We are in the midst of an extraordinary sea change. Big data and the burgeoning field of data analytics are transforming how real estate is being conducted. Big data assembles millions of data points, analyzes them and uses predictive analytics to translate that data into actionable steps for our clients and our businesses.
Granted algorithms have their limitations, largely due to how statistics work (i.e., we can use statistics to illustrate what is happening at a macro level, but they may be way off on a micro (individual house) level.
To illustrate this point, Zillow says that its Zestimate values are accurate plus or minus 7 percent, 95 percent of the time. In other words, if your Zestimate says that a property is worth $200,000, there is a 95 percent chance that the subject property will sell between $186,000 and $214,000. There is a 5 percent chance that the home will sell outside those parameters.
Skilled agents can generally exceed this degree of accuracy, but this occurs only when the agent has a deep knowledge of both the inventory and the lifestyle in this area. (This group is primarily composed of the 10 percent of the agents doing 90 percent of the business.)
Zillow Makes Its Zestimates Obsolete
Zestimates are a 10-year-old technology. If you haven’t visited Zillow recently, check out its Price-My-Home feature. As I mentioned in my previous column, the new algorithms allow for user customization. The Price-My-Home feature is the slickest pricing tool that I have seen – it lets you manipulate the algorithm to make adjustments automatically for differences in square footage, location, condition, bedrooms and baths, plus compiling the photos for the all comps as well. It’s free and you don’t have to register.
The question you must answer for your business is, “Can your current CMA tool allow you to make all of those adjustments and arrive at a price in less than two minutes?”
Yes, you still need to check your MLS data for accuracy and for comps Zillow didn’t cover. Nevertheless, when your seller uses a Zestimate to object to their listing price, use Zillow’s Price-My-Home feature to adjust their algorithm for the best comps and other factors. There’s nothing like fighting the Zestimate battle with Zillow’s newest tool.
Using Zillow’s Big Data
In Zillow Talk, Spencer Rascoff outlined how the company used data analytics from over 1 million homes to reveal the best time of year to list a house, words that can enhance or harm your marketing efforts, as well as the perils of overpricing.
According to Zillow’s analysis, 47 percent of all sellers reduce their price before they sell and receive an average 2 percent less. Overpriced properties take 220 days to sell on average vs. 107 days for properties that are priced properly. This data backs up what agents have always known but have been hard pressed to explain – overpricing results in a lower price and a much longer time on market.
A number of people complained that Utility Score wasn’t accurate for their property. As noted above, the macro data should be pretty accurate although individual house data can vary substantially.
The point is that buyers almost never see utility data until they place a property under contract. Both buyers’ and sellers’ agents can now share this data with the clients as a preliminary comparison that can be accurately documented with actual data on the subject property at the point of listing or sale.
Again, the customizable nature of the algorithm educates owners on how their expenses change based upon where they set their thermostat, the number of people in the household, as well as whether someone is home during the day. There’s really no simple, accurate way to project these changing numbers without using big data tools.
Utility Score’s big data analytics go beyond just utility data by:
Making recommendations on qualified professionals and verifying their licensing status.
Screening local reviews as well as combing the social media to locate both negative and positive comments about which contractor to choose.
Identifying which home improvement products have the best reviews, the greatest efficiency and then matching that data with local rebate programs.
Providing green financing options that can assist owners in making repairs or upgrades to their homes, even when they may not have the cash or the credit to do the work.
The tools we’re seeing today are merely the first wave of what’s coming in the future. Consumers want tools that are simple to use and allow them to make the adjustments that fit their unique needs.
Rather than fighting the trend, seize the opportunity as a way to have a competitive advantage over those who are slower to adapt. As my former boss Jon Douglas used to say, “All we have to do is to be six months ahead of the competition and we will dominate the market.”
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author. Email: Bernice@RealEstateCoach.com.
