Chapter 2

How Is the Ku Klux Klan Like a Group of Real-Estate Agents?

 

Going undercover in the Ku Klux Klan . . . Why experts of every kind are in the perfect position to exploit you . . . The antidote to information abuse: the Internet . . . Why a new car is suddenly worth so much less the moment it leaves the lot . . . Breaking the real-estate agent code: what “well maintained” really means . . . Is Trent Lott more racist than the average Weakest Link contestant? . . . What do online daters lie about?

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 real-estate agents cited earlier 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 the code phrase “Mr. Ayak” was to a member of the Ku Klux Klan; 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

  • Fantastic
  • Spacious
  • !
  • Charming
  • Great Neighborhood

Three of the five terms correlated with a higher sales price are physical descriptions of the house itself: granite, Corian, and maple. As information goes, such terms are specific and straightforward — and therefore pretty useful. If you like granite, you might like the house; but even if you don’t, “granite” certainly doesn’t connote a fixer-upper. Nor does “gourmet” or “state-of-the-art,” both of which seem to tell a buyer that a house is, on some level, truly fantastic.

“Fantastic,” meanwhile, is a dangerously ambiguous adjective, as is “charming.” Both these words seem to be real-estate agent code for a house that doesn’t have many specific attributes worth describing. “Spacious” homes, meanwhile, are often decrepit or impractical. “Great neighborhood” signals a buyer that, well, this house isn’t very nice but others nearby may be. And an exclamation point in a real estate ad is bad news for sure, a bid to paper over real shortcomings with false enthusiasm.

If you study the words in the ad for a real-estate agent’s own home, meanwhile, you see that she indeed emphasizes descriptive terms (especially “new,” “granite,” “maple,” and “move-in condition”) and avoids empty adjectives (including “wonderful,” “immaculate,” and the telltale “!”). Then she patiently waits for the best buyer to come along. She might tell this buyer about a house nearby that just sold for $25,000 above the asking price, or another house that is currently the subject of a bidding war. She is careful to exercise every advantage of the information asymmetry she enjoys.