Editor’s Note: This is the third article in a series on Big Data analysis as relevant to the real estate industry.
In the previous article of the series, we briefly discussed the key differences between “traditional” and Big Data. We established that the sheer magnitude and unstructuredness of Big Data allows for creative—even unorthodox—uses of the available information. It was also held that, in time, data processing would allow computers to outpace human decision making, and it therefore becomes imperative to, so to speak, jump on the bandwagon before it’s too late.
Now, let’s look at some more concrete implications that Big Data hold for the real estate industry.
First and foremost, expect a steady increase in the amount of available data, including that which will be available to the regular homebuyer. The recent announcement of the News Corp acquisition of Move, Inc. and the famed Zillow-Trulia merger serve as direct testimony to this. The algorithms for automatic value calculations are improving, and they will be further served by complementary data, mined in fresh and innovative ways.
For example, while as of now, the median error of Zillow’s price estimates (Zestimates) is around 6.9 percent, you can only expect that number to shrink as new data are introduced and their estimation algorithm becomes further refined. Imagine the implications for automatically determining market value if devices were able to provide data about the wear and tear, or the condition of the floors, or the exact dimensions of the house.
Predictive analysis is also becoming a thing of the present. Tools such as SmartZip are likely to become much more important to the average REALTOR®, as Big Data companies like Zillow, Trulia and Redfin—seeing as they are better-equipped for producing heaps of content for search engines—are more easily found by users who are subsequently tempted to skip the REALTOR® altogether.
By employing Big Data, predictive analysis software can alert REALTORS® as to which houses are likely to sell soon. It is of great value to the customer as well. Imagine having finally decided to move out of your starter home and promptly receiving a letter from a REALTOR® already well-versed in your situation. It’d probably seem like an unbelievable stroke of serendipity, serving as a further incentive to move out and, of course, to use the REALTOR® in question as your agent.
And it goes beyond that. As data processing and acquisition becomes more refined, practitioners will be able to act with more foresight. SmartZip already seems like something quite “out there,” but what would be the case if a real estate agent was able to establish patterns from seemingly unrelated data? For example, a rise of inquiries about purchasing abandoned warehouses in a well-populated region could serve as an indicator for a future apartment complex or a supermarket that will drive prices up. Eventually, the availability of such data can make those with access to it become nothing short of market wizards.
Furthermore, real estate agents, homebuyers and sellers aren’t the only ones experiencing changes due to Big Data. Ancillary segments of the real estate industry are transforming as well. The banking sector has long capitalized on its access to Big, or at least Bigger Data, weeding out potential “smart buyers” or investors and getting better prices for their properties.
The lending sector is influenced in other ways, too, by the emergence of Big Data. For example, lenders of short-term loans are said to include data, such as the latest Facebook posts of the borrower, in their decisions to hand out loans. Banks are more likely to look for seemingly tangential information about the client that ensures lower risk of default.
To sum up, the biggest changes that Big Data will bring in real estate seem to be data availability to the consumer (tools such as Zillow). They are provided with valuable information that not only helps establish the expected value of their property, but also with patterns and neighborhood information that they wouldn’t otherwise be able to access. Buyers, on the other hand, can better determine if what they’re looking at is a reasonable deal.
Real estate agents, however, will, in time, become more and more proficient in making accurate, actionable market forecasts. While it’s becoming harder to reach customers in their area, real estate agents can also tap into the potential of Big Data with tools such as SmartZip that help them target their services better.
Sectors only tangentially related to real estate, such as banking, escrow or real estate support services (which will be further dealt with in another issue), also experience changes that can, in turn, influence the real estate sector in unprecedented ways.
In the next article of the series, we’ll discuss some of the changes Big Data brings to industries related to real estate, as well as comment on the way Big Data transforms other significant parts of a real estate agent’s profession, discussing tools that can be used for improving their businesses.
Dave T. Garland is a principal with Rainmakers Group. For more information, please email firstname.lastname@example.org or call 650-353-7757.