Will “analytics” change home buying?
Originally appeared in Bay Area News Group publications on April 29, 2016
“Not everything that can be counted counts, and not everything that counts can be counted.”
– Albert Einstein
In sports, particularly basketball, analytics is the study of every conceivable aspect of a player’s performance. This includes how often he shoots, from where, accuracy from various positions and distances, and a long list of other variables. There is heated debate about the degree to which this information correlates with a player’s value to his team.
Analytics has come into vogue, mainly in the past five years, with the advent of sophisticated computer measuring techniques. Similarly, there are now numerous algorithms that relate to buyer lifestyle preferences and the cost of owning a home in relation to various features and systems. As in sports, there is a question about how valid these measures are and to what degree they should or will affect future home buying decisions.
Hot markets mean fewer choices
As we all know, the Bay Area is one of the most expensive regions in the country. This means that choices are severely limited by low inventory and extremely high prices. Whereas, in most of the U.S., buyers have many options and can even negotiate price and terms, these opportunities are limited here.
It then follows that trends like the use of analytics in home buying will have more traction in less competitive environments. Although they are useful, additional data, in most cases, will not help local buyers get more while paying less.
Changes in Comparative Market Analysis (CMA)
One outcome of the analytics revolution may be a change in CMA information provided to sellers by real estate agents. Factors such as monthly payments for principal, interest, property taxes and insurance (PITI), costs of utilities, walk time to shops, school scores, commute time to San Francisco or Silicon Valley and proximity to a library or hiking trail might be included in years to come.
Some predict that the number of bedrooms, baths and price will be de-emphasized in favor of lifestyle data. I cannot concur with that conclusion and suspect other real estate professionals will feel similarly. Within limits, more information is better than less, but pricing a home involves much more than lifestyle, commute or utility costs.
Key question is value
Home value is determined by a number of important considerations such as location, condition, size and style, charm, floor plan, number of steps up or down, outside living, privacy, schools, freeway noise, light, garage, and lot configuration, among others. Something else not found on the ‘Net is the quality of improvements and whether they were done and finalized with permits. As I have said before, understanding pricing and value takes years of professional sales experience in a particular locale.
Do not confuse convenience or personal comfort with value. Not all factors that are important to you in your purchasing decision are correlated with what others will pay. Despite that, online sites may include lifestyle elements in their value equation. Those who do not understand the business will declare that, as analytics become more available, agents will and should incorporate personal buyer desires into their pricing models. This may make sense in Kansas, but not in sizzling Bay Area markets.
When it comes to spending money on a home, think of it first as an investment that could either be great or turn into a horrible mistake. Also, remember that buying and selling a property both have significant costs.
Before they get serious, most buyers prefer to look at homes online to get an idea what is available in different neighborhoods and the selling prices of these properties. That saves time and effort, but does not provide all the information buyers need to make a good decision.
If you are not familiar with the territory, be careful about the address. It may be a less desirable section of a good area or a better stretch of a questionable part of town. Safety, schools, shopping and other variables are determinants of desirability. One location may be up and coming and another may not.
Analytics will never adequately handle the question of condition and this is one of the least understood and most overlooked aspects of value. Despite attractive photos, the home may have expensive, unseen problems like a high pest control report, end-of-life roof, framing, sewer lateral, drainage and/or foundation troubles.
Even when they are known, listing agents do not highlight these in their online marketing. The words “As Is” can be a clue, but do not reveal what is wrong or how much it will cost to repair. Often, items requiring extensive and expensive rehabilitation have not yet been identified.
The property could be near a slide area, across the street from a busy school or next door to a dilapidated wreck. None of this will appear online, but many sites provide an estimate of value that does not take account of these negatives.
Omitted data can also tell you something. As an example, if the square footage of the house and/or lot is not included, it might be because they are small.
It is best not to take what you see on the Internet at face value. After you have eliminated those you don’t like online, be sure to get details of the interesting ones in person.
All online sites that purport to give you worthwhile data have one thing in common – they are in business to make money and they want you to believe their information is invaluable. This may or may not be so. As Einstein said, “Not everything that can be counted counts.”