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“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.