Just recently, I read an article where the author says that Silicon Valley solves Silicon Valley problems. To say this is not really fair, after all, there are so many useful applications, programs, solutions, that Silicon Valley has given us. It would be a gross understatement to say that. Silicon Valley has changed the way we do business, all business. But at the same time, we all have to admit that there is a certain amount of truth to the above statement, probably more than Silicon Valley would like to admit Let’s face it. Silicon Valley is in love with itself and its first option is to solve its own problems, the rest comes later. This is true, at least to a certain extent, at the least.
This brings us back to the real estate agent. What are her/his needs and where is their place in the real estate industry? Typically, the agent is in the middle of it all; like it or not, that is how it is. On one side the agent has the buyer and their expectations. On the other side the agent has the seller and their expectations. Everything is OK as long as the expectations of both sides overlap. Then the sale or lease is inevitable. But what happens when the expectations do not overlap? Where does this leave the agent?
The real estate agent is bombarded by big data from everywhere. The tech companies can supply agents with just about any information that they need, along with data that they mostly don’t need. But what good is so much data if the agent isn’t getting the data that she/he needs? Sometimes, if not always, it is better to get less, useful data, than more, useless data. In the end, there has to be a reason to all of this data, the most basic being how much of this data really helps the agent sell the property.
Let’s take a look at what is the data that the agent is getting.
Usually, most of the data that the agent is receiving has something to do with the market value of the property, but we have already talked about the problems with the market value concept. So, where does this leave the agent in a world of market value data? What does the agent do with it?
Before we do anything with the market value data, we have to realize that this is useful data. We can do a lot of things with it. It can be helpful information. But, at the same time, we have to understand its limitations. The best starting point with market value data is that it is some type of average or weighted average of market values. A general. ballpark figure. It tells you what most properties are selling for in your neighborhood, but it does not tell you what your property should sell for. Don’t regard this as useless data, because it isn’t, it is very useful. Banks can use it for mortgage loans, it can be used for taxation purposes, and developers can rely upon it to see what to expect from their properties, the use is limitless. But if you want the market value of your property, skip this and go ahead, call an appraiser and get a professional valuation.
So, it’s back to the agent and their position in the entire matter. The agent has the buyer’s and seller’s range on different sides of the equation. They have the market value also, through an appraisal or an estimated market value by a tech company. They have access to big data and research. But what they don’t have is what should the property be sold for. What should the buyer be willing to pay, taking everything into account, special interests also? What should the seller be willing to take, taking everything into account, special interests also?
And this brings us to the worth of the property. What is worth?
Worth is a simple and logical concept. Worth is different to the buyer and different to the seller. It is what a buyer should pay, taking into account the special interest that she/he has in the property. On the other hand, worth to a seller is what she/he should except, when taking into account their special interest.
This isn’t a market value concept, because this has restrictions on it. This, the worth concept, which focuses on what is fair to one side and what is fair to the other side. These two values are usually different.
An example would be if a buyer is looking for a property close to work. For him it would maybe make sense to pay more, since he will have lower travelling expenses. Or maybe a seller wants to reinvest the money from the sale into a new property. If he sells at something lower, he will be able to buy another property and compensate for the loss through that property. This is the basic principle of worth. And this is the future of real estate analysis.
The buyer has a range for his worth, as does the buyer, usually these ranges are different. If the ranges are the same or similar, i.e., if there is an overlap, then the sale should be conducted in the overlap range. But what happens when there is no overlap? Basically, no sale. Until there is an overlap, there will be no sale. So, the faster the agent gets to the worth, the faster they get to the sale. The agent’s job is to get both sides to buy into the worth concept of real estate.
The numbers that data provides are there to help the agent explain the concept. They should give him/her the background to do this, the starting point in discussion. This, among other things, is why we need technology. It gets the agent started, it gives them the numbers, the trends, the historical data, but the technology does not give them the worth.
To explain the worth concept we must look at both the buyer and the seller as individuals, human beings with needs, feelings and emotions. Worth deals with objective and subjective values. It takes into account what the seller wants and what is realistic to get. It takes into account factors that are not always market oriented, but that describe the overall feeling of the seller. On the other side, the buyer is also a human being with their set of feelings and emotions. Do they like the property? Is it prefect for them? Is it close to where they work? Is the school just around the corner? Do their friends or parents live close by? These are factors that have to go into the equation.
How to get to subjective data, when we are dealing with big data, sophisticated algorithms, and other types of analysis?
We again have to start with the agent. It is the agent that is on the ground, talking with both the buyer and the seller. The agent has an understanding of subjective values and he/she should use that information in combination with an objective analysis to form the base for the analysis of worth.
The question still is, how to get to put some kind of number, grade or any type of physical value on a subjective analysis of a buyer or seller? The only way is to start monitoring the sales process by putting grades or numbers on subjective values and then, after the sales process, analyze the grade to see where they are after the sales. It has to be an interactive procedure where subjective values of real estate are put to test and then, after the sale of the property, the results are checked. It has to be done on a large scale; only then will this type of analysis provide useful results.
Getting agents to approach real estate through a worth concept and not a market value one is necessary, because this lays the ground work for implementing this analysis on a national and international scale. This in turn gives the agent insight into how we can monitor worth and understand its complex nature, so that the agent can easily sell the property for what it’s really worth.
This is the direction in which technology should be going. This is the data that will really help the agent. What the agents have available to them today gives them the trends, the market values, but it doesn’t give them the worth. And agents knows that better than anybody. The faster they get to the worth of the property, the faster they can sell it. This is where tomorrow’s technology has to go.