“Today Show” Transcript

Levitt and Dubner revisited The Today Show on Thursday, June 16. Here’s a transcript:

Copyright 2005 National Broadcasting Co. Inc.

HEADLINE: Today’s Real Estate; Stephen Dubner and Steven Levitt


MATT LAUER, co-host: This morning on TODAY’s REAL ESTATE, is your agent looking out for you when he or she sells your home? You might think your real estate agent would want to get you every last penny, but wait until you hear what Steven Levitt and Stephen Dubner, the authors of the best-seller “Freakonomics,” have to say, and they join us again this morning.Guys, welcome back.

Mr. STEPHEN DUBNER (“Freakonomics”): Hi, good morning.

Mr. STEVEN LEVITT (“Freakonomics”): Hey there.

LAUER: The last time you took on teachers. Now you’re taking on the real estate industry. Soon we’re going to have to conduct these interviews in an undisclosed location. So basically your idea here is selling a home is a huge transaction and event for individuals, but it’s just another deal for your real estate agent. Is that a fair assessment?

Mr. DUBNER: Yeah, that’s pretty much it. I mean, it is, as you said, the biggest financial transaction most people are going to make, and there’s a lot tied up in that. A real estate agent, though, might bring you a price of $300,000, an offer at 300. Perhaps they could hold out for an extra week and get you an extra 10 grand, that’s 10 grand in your pocket, but the way the incentive scheme is set up, that’s only about $150 in the typical real estate agent’s pocket.

LAUER: Let’s try and figure out–let’s do the math there and break that down.


LAUER: At the end of the day the real estate agent is getting about 1.5 percent of the selling price. So if they get the extra 10,000 bucks they make $150, but if it took them an extra two weeks of showing that home or that apartment, you’re asking the question: Is it worth it for them?

Mr. DUBNER: Right, that’s exactly right, and probably not is the–is the story.

LAUER: So, Steven, their idea is get your house sold as quickly as they can so they can move on to the next deal?

Mr. LEVITT: That’s exactly right. And with my colleague Chad Syverson at the Univer–University of Chicago, we constructed a data set of over 100,000 home sales in Chicago, and we looked at what happened when a realtor who sold their own home vs. when they wold one for their clients.

LAUER: All right, let me stop you for second, because I remember two very smart guys on the show one time telling me that economics can take data and make it say anything they want to make it say, so is this one of those cases?

Mr. LEVITT: Not at all. I mean this is–this is–this is straight forward what we do. We take homes that are sold by realtor and–and the key is that by law they have to disclose their ownership, and so we can compare homes using state-of-the-art econometrics that are essentially identical that a realtor owns or doesn’t own, and here–here are the results.

LAUER: OK, so a realtor kept his or her home on average on the market for 10 days longer than that same realtor kept a seller’s home on the market?

Mr. LEVITT: That’s right. And not only that, they sold the home for 3 to 4 percent more. On a $300,000 house that’s $10,000 more the realtor was getting for their own–own home. So the–the data really supports the theory when you think about their incentives.

LAUER: And as this Stephen said, you’re not claiming that these realtors are corrupt.

Mr. DUBNER: Yeah, no.

LAUER: You’re simply saying this is the way the incentive system works in this industry?

Mr. DUBNER: Right, “Freakonomics” is really about the study of incen–incentives, and how people respond to them. So, right, we’re not saying the typical real estate agent is corrupt at all. It’s just the incentive scheme in place with the commission the way it’s set up doesn’t work in the consumer’s favor.

Mr. LEVITT: They’re not bad people, but they’re people, and they respond to incentives.

LAUER: OK, and it’s human nature.

Mr. LEVITT: Right.

Mr. DUBNER: Correct.

LAUER: You also talk about some terms that are com–commonly used in advertising or listing real estate, and I’m going to put a list, an entire list up on the screen, and then we’re going tot talk about which ones get you a better price and which ones tend to get your a lower price. So there are the words. Fantastic, granite, spacious, state-of-the-art, great neighborhood, charming, maple, gourmet, and an exclamation point.

TEXT: COMMON REAL ESTATE AD TERMS: Fantastic Corian Granite Charming Spacious Maple State-of-the-Art Great neighborhood ! Gourmet

LAUER: Now let’s take a look at the list of terms that will get you a higher sale price. Why?

TEXT:HIGHER SALES PRICE TERMSGranite State-of-the-Art Corian Maple Gourmet

Mr. DUBNER: Well, these are–these are specifics, and they’re real, and they’re not exaggerations, and they’re not empty adjectives. So you might not like granite, or Corian or maple, but at least that’s what it is. The–the terms that don’t–that are not correlated, or that are correlated with a lower price: fantastic or the–the–the tell-tale exclamation point…

TEXT:LOWER SALES PRICE TERMS: Fantastic Spacious ! Charming Great Neighborhood

LAUER: What’s wrong with an exclamation point?

Mr. DUBNER: Oh, that’s–that’s the worst probably. That’s the thing that a real estate agent will typically put in to jack up to paper over the, you know, shortcomings. A great neighborhood probably means that, `Well, this house that we’re selling is not so good but there others nearby that are really nice.’

LAUER: And–and charming means kind of quirky, probably, right?

Mr. LEVITT: Exactly, yeah.

LAUER: So you really should be careful, and if your agent is starting to use these adjectives to lif–list your home or apartment you should have this information and stop them?

Mr. LEVITT: Well, maybe not. Maybe you have a quirky house, maybe you’re selling. It may be too late by the time it comes.

LAUER: But be prepared to get a lower price.

Mr. LEVITT: But–but on the basic point is that what you want to do is arm yourself so that you can fight back against your realtor if they’re starting to do something in their interest, not in yours.

LAUER: And based on what you two have learned about the real estate in–industry and agents, would you recommend that someone go out there and try and sell their home without an agent?

Mr. LEVITT: I–I would caution people against that now. It’s–it’s risky. Real–real–real estate agents do three things for you. They tell you how to price your house, they show your house and put in the labor, and they find you the buyers. The first two, I think a well-informed seller can really do that. But the third one, finding the buyers, is hard to do. I–I–I have a third option which I think is the right way to go, which is called the flat-fee realtor. So what they’ll do is for about $500, they’ll list you on the MLS, which is the clearing house…

TEXT: REAL ESTATE TIPS: Know the Value of Your Home. Assume Information Will Be Used Against You. Consider Flat Fee Real Estate Agent

LAUER: Right.

Mr. LEVITT: …where all the houses are. That’s all they’ll do. They’ll find the buyer for you. You save about 3 percent. That can be 10–$15,000.

LAUER: And they’re getting the same fee whether they get a lower or higher price for your–your property.

Mr. LEVITT: Exactly.

Mr. DUBNER: Right.

LAUER: All right, Stephen Dubner and Steven Levitt. Guys, thanks very much.

Mr. DUBNER: Thank you.

Mr. LEVITT: Thank you.

LAUER: Who you going to take on next time, Santa Claus or someone like that?

Mr. DUBNER: I’m thinking the–the morning shows maybe.

LAUER: Oh, good, great. Well, I hope you enjoyed your last appearance on the TODAY show. Still to come to come on TODAY, the midlife crisis. It’s not just men driving fast cars. It hits women too, but can you make it an opportunity of a lifetime? But first, these messages.


Did you see any angry agents yet?

J Root

The subconscious power of the written word. Very interesting stuff, guys. :)


Another technique that worked for us:

We had one realtor come in and give us a CMA. This realtor did NOT know we were going to have other realtors visiting. The second and third realtors we asked over KNEW that other realtors were doing CMA's on our home, but not which realtors.

The first realtor's CMA was $10,000 less than the second and third realtors' CMA's.

I went back and did my own research from the sales at the courthouse. This figure matched the second and third realtor's CMA's. Finally, I talked with an appraiser I know socially, who thought my figures were just fine. Then I put my house on the market based on the marketing stratagies the three realtors gave me and priced it a little above the price I'd figured out. (In my region, you price about 5-15% above what you want. EVERYONE has a flea market mentality and we all expect to haggle.)

I then painted and staged the house using the principle that I was making my house look the way people THINK they'd like to live, not the way they actually do.

We sold for EXACTLY what the second and third realtor and what my own research said was reasonable--in TWO days. (Houses in our price range and neighborhood usually sit on the market 6 months.)



As far as buyers finding your house, this kind of app is what will eventually obsolete agents.

Steven D. Levitt

Reading this transcript, I realize that I have to add stuttering to my other myriad faults. My advice to readers: never read a transcript of yourself talking, at least not one that is as faithful to the details as the Today show ones!


Do agents have other incentives besides their commission for getting a high price? The first possibility that comes to mind is their reputation. Surely an agent who gets higher prices will be in higher demand (assuming people have this information). Do agents who extensively advertise the high prices they sell at leave houses on the market longer? Are new agents willing to put in more time to help build their reputation? And if so, does that extra time on the market pay off, or is it overshadowed by inexperience?

Keeping your family happy can be a good incentive too. When the agent and the seller have the same last name, does the house stay on the market longer?

I'm Adam Scott,
The Last Angry Young Man

Princess Leia

There definitely is something to the spoken word versus the printed one.

I had the broadcast on at work yesterday am but then stepped outside for just a minute to chat with a colleague and missed it entirely! Why is it always Matt Lauer who interviews you? Katie Couric is so your much more your type.

Do you have the next appearance scheduled? I will be in NYC in a month and would love to see the show. My college roommate and I would be happy to play your groupies, kids in tow.


I don't know much about flat-fee agents or what kind of contracts they might have with a seller, but I'm curious as to what their incentive is to bring in quality buyers. It seems to me that if they're being paid $500 regardless, they may just try to bring in prospective buyers irrespective of how serious they are to buy soon or their means to make a meaningful offer. Is there something built into the contract that somehow quantifies the quality of buyers brought in? Or is it open-ended, such that they must keep bringing in buyers until the house is taken off the market or sold?


I think Mr. Lauer understood where you are coming from in one simple quote: "Let's try and figure out--let's do the math there and break that down." Very nice of him to understand that in the world of TV sound bites, it is necessary to break down what you are saying or you will come across as jumping to conclusions.

Jonathan Schwartz

The problem in the current system is that incentives of the agent are not 100% in line with the incentives of the homeowner.

It seems to me that rather than an improvement, a flat fee removes the partial incentive that is already in place. Rather than removing incentives, a better solution might be to adjust the current incentives.

For example, rather than the agent receiving 3% of the entire price, the agent could receive 0% of the first 90% of the appraised value and 20% of anything above and beyond.


I think the root issue is that too many people assume that their realtor only has their best interests in mind.

If people would remember that the realtor has his/her own best interests in mind and go from there, they'd be MUCH better off.

The realtor who sold my home and the realtor who showed us homes after our move were both great and wonderful and I loved them to death, but I never, ever forgot that they were trying to make money and that I was trying to get a good deal.


Dubner's ending remark was hilarious. Did you guys collaborate on that?

Steven D. Levitt

Dubner's ending comment was totally spontaneous. I wish I could take some credit for it, but I can't.

Addressing some of the comments above about how a flat-fee broker makes the incentive problem worse because they get no commission:

The point I'm making is that with a flat-fee agent, they do absolutely nothing except get you on MLS. The prospective buyers then call the home owner directly. There is no further action taken by the flat-fee agent. It is all up to the home owner to show the house and close the deal (although for something like $50 per hour my flat-fee agent will do any showings or open houses I would like). Since they aren't giving you any advice, they aren't giving you biased advice.

Robert Schwartz

Cousin Jonathan said: "For example, rather than the agent receiving 3% of the entire price, the agent could receive 0% of the first 90% of the appraised value and 20% of anything above and beyond."

You are way to generous.

I am working with a client to sell a multimillion dollar beach property in Florida. I am thinking of taking ever realtor in the phone book and sending them an rfp. How much will you charge for this deal?


Hah! Good interview. The NAR's response is not surprising.


On Real Estate Agents: I agree and go farther - If you live in a city that craigslist.com covers and can download the necessary forms and instructions of some webpage for selling a home, you could make a real estate agent as well as fixed-fee agents obsolete. Of course... buying a house (if you live on a coast) may not be the best idea at the moment.

On Al Franken for senator (and Jon Stewart for president):

As a Minnesota ex-pat, I appreciate the coverage mr. franken is giving to my often miss-understood home-state, however, as much as I enjoy both Mr. Franken's and Mr. Stewart's comedy, I also feel we already have enough jokers in office.

Here are some of the problems our government will have to deal with in the next decade:
-Huge public and private pension shortfalls
-Huge Medicare shortfalls
-Probably a very severe recession (how much of the last 10 years growth has been fueled by housing related business and equity extraction consumer spending?...)
-oh, and a few minor foreign affairs issues.

I like Jon Stewart, but I don't know... plus I would hate to see the Daily show with ... Carrot Top??



The bad agents out there make it harder for those of us who are actually offering a great service to get through the noise. I call someone offering them the world, for a flat fee of $399.00 and they dont even listen because they have had so many people try to rip them off. Just getting people to view my site, www.soldbyme.com/adam is hard enough, but once they realize the value, they just keep on coming back.


Good interview but too shallow. This perhaps would have been better as a 60 minutes episode.

One thing I would like to comment on is the importance of remembering that this industry is operated by humans. Any industry run by humans is going to have a bell curve of morals, ethics, behaviors, etc. We of course, as a consumer, would like to work with the human with the highest standards but, unfortunately, we sometime get the fringe. This fringe is also known as bad apples.

You will find bad apples in all models of real estate, THAT is human nature. Don't let the bad apples tarnish the models of real estate they represent.

The consumer should have the choice. They should either be able to go to www.FSBO.com and learn the ropes of the fsbo market, go to www.aflatfee.com and find a flat fee real estate professional that will match their specific needs with a product or products, or they should be able to go to www.realtor.com and find a full service real estate professional that will take on the entire work load.

Not any one model is correct for everyone and it should not be forced on them.



Did you see any angry agents yet?

J Root

The subconscious power of the written word. Very interesting stuff, guys. :)