by Kevin Rands

How big data is disrupting the real estate industry

Aug 11, 2017

When it comes to making real estate deals, data analysis is quickly becoming the leading factor in the decision-making process today.rn

house with traditional router
Credit: Luma Home, Inc.

Big data has changed the way companies do business in every industry across the globe from fast-food to fitness, and real estate is no exception. While so many of the decisions in real estate were once decided greatly by hearsay and first impressions, data analysis is quickly becoming the leading factor in the decision making process today.

There was a time when the tools required to properly analyze and draw relevant conclusions from big data were reserved for giant real estate companies and investment firms. However, thanks to the boom in personal computing power at the turn of the century and the internet, anybody can now spend a few minutes at the computer and find information on a property and the market it’s in that would have taken years to collect in the past.  

Realtors, investors, and home buyers alike are making smarter investments by using data analysis to accurately predict risk and market trends. But, while data analytics in real estate has clear benefits from the consumer perspective, it hasn’t been all sunshine and rainbows for established realtors, specifically in the residential market.

Let’s take a look at a couple ways big data is disrupting the real estate industry today and what it could mean for the future of real estate. 

Simple (and fast) appraisals

You can’t overstate the importance of an accurate appraisal. Realtors use them to price their properties, home buyers and investors rely on them to make good offers, and lenders need them to minimize losses on faulty loans. Making a real estate purchase without an appraisal is like getting a tattoo without looking at your choice.

Thanks to data analytics, appraising a home has never been faster or more accurate. Most neighborhoods and subdivisions feature similar properties. Market data based on years of sales makes it easy to produce an accurate appraisal.

Although big data in real estate has led many companies and individuals to riches, there are just as many if not more home buyers and amateur investors who have watched their money float away on bad investments by relying too heavily on big data. As any real estate professional will tell you, data analysis is a tool to use when making an appraisal, not a replacement for the appraisal process.            

Accurate predictions

Real estate market trends used to be measured in terms of years and people’s predictions were… well, really just guesses. Today, those predictions are generated by sophisticated computer algorithms that can predict market fluctuations down to the minute.

Real estate predictions based on big data are being used to avoid risk altogether and to dive straight into it. While from a home buyer’s perspective you want to find a low-risk property that will appreciate well, realtors and investors know that with high risk comes high reward.

Hang on a second, though. If we can make such accurate predictions today, why don’t I see everyone getting filthy rich in real estate?

The thing is, while we have all the data we need and the tools to analyze it effectively, many small businesses and consumers especially still find it difficult to sift through the big haystack of data to find the needle of valuable insight they need. As data analytics technology gets older and becomes more user-friendly, you can expect it to see even more consumer and small business use, and perhaps even….      

An end to realtors?

Add 2 cups of Google search, one cup of big data analysis, a dash of social media, and bake at 350 degrees for 8 hours. What have you made? An amateur realtor.

It’s no secret that residential realty in the U.S. isn’t where it was 10 or 15 years ago. Markets aren’t as strong and competition is fierce. However, the financial crisis of 2008 isn’t the only reason for a decline in the number of realtors out there.

Ever since Google and YouTube put a guide to virtually anything in everyone’s fingertips, people have been performing all sorts of tasks that were once reserved to professionals. That includes handling real estate purchases.

As I mentioned earlier, data analytics technology is becoming more user-friendly every day, and as it does, people from all walks of life are becoming more comfortable using it. One of the biggest real estate disruptions caused by big data in the future might not come from within the industry at all – it may be a shift away from the industry altogether.