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Sunday, January 30, 2011

Do You Trust Your Real Estate Agent?

While running this afternoon, I was once again struck by how many real estate signs were out. It made me wonder if we were in the market to sell our house (we're not), who we'd pick as a real estate agent. We have so many friends and acquaintances who are, it would be difficult.  My guess is that in order not to offend our friends and acquaintances who are agents, we would probably pick someone whom we didn't know.

Of course, this raises other issues, in particular, issues of trust. How do you know your real estate agent is looking out for your best interests? As Steven Levitt and Stephen Dubner note in their book Freakanomics ("How is the Ku Klux Klan Like a Group of Real-Estate Agents?"), they usually aren't. Instead, they are typically (and understandably) looking out for their own interests. In other words, they want to make money.  Now, you might think that their interests always coincide with those of their clients, and while that is often the case because their commission is tied to the sales price of the houses they sell, that is not always true. Real estate agents are also interested in moving (i.e., selling) as many houses as possible, which means that sometimes they will price a house lower than the market will bear just so that they can get it "out the door" (so to speak).

If you're wondering whether your agent is looking out for your interests, you may pay attention to the terms that they use to describe your house. Levitt and Dubner found that certain terms are correlated with higher prices, while others are correlated with lower ones. Terms that they found correlated with higher prices were:
  • Granite
  • State-of-the-Art
  • Corian
  • Maple
  • Gourmet
Terms that they found correlated with lower prices were:
  • Fantastic
  • Spacious
  • !
  • Charming
  • Great Neighborhood
To learn more about Levitt and Dubner's findings, click here ("How is the Ku Klux Klan Like a Group of Real-Estate Agents?") or purchase their book, Freakanomics.  Seller beware!

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