First, let me state this isn’t my question. It is a question asked by Steven Levitt and Stephen Dubner in their recently-published book Superfreaknomics.

So, who does add more value? Are the authors correct in claiming that the economic impact of a pimp (see p.37) is greater than that of hiring a Realtor?

The authors note that, on the basis of their data (a study in Chicago) prostitutes working with a pimp earned, on average, almost $100 more per week than did their counterparts who worked without a pimp. This happened while pimps took, on average, a 25% commission on the transaction.

On the other hand, the authors claim, home sellers do not get a comparable benefit from employing a Realtor, who, they acknowledge, charges a considerably lower commission (averaging 5%). The authors’ claim that “a Realtor and a pimp perform the same primary service: marketing your product to potential customers.” Working with this assumption, they then rely on a yet-to-be published study from Madison, Wisconsin that alleged shows that comparable houses sold without a Realtor “typically fetched about the same price as the homes sold by Realtors.”

The authors fail to note that one of the things that Realtors are paid for – to many people it is the most important of their services – is facilitating the transaction as it proceeds to closing. I suspect that no comparable service are provided by pimps. But than again, how would I know?

Additionally, the authors note that a special value is provided to those prostitutes who work with pimps: they are less likely to be arrested. But the authors fail to note a comparable benefit provided by Realtors. That is, both as a result of their expertise and of the fact that they (mostly) carry Errors and Omissions (E&O) Insurance, the clients of Realtors stand a better chance of being shielded from a lawsuit. This is not trivial. The pimp’s connections (and payoffs) may save the prostitute some hassle and the possibility of a fine in the hundreds of dollars. But that is nothing like having a Realtor’s E&O Insurance provide the “deep pockets” and/or a legal defense that can shield a seller from potentially hundreds of thousands of dollars in damages.

Superfreakonomics is a fun and interesting book to read, even though they compare Realtors to pimps.

File Under: Looking for a pimp real estate agent to satisfy your real estate needs, call me.

Other interesting reads: John Perkins, Confessions of an Economic Hit Man and Hoodwinked.

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