Turkey's and FSBO's: Practice Makes Perfect

51 Weeks to Thanksgiving, 2011!

Working off what seems like a couple tons of Thanksgiving leftovers, it occurs to me that novice Turkey preparers like myself and FSBO's ("For Sale by Owner's") have a lot in common.

Namely, we're not any good because we do it so seldom.

"Wait Till Next Year"

Fresh off my 2010 Thanksgiving efforts, I'm convinced that I've now learned from my mistakes, and will be much better next year (discovery #1: my quirky oven cooks a turkey much faster than the canned directions suggest).

However, "next year" is awfully far away.

By then, I'll probably have misplaced all my carefully gathered notes -- and will start up the learning curve all over again.

"Insider Buying" & the Housing Market

The Housing Market's
Flashing Green "Buy" Signal

In the stock market, open market purchases of company stock by senior management ("insiders") is considered to be bullish.

After all, executives may sell stock for many reasons -- to diversify, to raise money for things like real estate purchases, college tuition, etc.

Presumably, however, there's only one reason insiders buy: they think their company's stock is going to go up.

Is there anything analogous in the housing market?

Housing Market "Insiders"

There is, kind of: Realtors.

Of course, unlike senior executives who now receive much of their compensation in stock, Realtors do not get paid in houses.

However, Realtors are still the closest thing the housing market has to corporate insiders.

After all, they're the ones who are in the trenches every day, representing Buyers and Sellers, noting which way prices are going, prospecting for new listings, potential Buyers, etc.

And presumably, knowing when something's a deal.

Contrarian Indicator

So, is it a "buy" signal when Realtors start buying homes as investments?

On the contrary, such activity is more typically associated with a market top.

That's because to buy, Realtors need not only the requisite incentive, but the wherewithal.

When are Realtors are flushest?

When prices are appreciating strongly and there are lots of transactions.

Conversely, when the housing market is slow, and prices are soft (or declining), Realtors' income collectively takes a big hit.

In a tough housing market, just paying the bills becomes a challenge -- forget about socking away money for retirement (or buying that languishing bungalow at a fire sale price, fixing it up, and flipping it).

Guess which environment we're in now??

P.S.: moderating the foregoing cycles a bit: the number of practicing Realtors.

In boom times, the number expands, meaning the total commission pie is divvied up more ways. Too, more homes sellers are tempted to sell homes without using a realtor (called "For Sale by Owner," or "FSBO").

In lean times, FSBO's disappear and Realtor ranks decline, making it (relatively) easier to eke out a living.

Real Estate Representation Contracts

Playing "Gotcha?" Nope, Just Setting Expectations

It's always a good idea for a Realtor and the Buyer they're representing to have a signed Representation contract.

That's true even if the Buyer and Realtor have known each other for years, and already done multiple deals together.

In fact, that's especially true if the Buyer and Realtor have known each other for years, and already done multiple deals together.

What a Contract Does

As a former corporate attorney, I know that a good contract -- and the standard, MN Buyer Rep contract is -- makes everyone's expectations explicit.

How long will the Realtor and Buyer be working together?

What happens if the Buyer wants to buy a home where the Seller is only offering a tiny pay-out? (the part of the commission offered to Buyers' agents).

What if the Seller is a FSBO ("For Sale by Owner"), and isn't offering to pay any commission?

And so on, and so on.

Timing is Everything

All these questions are easily addressed ahead of time (for example, I have a standard way of handling FSBO's, which I explain to all my prospective clients).

However, if and when issues arise in the course of a relationship, when emotions are running high and the Realtor has already invested months (years?) of their time, they can be (much) harder to navigate.

So, in practice, when are Realtors most vigilant about having their clients sign a formal agreement?

Right after a client they were working with without the benefit of a signed contract burned them (unfortunately, even very experienced agents have this happen occasionally).

P.S.: And no, a written contract isn't a panacea, and won't prevent every conflict or problem.

Attorneys often say that if there's good faith and a course of dealing between two parties, a one page contract is sufficient. If there isn't . . . . a 100 page contract won't help.

FSBO Mentality

"What Have I Got to Lose?"*

It could just be my imagination, but it sure seems like there's an uptick in FSBO ("For Sale by Owner") activity recently.

At least through my Realtor eyes, it seems like that happens at market extremes.

When the market is overheated and everything seems to be selling in a day, more would-be Sellers figure that there's nothing to it, and throw their hat in the ring (so to speak).

When the market is slow (like now), and even properties that are professionally represented can take a long time to sell, the same people figure, "What the Hell, what have I got to lose?"

*The answer to "what have I got to lose?"

About 15%.

That's how much less the average FSBO home sells for compared to a home listed with a Realtor.

Faux Photo?

"Is it Live . . . or is it Memorex?"

I just tripped across a new Fern Hill listing with the lead photo reproduced above.

Is it just me, or is the grass too green, the sky too blue? (not to mention uniform)

At the very least, this photo looks heavily doctored/colorized; at worst, it's a computer simulation.

The clincher?

The listing is a FSBO ("For Sale By Owner"), which means the non-Realtor Seller doesn't know the MLS rules -- or that they're breaking them.

Update: When I'm wrong, I'm wrong: I drove by the house this morning, and it sure looks a lot like the the photo above (the new, white siding gives it a bit of a surreal look; the new roof really does look that uniform; and yes, the grass is perfectly green).

SuperFreakonomics on Realtors

Still Casting Stones . . . But Now With (Lots of) Caveats

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.

—Laurence J. Peter

[Editor's note: to see my rebuttal to Freakonomics, the predecessor to SuperFreakonomics, click here]

So, I finally finished off the (surprisingly short) section on Realtors in SuperFreakonomics.

Two things jumped out at me: 1) the authors, both economists, clearly have bored with attacking Realtors, and have moved on to other, fatter targets; and 2) they still think people who hire Realtors (as opposed to selling their homes themselves) are idiots, but this time they offer a lot of caveats.

Five, to be specific.

Here they are (my commentary follows in italics):

One. Even though Realtors don't do anything you couldn't do -- this seems to be the authors' mantra, by the way -- you still may want to hire one, anyway, if you don't have the time.

I spend anywhere from 40 to 100(!) hours per listing professionally staging my clients' homes, advising on disclosures, putting together professional marketing materials, doing pre-list networking -- and literally 37 other things.

And that's before their homes ever come on the market!

The professionals (and non-professionals) I work for would literally have to take a leave of absence from their day jobs to do what I do. Assuming they knew how.

Which leads to Caveat #2 . . .

Two. "Realtors don't do anything you couldn't do for yourself."

Oh, really? I've been selling real estate for almost 9 years. Before that, I was a corporate attorney and CPA, and have a Stanford economics degree. I have been successfully buying and selling stocks since I was 12 years old, and have started 3 companies.

I say none of that to brag (OK, a little), but to make the point that I'm not a dummy.

And yet every deal I do -- and I've now done about 70 -- I invariably learn something new.

It can be a contractual fine point; a negotiating insight; some arcane feature of a home that comes up on inspection; or even something as simple as "upgrading" to an especially talented, new photographer I heard about through the grapevine (in real estate like other fields, "who you know" can matter as much as "what you know").

The bigger point?

Suggesting that a novice could handle all the phases of a real estate transaction as expertly as a seasoned Realtor can is: a) uninformed; and b) insulting.

How much better?

It depends on the deal, the market, and who the ultimate Buyer is (assuming that I'm the selling, or listing agent).

But industry statistics (and common sense) suggest that the swing between having superior counsel and none at all (or poor counsel) easily exceeds 10%.

Which makes my commission -- substantially less than that -- a bargain.

Three. Madison, Wisconsin -- the market the authors cite as evidence that FSBO ("For Sale by Owner") Sellers do as well as Realtor-assisted ones -- may not be representative (call it the "your mileage may vary" caveat).

Yuh think!?!

Madison is a highly educated, college town with a metro population just over 200,000. It is about as representative of broader America as Manhattan is -- or Hollywood.

Notwithstanding Madison's experience with FSBO's, no other metro area has followed suit.

And even in Madison, FSBO's only account for 26% of home sales. That means almost three-quarters(!) of all homeowners there still list with traditional brokers.

In my experience, if something truly is a "better mousetrap," sooner or later people tend to discover it . . . and switch (assuming they have a choice, i.e., there's no monopoly provider).

Instead, FSBO's are now declining as a percentage of the market place nationally (about 12%).

Four. Self-selection. Or, as the authors put it, "the kind of people who choose to sell their own houses without a Realtor may have a better business head to start with."

At least in my experience, that statement is categorically wrong -- which, ironically, actually supports the authors' argument that FSBO's can do better, net of commission, selling themselves.

From what I've observed, what invariably characterizes FSBO Sellers isn't a "better head for business" -- it's a simple (if uninformed) desire to net more on the sale of their home, coupled with having some "extra time" on their hands (in economic-speak, their perceived "opportunity cost" is low).

Unfortunately, the vast majority of FSBO's don't have a clue as to how to go about doing it.

So, something like 9 out of 10 FSBO's egregiously overprice, while the 10th literally gives their home away (then brags that they "sold without a Realtor").

Which gets to caveat #5 . . .

Five. The authors' data and conclusions may be flawed.

To recap, the authors allege that Realtors selling their own homes (vs. clients') are more patient waiting for a deal, and (therefore) sell for more. They base that conclusion on a study of 100,000 homes sales in suburban Chicago -- 3,000 of which were sold by owner-agents.

Charge #2 is that FSBO Sellers fetch the same price that Realtor-listed homes do -- they just take a little longer (20 days on average) to sell. That's based on the aforementioned study of FSBO Sellers in Madison.

I couldn't find the Chicago study the authors refer to (anyone who knows, please feel free to point me in the right direction).

However, the study of FSBO Sellers in Madison was conducted between 1998 and 2004 -- a Seller's market there (and most of the rest of the country, too).

I doubt that FSBO sellers in Madison today would fare nearly as well.

Meanwhile, the authors' contention that more market time equals higher price contradicts what I've observed over thousands of deals covering the better part of a decade -- namely, the longer a given home is on the market, the lower the selling price. Period.

And that relationship holds whether the Seller is an owner-agent, a FSBO . . . or the man from Mars.

But the most significant weakness in the authors' argument is their assumption that it's possible to isolate differences between Realtor and non-Realtor sold homes by "carefully controlling along several dimensions -- price; house and neighborhood characteristics; time on market; and so on."

Unfortunately, that's notoriously difficult to do in practice.

Precisely to avoid such an "apples-to-oranges" problem, the housing market's leading price index, Case-Shiller, opts in favor of tracking "sale pairs" -- the same home across multiple transactions.

Echoes of Peter Lynch

The arguments in Freakonomics and now SuperFreakonomics ultimately recall Peter Lynch's best-selling book, "One Up on Wall Street," in which Lynch disingenuously tells retail investors -- "Mom & Pop" types -- that they can outsmart the pro's.

How?

By following their spouses and kids to the mall, being the first to notice the hot new, retail trends, then buying the companies positioned to profit.

Unfortunately, for every Apple Computer discovered that way, there are 10 -- or 100 -- "Krispy Kremes" (busts, flame outs, and one-hit wonders).

What Lynch omits is that, in his hey day, he traveled 300-plus days a year, personally talking to senior managers at thousands of companies; checking out their facilities; quizzing their employees and competitors; and relying on a battery of Fidelity analysts to analyze thousands of companies' financial statements.

Level playing field, indeed.

"If You Don't Know Who the Patsy Is . . " *

The authors of Freakonomics (and now SuperFreakonomics) perpetuate the same myth about real estate -- namely, that amateurs who do their homework can outsmart the pro's.

Who ultimately profits from that misconception?

Just as in the stock market, in the housing market the beneficiaries are the pro's on the other side of the transaction.

So, on behalf of Realtors everywhere, I suppose I should say: 'Thank you, Freakonomics!'

*It was Warren Buffet who said, "if you've been playing poker for 30 minutes, and you don't know who the pasty is . . . it's you."

Did They Really "Give it Away?"

How to Tell if it's a "Fire Sale"

Realtors hear it all the time (often from neighbors or prospective Sellers protesting about the value of their home):

"Oh, they gave it away."

"The Smith house? That was a fire sale."

"They sold for way too little."

How to Tell

Whenever I hear the foregoing, I typically respond with the following three questions:

One. How long was the home on the market?

It's awfully hard to make the case that any given home sold too low once it's gotten a couple months -- or years -- of market exposure.

That's true even if the marketing has been, shall we say, lacklustre (see "Fire Sale" Factors, below)

Two. Did you see the inside?

It's surprising how many people who are convinced that a home sold for too little . . . have never been inside! Or, if they were, were last in 25 years ago.

It's pretty hard to assess the value of a home you really don't know very well (if at all). Which leads to . . .

Three. Did you inspect it?

I'm aware of several transactions where the ultimate selling price was at least partly explained by major issues uncovered during the inspection.

In one case, a slate roof that looked fine from the street . . . wasn't. Replacement cost: north of $30k.

True Fire Sales

Of course, none of the foregoing is to say that some homes do appear to sell for too little.

In fact, I'd (conservatively) estimate that as many as one-third of the homes on the market fail to maximize their selling price.

Here are the factors that I think are most responsible:

--Poor (or no) staging
--Poor (or no) marketing, including unflattering or out-of-season photos
--Initially overpriced, which leads to too-long market time, which ultimately leads to a discounted selling price
--Major discount due to minor deferred maintenance (I tell Sellers that every $1 in deferred repairs can easily subtract $3 from their selling price).
--Bank-owned property
--For Sale by Owner ("FSBO"): usual pattern is, from way-too-high, to, way-too-low
--Restrictive showing instructions: Buyers won't buy something they can't get in.
--Estate sale with out-of-town owners (sometimes, they don't have a clue; other times, they explicitly tell the listing agent that selling fast is more important than maximizing the price).

Plus, perhaps the biggest yellow flag of all: the home sold the first week (or day) it was on the market -- or even before it hit the market.

The Buyer's agent?

The same agent representing the Seller (called "single agent dual agency").

(Note: to really know if the price is below market . . . you (still) have to know both the home in question and the market.)

Selling -- or Buying -- Without a Realtor

Profile of a FSBO

Are real estate brokers — like travel agents and other middlemen coping with the increasingly digital culture — in danger of becoming expensive anachronisms? After all, it is only logical that as people feel more empowered based on their access to information and their ability to connect without help, they are at least questioning the wisdom of the conventional way of buying and selling a home.

--"Agent or No Agent?"; The New York Times (12/17/09)

I tripped across the article above, ironically enough, in between doing some year-end housekeeping (file and email clean-up, desk de-cluttering, etc.).

Without getting into the merits of the article -- I've addressed FSBO's, or "For Sale by Owners" in numerous others posts -- suffice to say that the files I accumulate for each client can be extensive.

In the course of representing a typical Buyer or Seller, it's not unusual for me to accumulate literally dozens of emails, and log even more phone calls, spanning half a year or longer (hopefully, not too much longer).

Much Ado about . . . Something

Admittedly, sometimes my clients are also friends, and I'm not always "all business" in every communication.

But if Realtors are really as obsolete as travel agents and elevator operators, what's all the back-and-forth about?

Depending on whether the client is a Buyer or Seller, and what stage of the process they're at, the conversations are about . . . staging ideas, competing homes for sale, market developments, showing feedback, explaining contractual fine points, applicable Comp's for "finalist" homes, relaying documents for review and signing, getting reaction to marketing materials, arranging title work, lender referrals, clarifying showing instructions, discussing timing and magnitude of price reductions (if applicable), recommendations for home inspectors, direction about municipal point-of-sale requirements, arranging walk-thru's prior to closing, formulating a counter-offer, resolving inspection issues, progress (or lack thereof) obtaining a mortgage -- and many, many other subjects.

If you think you can navigate all of the foregoing topics on your own -- and have the time and inclination . . . . Congratulations!

You just may have what it takes to sell your own home.

P.S.: all those email's mentioned above are just between me and my clients. I omitted -- happily, I'm sure you'll agree -- all the communication with third parties (other Realtors, stagers, photographers, etc.).

$1 Million Lake of the Isles FSBO

Going it Alone

Where: 16xx 26th St. West, just east of Lake of the Isles in Minneapolis

What: 3 BR/4BA 1921 Colonial with 3,400 FSF

Who: listed by owner

How much: asking price is $1.195M

When: originally listed July, '08 (market time now = 16 months)

It's rare to see upper bracket FSBO's ("For Sale By Owner") -- this one's asking $1.195M -- for a couple reasons.

The biggest one is simply the fact that, as properties become more expensive and (presumably) unique, the "value-added" of good marketing goes up.

Put it this way: which can you say more about, hamburger or filet mignon?

Filet Mignon . . or Hamburger?

At $1 million plus these days, your home had better be filet mignon, not hamburger.

That means great location, great condition, and thoroughly updated. It also means tons of charm and character.

Not only must the home have all those things -- they must all be shown off to maximum effect to prospective Buyers.

In turn, that means professional staging, professional photography, professionally written literature and ad copy, not to mention a generous -- and well-deployed -- ad budget. (Note the frequency of the word, "professional".)

Oh, yeah: and professionally priced -- by a Realtor who knows the comp's, not an appraiser who's never set foot in your zip code (or a homeowner who "knows" that his home is worth more than a neighbor's . . . that sold two years ago).

Time is Money

The other reason owners of million dollar homes tend not to try to sell it themselves is that they're too busy working to pay for them.

Even with jumbo interest rates at 5.75% or lower, the "nut" for a $1 million-plus home -- including property taxes -- can easily exceed $6k-$8k per month. That's on top of the $100k-$200k downpayment you'll need.

Who earns that kind of money now?

Partners at bigger law firms, doctors with lucrative practices, senior business executives, etc. Not exactly the kind of folks likely to spend their weekend holding open houses.

Which might explain why the owner of this house is a FSBO; according to tax records, they purchased the home in 1986 for $204k.

So, it's just possible they're not a high-powered lawyer, doctor, etc.

A Commisson By Any Other Name

Just Don't Call it a Commission

Other Realtors charge a commission.

I, on the other hand, prefer to call it a "reality fee" (a friend passed along the email, below, from an upcoming FSBO seller -- as in "For Sale By Owner").

Hello!

We are announcing the upcoming sale of our beautiful home. It will be available to see by appointment mid-July, possibly a little sooner. If you are interested in seeing the home yourself or know if someone looking to move into our area, please contact us.

We will be selling this home ourselves ask that our buyer use a lawyer or pay their own reality fees. There will still be traditional measures taken in the sale of our home such as a disclosure statement, walk-through, inspection, etc.

P.S.: my advice to FSBO sellers? In a word: 'don't.'

Just one mistake can more than offset any savings you hope to realize doing it yourself -- not to mention the time, inconvenience, etc.

As an example, I was showing a FSBO home to a client last year, and asked the Seller how long it had been in foreclosure. The owner was adamant that it was not in foreclosure -- in fact, the home was completely paid off!

I showed her the MLS printout showing that, in the box for financial status, "in foreclosure" had been checked.

Hmm, maybe that's why she hadn't had any showings the first three weeks her home was on the market.

The home finally sold 8 months later (not my Buyer), at a steep discount.

Vanishing FSBO's

The Mysteriously Disappearing FSBO

One of the less-remarked developments in today's housing market is the relative absence of FSBO's ("for sale by owner" homes).

As recently as two years ago, more than 10% of all listings were; now, I'd guess that number is less than 5%. (Note: there are actually two kinds of FSBO's: the "pure," sign-in-the-yard, no commission-to-anyone kind; and the FSBO offering a "payout," i.e., a commission to the Buyer's Realtor, but bypassing the listing agent, and typically paying a flat fee to list on MLS).

What accounts for the shrinking number of FSBO's?

Maybe it's because if the pro's (professional Realtors) are having a hard time selling homes, the odds of an amateur succeeding are pretty low.

The fact is, selling a home involves dozens of judgement calls concerning marketing, pricing, negotiating, etc. A FSBO seller just needs to make one mistake to more than offset any money they may have saved on commission.

Realtor Tips

So what's an example of something that a Realtor knows that a "layman" wouldn't?

Yesterday, a client just about to put his house on the market wanted me to take photos while (the previous night's) fresh snow framed his home. His logic was that the snow made the home look more aesthetic -- especially compared to the brown grass underneath.

While he's undoubtedly right, the problem is that the Multiple Listing Service ("MLS") is cluttered with literally thousands of "stale" listings now -- homes that have been on for months (in some cases, years) without attracting a Buyer.

How can you tell? Amongst other things, they have out-of-season photos (many quite flattering, by the way).

I told my client to use the less flattering -- but seasonal -- photos to avoid the negative association, and not risk losing prospective Buyers.

Taking Trulia for a Spin

Trulia.com Hits -- and (Mostly) Misses

Like Zillow.com, Trulia.com promises to arm prospective home buyers with reams of data about homes for sale.

Buyers can search by property type, price, square footage, zip code, etc.; get information about schools and other community info; and even pose questions to the Trulia. com "community" that generate email notices as responses come in.

The site's pro's and con's are discussed in an article in Tuesday's Wall Street Journal, "A Go-To Web Site for Home Buyers: Trulia.com offers an Insider's View of Real Estate."

So does Trulia work as advertised? And make no mistake -- advertising, not great market data or insider real estate scoop -- is what Trulia is selling. Ditto for Zillow ("Zillow for ditto??").

To test it, I ran a search (early Wed. am, 2/18) on zip code 55410 (Southwest Minneapolis) for single family homes between $400,000 to $500,000 to see what would come up.

Not coincidentally, I have a very active listing in that price bracket and area -- a high profile and aggressively marketed listing, I might add. The home is just two blocks south of Minneapolis' Lake Calhoun, and has been generating tons of (non-Trulia) traffic (see, next).

(Still) Not Ready for Prime Time

I originally listed 3929 Washburn Ave. South in early December; my client just reduced the price Monday from $479,900 to $429,900. Here's what I found -- and didn't:

--My search query generated 11 hits on Trulia.com . . . but did not include 3929 Washburn!

--Included on the list: the closest comp ("comparable sold property") for my listing, 4155 Drew Ave. According to Trulia, this home was still for sale for $475,000. In fact, Drew dropped from $475,000 to $450,000 on Oct. 29, went off the market December 8 as a "Pending" sale, and closed January 16.

--The closest (Active) competitor to my listing, 4128 Beard, was identified as "Address Not Disclosed," with an accompanying picture. Curiously, though, clicking on "listing preview" generated a map showing the block where the home is located. Trulia did have the correct price and home stat's.

--Another home, 4404 Abbott for $475,000, is identified as a Coldwell Banker Burnet listing. Which may come as a surprise to the owners -- because it does not appear to be for sale. If it is, it's a non-MLS listed For Sale By Owner, which is quite rare these days.

--Notwithstanding my "single-family" search criterion, one of the eleven hits was a nearby condo.

That's probably a long enough list for most readers (and all the time I have to parse Trulia's "hits").

Conclusion: if you want to really know what's really going on in the market, you'd better talk to someone who's got access to the Multiple Listing Service, and knows the inventory on it.

That would be . . . an experienced, local Realtor (Preferably, me!).

"Freakonomics" Rebuttal

Do Realtors Really Add Value?

[Note: this post is a companion to "Realtors, Chauffeurs, and Investment Bankers"; Economists in Glass Houses; and "Freakonomics Re-revisited"]

I don't go to that many cocktail parties, so I'm not really privy to "cocktail party" chatter. However, I think that it's safe to say that far fewer realtors these days are being button-holed by their friends and neighbors about the latest real estate killing, hot new development, etc.

Instead, what regularly seems to come up is a criticism famously made about realtors in the book "Freakonomics," by economists Steven Levitt and Stephen Dubner. Suffice to say, neither one is a fan of realtors, or what they do.

In particular, Levitt recounts his dealings with an especially sleazy realtor in Palo Alto, California.

Headed cross-country to a new academic post at Stanford, Levitt hired the realtor to help him house-hunt near the university. In the course of showing him properties, the realtor cautioned that, unfortunately, it was a hot market with an imbalance of prospective buyers like Levitt relative to sellers. As a result, if Levitt wanted to buy anything, he needed to be prepared to pay full price soon after a desirable property hit the market, with little or no negotiation.

Which is apparently what Levitt did.

Just a few months later, Levitt was offered a plum academic post back east, and unexpectedly needed to put his just-purchased home on the market. He called his realtor, who now told him that, due to all the inventory and slow sales, he needed to price his home "realistically" (code for "low") if he wanted to attract a buyer.

Who wouldn't be incensed by such treatment? And which client doesn't wonder, just a teeny bit, whether their realtor is capable of the same?

Truth-Telling

I can't speak for all realtors, but I doubt that such behavior is representative, for the following three reasons:

One. Lying about market conditions is easily found out. In an era when everyone is online and real estate data is ubiquitous, a realtor who calls "up," "down," or "cold," "hot" is simply not credible. The New York Times, The Wall Street Journal, cable tv, local newspapers and Web sites, real estate Web sites, etc. now threaten to drown today's housing consumer with data. To mischaracterize that data would destroy a realtor's credibility, and without credibility there are no clients.

Admittedly, relocation buyers often know little about their new community, and therefore may be more vulnerable initially to an unscrupulous realtor. However, in my experience such clients tend to do more due diligence, not less -- frequently with their realtor's help and encouragement.

Two. Market statistics eventually fade away and what matters is one house -- the one the client is interested in buying. At that point, the discussion between realtor and client becomes very concrete and factual: What are the "comp's" (comparable sold properties)? How do they compare and contrast with the subject property? How long were they on the market, and what did they ultimately sell for?

Twenty minutes into this discussion -- if not far earlier -- it's usually apparent whether area homes are selling in multiple offers above their asking price, or languishing on the market and suffering serial price cuts. It seems unlikely that a trained economist such as Levitt wouldn't be able to tell the difference.

Three. Lying is hard, telling the truth is easy. By definition, every good realtor juggles: multiple clients, dozens of showings, lots of parallel deals at varying stages. It's hard enough keeping all the details straight and presenting them coherently to your client(s); not tripping yourself up in a web of lies would seem to increase the "difficulty factor" exponentially.

Levitt and Dubner do make some legitimate claims. For example, they cite statistics indicating that realtors selling their own homes tend to wait longer, and get a higher price. While the statistical differences are small, they do appear to be real. The explanation applies to any sales professional paid a commission (vs. an hourly fee): each additional dollar that an item fetches accrues overwhelmingly to the owner. Meanwhile, 100% of the costs (time and actual outlays, for advertising, gas, etc.) associated with longer market time fall on the salesman. Ergo, Levitt and Dubner conclude, realtors have an incentive to sell homes too fast and too cheap.

Once again, Levitt and Dubner ignore that prices are ultimately set by the market, not realtors. Specifically, realtors (and appraisers) establish a price range not in a vacuum but based on the comp's -- typically three similar, nearby properties that have sold in the previous six months (or less). Realtors distort or spin the comp's at their own peril (see, "lack of credibility" above).

Path of Least Resistance

In my experience, particularly in today's soft market, it is far more common (and easier) for realtors to accede to clients' unrealistically high initial asking price, than to insist on a lower but achievable target. Too, realtors can often empathize with clients' financial needs, and let their emotions (and hope) influence the asking price rather than cold, market logic.

No matter the motivation, in buyers' markets overpriced homes sit, and the longer they sit the steeper the ultimate discount.

True to their economics background, the Freakonomics authors implicitly treat all homes as indistinguishable "widgets," whose market value is a given. In fact, skilled, conscientious realtors often work with sellers for weeks and even months before a home comes on the market, suggesting strategic repairs and improvements, addressing code compliance and municipal point-of-sale inspection requirements, putting the owner in touch with various contractors, etc. Meanwhile, the realtor is busy networking behind the scenes, building market awareness for the property and identifying prospective buyers.

Perhaps that's why homes listed with realtors sell for 12%-14% more than "FSBO's" (for sale by owners). That's far more than the average realtor's commission -- and a statistic that's nowhere to be found in Freakonomics. The public may not like realtors, for some of the reasons identified by Levitt and Dubner, but they avoid dealing with them at their own (financial) peril.