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Freakonomics review #1

By
Real Estate Broker/Owner with Right About Real Estate

 I just finished reading Freakonomics, a bestseller by Steven D. Levitt and Stephen J. Dubner in which they share with the readers how economics has been applied to everyday situations. It is a must read. It is so fun to read that you'll breeze through it and it will change your perception of things. 

A chapter that definitely ruffled my feathers and I bet it will do the same for you is How is the Ku Klux Klan like a group of Real Estate Agents? You would obviously have to read the book to put everything into context, but I will summarize a little bit and cite a few phrases so we can share opinions on the authors' point of view...

The book explains how the KKK -and real estate agents- are groups whose power is derived in part from the fact that it hoards information and insitutes fear. Fine, Realtors do hoard information (c'mmon, we have the MLS), but how is it that we can make the public be afraid of selling their own home? Aside from the fact that selling a house is probably the largest financial transaction in someone's life, the public is afraid that without the right information, they'll either sell the house for far less than it is worth or that it will not sell at all.

The case in which Realtors have the information and the public doesn't is called information assymetry, which the book claims has been "mortally wounded" by the appearance of the internet.  While it is true that the public has now more  information than ever before thanks to the internet, we all know that relying solely on raw data is dangerous and professionals of the real estate industry have the knowledge and skill to analyze raw data (I mean, look at Zillow.com).

The book continues to claim how a study found that an agent keeps their own house on the market an average ten extra days, waiting for a better offer, and sells it for over 3% more than a client's house. The reason why (they claim) is that by an agent selling their house for lets say $10,000 more, that is $10,000 more into the agent's pocket, but for an agent to sell a client's house for $10,000, means only $300 more in their pocket. While this sounds somewhat coherent, and we can't deny that a study was conducted and numbers don't lie, I personally get more emotionally attached when it is my home that I am selling and because I don't want to lose the buyer I budge and when I am buying, I am afraid I am going to lose the home of my dreams and so I pay up. With clients, I keep a cold head and I usually am able to negotiate great deals for them. When I am meeting with my clients, they are all nervous and excited and if they were to show those feelings to the other party, they'd be eaten alive, but I act as a buffer for those feelings and when I present offers to other agents I act all tough and that benefits my clients.

 

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Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

A solution to the problem presented by Steve Leavitt  (and it's a REAL problem) .  Freakonomics was the inspiration for this blog the other day.

Nov 29, 2006 12:13 PM
Michael S. Mackey
CENTURY 21 All Islands - Mililani, HI
REALTOR ABR, CRS, GRI, RSPS
I joined the Quality Paperback Club (www.qpb.com) and got 6 books for $1, but had to buy one more book at regular price. Such a deal! Freakonomics was one of the first 6 books I took. I had seen excerpts on TV, and reading the book was just a review of the excerpts. But it was worth the price!
Nov 29, 2006 12:53 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans
HHmmmm.... mixed views. I haven't read it yet, but that will be one of my goals over the holiday. Yael, without having read this book, you still bring up some good points.  thanks
Nov 29, 2006 12:59 PM
Yael Warman
Right About Real Estate - Dania Beach, FL

Mariana, you are so right on with your comment.

Thanks Brian for pointing me out to your blog. Cool idea about the pay for performance bonuses.

Jeff, you should read it. Inspite the KKK chapter and the fact that like Margaret says, it shows the "bad side" of teachers, sumo wrestlers, and at some point even concerned parents it is definitely worth reading.

Nov 29, 2006 01:29 PM
Robert D. Ashby
Cruise Planners of South Florida - Plantation, FL
Providing Personalized Travel

I haven't read it, but I will add it to my ever growing list. 

It is almost as important that we read "bad" books as well as the good books.  The reason is that our clients will read them and we best know what is in them to see how it benefits our business. 

I try to read at least one book a month, and since I am spending a lot of time in my car lately, I am looking for new "Automobile U. courses" to listen to as well.  Is this book in audio?

Nov 29, 2006 01:47 PM
Yael Warman
Right About Real Estate - Dania Beach, FL
Yes Robert it is. My husband downloaded it from itunes and now has it in his ipod. Another good one to listen to while you drive is the Rich Dad's Classics of Robert Kiyosaki
Nov 29, 2006 01:56 PM
Margaret Rome Baltimore 410-530-2400
HomeRome Realty 410-530-2400 - Pikesville, MD
Sell Your Home With Margaret Rome

I do almost all my "reading" in the car with the use of audio tapes.

 

Nov 29, 2006 02:00 PM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

You're dead on. Yael!  The comparison of the KKK to Realtors inasmuch as they are "secretive" is a good one.  I think the author was trying to say that the internet will delineate that "wall of secrecy" (or it actually has) to leave Realtor's to do what they do best:...price, market, negotiate and insure compliance to real estate law.

I appreciate your comments on my blog.  I had built in a price motivator; that was more the point than the expediency. (paragraphs 6-8)

I always appreciate you stopping by to fine tune my half-baked theories!

Nov 29, 2006 02:32 PM
Robert D. Ashby
Cruise Planners of South Florida - Plantation, FL
Providing Personalized Travel

Yael...I will look for  Rich Dad's on audio.  I have several of the books already.  I will also see about getting the audio for this one.  Thanks.

I think I am working on my third doctorate from AU at this point.

Nov 29, 2006 02:34 PM
Derek and Mariana Wagner
The Artisan Group- Keller Williams Premier Realty - Colorado Springs, CO
The Artisan Group - Colorado Springs REALTORS®
You are right, Robert... I never thought about it that way ... read bad books, because it is what others are reading, too. Great idea.
Nov 29, 2006 03:56 PM
marti garaughty
garaughty.com - Montreal, QC
a highly caffeinated creative type...
Hi Yael, I haven't had a chance to read the book yet(it's on my list) but I caught an interview with them on Charlie Rose not too long ago, sounds like an amazing read.
Nov 29, 2006 04:45 PM
Suzanne Marriott
Keller Williams Arizona Realty - Anthem, AZ
Associate Broker, CLHMS, e-PRO
Now this is a really excellent and informative post!  I'm grateful you took the time to detail the issue and at least one potential solution.  Thanks for the post!
Nov 29, 2006 05:27 PM
Sharon Simms
Coastal Properties Group International - Christie's International - Saint Petersburg, FL
St. Petersburg FL - CRS CIPS CLHMS RSPS

I read it last year and agree with Leigh. There are some interesting observations and some that are way out there.

I read the tipping point as well, and though he makes a good point, I think one chapter summarizing it would have been as valuable as reading the whole book. 

Nov 29, 2006 08:40 PM
Chris Tesch
RE/MAX Bryan-College Station - College Station, TX
College Station, Texas Real Estate
Could it be that most agents know how to stage their home and don't leave it looking like a heard of wild elephants went through?  Could it be that we know better than to leave the blue carpet there, and replace it with something neutral...NAW...We are just money grubbing people that will sell their clients souls for $300.  You know it's hard to believe that people think like that, and I'd love for them to follow me around for a few days and find out exactly what this field is like...
Nov 30, 2006 02:28 AM
Robert D. Ashby
Cruise Planners of South Florida - Plantation, FL
Providing Personalized Travel

Sharonmentioned the value in reading a summary instead of the whole book.  If you like "reading" business books, but don't have the time to read the whole book, I have found executive summaries to be an awesome tool.

Theyare 8 page summaries of the book and basically summarize the key points and highlights from the book (kinda like cliff notes).  I recently did a 4 post series about blogging from the book Naked Conversations, and all the info was from the executive summary. 

I didn't have time to read the whole book at the moment, so I read the summary and got the highlights in short read (and great reference tool.) Later on I will likely read the whole book as it seems to be an awesome read.

Anyhow, I just wanted to add that tool to those you may want to use, like AU, to gain knowledge quickly and conveniently.

Nov 30, 2006 03:31 AM
Melissa Mullany
The County Land Company - Saint Charles, IL

I have listened to the audio book several times. And yes, my feathers were ruffled too. But, every profession can appear to hoard information. You "hoard" trade secrets in manufacturing. If you were an HR manager you would be "hoarding" personal employee information. Doctors, lawyers and teachers "hoard" information. And if realtors are "hoarding" information, how about the government on any level, talk about hoarding. But most things are public information, but some of the public just don't take the time to look for it. I could go on and on. Information is power and is everywhere, if you want it. It's not just going to fall in your lap. If you didn't have teachers in school stuffing information down your throat, only a handful of people would ever go out and learn. I just find that the authors of the book never address the fact that almost all information is public, what's to hoard about it? Fear is just of the unknown. People wouldn't be afraid if they sought after the information they felt they needed. It's all around.

Anyways there are parts of the book that are interesting. But, yes, KKK is extreme.They could of used a better comparison than the KKK, that's just plain revolting. 

    

Nov 30, 2006 08:33 AM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

Melissa: 

Levitt compared the "fall of the Realtor" due dissemination of information on the internet to the "fall of the KKK" by the dissemination of the "secret" rituals and meetings when infiltrated.

Extreme?  Sure but come on, the guy was trying to sell a book. 

His comparison was dead-on.  The proliferation of more information to the consumer causes real estae agents to focus on what tey do best:  market, negotiate, and insure compliance to state laws. 

It's "revolting" because the KKK is such a deplorable group of people.  He used that comparison to illustrate a point 

Nov 30, 2006 10:25 AM
Yael Warman
Right About Real Estate - Dania Beach, FL

Chris, you are sooo right. perhaps our own homes sell for more because we actually implement what we tell our clients (neutral colors, remove clutter...) And not only that, but what about making it easy for buyers to visit the property, instead of saying "weekends only please"...

Brian, I like your statement "focus on what they do best:  market, negotiate, and insure compliance to state laws"... of course, there's a lot more things we do regardless of the information we have access to :)

Dec 01, 2006 07:38 AM
Paul Silver
Tiverton, RI
Rhode Island full service real estate firm

The author of Freakonomics was on Jon Stewart's Daily show last night... he didnt get a chance to speak much, what with the comedian Stewart doing most of it... but I did decide to buy the book, somewhat based on your post here, and confirmed having seen him on TV last night...

Thanks Yael
 

Dec 06, 2006 06:34 AM
Yael Warman
Right About Real Estate - Dania Beach, FL
Paul, I am glad my post influenced you to buy the book... hopefully you'll like it and think it was a good influence :)
Dec 08, 2006 12:51 AM