Posted on November 2, 2021 by in Sellers

The Human Equation – Tech and Real Estate

Our world grows less human every day. From our personal interactions to the way we do business, face to face interactions dwindle as technological surrogates slowly take their place. For better or for worse, it seems to be the way of our future. But should it be? 

Most recently we’ve had a front row view of how this technological shift has impacted the real estate market. Large institutional backed companies like Zillow have launched sweeping multi-million dollar platforms to techify, and to their credit – attempt to simplify the home selling and buying processes. But what effect does this have on sellers, agents, and the market as a whole? 

The hidden algorithm and your home’s true value

Home valuation formulas are nothing new to real estate. Brokers are trained to offer what is known as a BPO, or “Broker Price Opinion” which is a form of valuation, and agents often offer what is called a CPA or “Comparative Market Analysis” to help set the price you list your home for. 

However, there is a much more notorious valuation model available to the general public at any time – The Zillow Zestimate. The Zestimate is a proprietary (more on that in a second) formula that Zillow uses as a basis for all of their home services, including their recent cash offer program. 

That’s not to say the Zestimate isn’t accurate. In-fact studies have shown that the Zestimate has a margin of error that ranges from 2-6% depending on your market. But when dealing with a home valued in the hundreds of thousands of dollars, that can mean tens of thousands on the line. 

But let’s rewind for a second, back to that fun word “proprietary”. The real issue with the Zestimate, is that Zillow isn’t willing to break down how they arrived at their number. Their algorithm is a closely guarded secret, and the expectation is that their customers should trust it blindly because of its tech and A.I. backed nature. After all, taking human error out of the equation seems like a great idea…..until it isn’t. 

How the human touch helps your valuation

The issue with tech based offer algorithms is that real estate values vary due to an immense multitude of different factors. So many, that there is no feasible way that A.I. can be programmed to account for them all. 

A few examples of these factors could include: 

 

  1. Location – The price differential for homes on two adjacent streets can be significant based solely on the adjacent attributes of each in turn. A corner convenience store, warehouse space, or even a bus stop can drastically reduce the price of a home when compared to a street that lacks these features. Most A.I. won’t be able to take these items into account.

  2. Interior condition – The neighbors home just sold above market value, so you’ve got a notion that your home should be just as hot. Only they’ve got granite, original hardwoods, and new premium fixtures – you’ve got paisley wallpaper that came with the house. These interior features can drastically influence the value and desirability of a property, A.I. will have a difficult time pricing these subjective factors. 

 

  1. Age of comparables – The real estate market is in constant flux. From may 2020 to may 2021 alone home prices rose over 13%, or more than 1% per month. Because A.I. offer algorithms are based on machine learning, there is often a lag time before the most recent sales begin to be accounted for. A comparable from three months ago could hold a price tag over 4% lower than your home’s current value. 

 

Professional real estate agents are highly trained to consider these factors in real time, and they have the flexibility to account for factors that would otherwise go unnoticed by those who aren’t familiar with an area. Knowing how people, not projections, value these factors can ensure you get the best possible offer. 

The truth is in the explanation

The biggest drawback to trusting an A.I. model; however, comes from the value lost when these factors can’t be individually explained. A professional real estate agent will be able to sit down with you in a one-on-one setting to break down their valuation, explaining each individual factor and how they are weighted. If you choose not to work with them, you’ll still be left with more knowledge of how others may value your home. 

Unlike an A.I. offer algorithm, which will simply tell you what one buyer or service believes your home to be worth. As a real estate agent or investor should never charge you for this service, there’s little risk meeting with them. 

Making the best decision for your property

Your situation is unique, and the solution that best fits it will likely be unique as well. For some sellers, getting an A.I.  driven instant offer may be the way to go. For others, the human touch may add some much needed value. Consider your needs when deciding how to sell your home, and make the choice that works best for you! 

Or if you want the best of both worlds, Duval Home Buyers offers a technological platform with offers built by real agents. We’re happy to submit an offer sight unseen using our internal algorithms, or sit down at a kitchen table to review! Selling your house has never been easier.