You’ll often hear that we’re entering a world of big data, where algorithms hold ever-greater sway in our thinking. And in many industries, there are concerns that human functions will be replaced by AI at an increasing rate.
Advances in technology mean that data analytics can now be brought to fields previously deemed too complex, and real estate is one of them. You probably already know that algorithms can determine your credit score and your ability to get a mortgage. But are you prepared to have AI influence where you live and which property you buy, or even make those decisions for you?
Big Data in Real Estate
The generally accepted concept of big data is centered on what Gartner identified as “3 V’s” all the way back in 2001. First, the massive volume of data beyond what ordinary users or machines can process. Second, high velocity, in terms of both incoming data and the speed of processing it. Third, a variety of sources, including both structured and unstructured formats.
Property buyers have long had access to aggregate data from sites like Zillow, Trulia, or Realtor.com, using it to filter and sort through listings. When you search for properties online, you probably take for granted the ability to view attributes such as size, price, access to public transportation, and nearby schools.
The real estate industry has already been using data for years, but it hasn’t really harnessed big data until recently. What’s changing is how companies can tap new, diverse, and vast sources of data points.
For example, the brokerage REX Real Estate Exchange combines targeted ads on websites and social media with users’ shopping history and the data of hundreds of other users. REX’s AI and data scientists process this data to identify and learn about potential buyers and sellers. In turn, that increases their chances of successfully closing a sale.
Using data analytics to improve decisions in real estate offers considerable efficiency advantages. An agent might struggle to have all the facts regarding the history and material construction memorized and ready to roll off the top of their head. Human errors and limitations increase average costs in most occupations.
It shouldn’t be surprising, then, that REX can charge lower commission fees at 2%, compared to the usual agent’s rate of 5-6%. Naturally, this threatens to reduce or eliminate the role of the middleman. But for the buyer, it could save thousands of dollars.
Big data also promises to give users access to even more information that can be used in their purchase decisions. Soon, property listings might be able to tell you about noise pollution in the area, the amount of natural light available, even the lifestyle patterns and behaviors of your prospective neighbors.
However, big data is only as effective as the algorithms that process it. And those algorithms, in turn, need to be trained, which is done by feeding them with more data points under human guidance.
This means that big data might not work so well for the luxury market. There are far fewer properties being listed, bought, and sold for millions of dollars. Compared to properties selling for under $1 million, it’s harder to gather sufficient data points or build accurate customer profiles at the high end.
There’s also the issue of privacy to consider. Public concern regarding collecting and using individuals’ data by companies may lead to more stringent regulations and increased user privacy. Ultimately, that can make it more difficult for algorithms to create value out of the data they process.
Making your Decisions
While the technology faces limitations, there are bound to be improvements. Startups and investors believing in the potential of big data in real estate will seek to take things further. More users can realistically expect to have their dream homes Chosen for Them by an AI.
But we shouldn’t be too quick to write off the value of human realtors or entrust our decisions wholly to what the data says.
Intuition and empathy remain vital human skills, even as we enter Industry 4.0. That includes the real estate industry’s use of big data. People will still need someone to make that intuitive leap and understand their unstated needs when looking for something as deeply personal as a place to live in.
Though AI will play a prominent role in buying and selling properties in the future, only agents who don’t maximize that human connection need fear for their roles. Those who thrive will bring value to their clients by combining data insights and machine efficiency with their ability to address emotional needs in the search for a new home.Algorithm