AS MUCH CRIME AS THERE ACTUALLY
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papers: Cristian Pop-Eleches, “Th
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Reason, May 2003; and Richard Morin
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“The Peter Sandman Risk Communica
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Thernstrom, Lisa Chase, and Colin C
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anti-communism Anti-Defamation Leag
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Booty (gang member) Boston Tea Part
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abandonment of adoption of conflict
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crack cocaine changes in market for
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homicide and in sports see also cra
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ImClone incentives bright-line vs.
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Iraq: U.S. invasion of weapons of m
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incentives and self-interest and Mo
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corrupt judging of “On Behalf of
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Social Security societal norms soci
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evasion of “sin,” withholding o
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Wade, Henry Wade, Wyn Craig Waksal,
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HarperCollins Publishers (Australia
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