The 'Freakonomics' Take on Real Estate

Aug. 8, 2007 — -- Could the name of your street affect the price of your home?

With so many people fascinated by real estate these days, "Freakonomics" author Stephen Dubner looks at real estate from a new angle.

(Starting today, Dubner's Freakonomics blog is moving to The New York Times Web site. If you want to ask Dubner and his "Freakonomics" co-author Steven Leavitt a question, click here.)

So many factors go into the price of a home — the location, the number of bathrooms, the school district. But what about the name of your street?

Dubner says yes — the rule of first impressions basically applies here because people looking at real estate listings have very little info to go on. A bad name means means fewer people will come to see the house when it's for sale and fewer people means less demand, which means a lower price.

"When your house is on a street with a particularly unpleasant name — we have one example Voltage Street — people simply get a bad first impression," Dubner said.

Research has found, however, that people's first names seem to have very little affect on others' perception, said Dubner.

"People's first names don't really matter in the long run in terms of their success," Dubner said. "People learn your first name when they are first getting to know you, but your name quickly becomes unimportant compared to other things about you."

Oprah Winfrey might sound like a strange name the first time you hear it, but now that we're so familiar with her, the name works, Dubner said.

Don't Put All Your Eggs in One Basket

When it comes to determining a fair price for your home, you should have more than a single real estate agent helping you.

Dubner recommends using the Web site Zillow.com, which gives estimates of a home's value based on public records, meaning its location and what comparable properties in the same neighborhood have sold for recently.

This is important because it allows buyers and sellers to determine what their home might be worth, instead of putting all their trust in one real estate agent and the price they give.

"[Zillow] is still a crude tool at this point and almost no one thinks it properly reflects the price of their home, but what's important is that it's the beginning of the end of real estate agents being the only ones to hold this information," Dubner said.

Sellers should also be wary of a home appraiser's estimate, says Dubner.

"When people hear the word 'appraiser,' they think they are getting an objective view of the value of your home, but really the job of a real estate appraiser is to go to a home and see if the final price lines up with what the bank gave the mortgage for," he said.

Arizona and some other states want to shut down Zillow because real estate professionals don't like the idea of people coming up with their home value on their own, according to Dubner.

"The biggest problem in real estate is appraisal fraud, in which homes are overvalued at the behest of real estate agents who want to close the deal," he said.

Here's Dubner's bottom line on real estate:

Do your own research to figure out what your home is worth. Start with Zillow.com

If you decide to use a real estate agent, bring in more than one agent and have them give you their estimate of a fair price. Have them give bids and sales strategies just like you would if you were interviewing contractors for a remodeling job.

Dubner said he did this and learned how random the prices from real estate agents can be — he got a low estimate of $195,000 and a high estimate of $610,000 for the same property.