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Beware of Fuzzy Math

If you ever found yourself dozing off in your high school math class, you may be at risk of getting hoodwinked by companies' and organizations' tantalizing but misleading numbers. For example, Freakonomics authors Steven D. Levitt and Stephen J. Dubner recently raised some interesting questions about an item they read on the NAR blog, titled "The Cost of Selling without a REALTOR: $31,800."

According to the NAR: "Real estate professionals do more for sellers than make the transaction easier. They make them money. In fact, the average seller who uses a real estate professional makes 16% more on the sale of their home than do sellers who go it alone. That's an average of $31,800 per home."

Levitt and Dubner pointed out that there wasn't any supporting data to be found. "So . it could be that a few dozen, or few hundred, or few thousand Realtor-sold multimillion-dollar homes skews the average very high compared to FSBO's [homes for sale by owner], which tend to be cheaper," they wrote. "Or it could be a few dozen other factors." Indeed.

A story like this makes me want to roll my eyes at the NAR, and remind readers that you can learn all about how to buy or sell your home efficiently in our well-appointed Home Center. You might also be interested in these tips on working with a real estate agent, and how to pick a good one. I admit that many agents are indeed worth their cost. Selling a home on your own isn't always the best route; you might avoid paying some fees, but a good agent might more than make up for those fees.

Levitt and Dubner's crazy way of looking beyond the headlines into what the numbers really tell us can also prove useful in other aspects of investing. Remember that when some companies present information about themselves, they're hoping you won't think too much about their data.

Imagine that the Home Surgery Kits Co. (ticker: OUCHH), for example, crowed about "Record Revenues in 2005!" What if those revenues in 2005 were a whopping $610,000, up from $605,000 in 2004? That may technically have been a record -- or even the company's highest revenue level ever -- but it's still just a gain of less than 1%. To get a true portrait of a company's health, you'll have to look beyond hype and announcements.

Look at it this way: All that stuff you rolled your eyes at in math class, thinking you'd never need it, may finally come in handy.

LongtimeFoolcontributorSelena Maranjianalways double-checks her numbers.


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Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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