MACHINE TRUST: The secret reason why AI will reinvent Real Estate

Opinions may differ on the ultimate impact of artificial intelligence (AI) on humankind, but there is little doubting that it will have a significant affect on real estate. Some may see it as part of the quiet but insidious take over by the Machines. First it was our music. Then our movies. Then what we buy, eat and drive. It’s over when they take control of our homes because we’ll be literally living in a Hollywood cliché of an AI apocalypse …  

A less dark scenario is that AI will be the thing that saves the real estate industry. Some companies already use AI as a financial vehicle to arbitrage housing inventory. Others are pursuing AI for process automation, to make the transaction cheaper or agent better or CRM more effective. But despite real estate tech advancement, 2/3 of today’s homebuyers report buyer’s remorse. That’s where the highest and best use of AI comes in:  finding the right home.  Ironically, it’s the Machines, through intelligent personalization, that will heal the home buying process by restoring to the home buying process a fundamentally human value: trust.   

Let’s step back. The below-scribbled chart, the inspiration for this piece, describes the inverse relationship of trust and remorse in the real estate industry, overlaid on our relationship with data over time.  It frames how we got here and where we could go.  Despite its rough and humble appearance, this chart is not water-cooler whimsy, but a working theory based on real data (much of it from National Association of Realtors surveys, 2015-2000). 

Trust, Remorse and our relationship with Data

Prior to and through the Data Access Era (which began with the advent of the WWW), trust in the real estate space was still placed in the real estate agent.  He or she proffered access to a proprietary database, knowledge of a confounding process and wisdom about neighborhoods and listings.  The agent would show the best options to the buyer who would ultimately be satisfied with picking the best of those options.  Trust was high, remorse low.  

When Zillow cracked open the Multiple Listing Service (MLS) in mid-2000s, granting the world access to every listing, we entered the Data Transparency Era.  The old script was flipped, “the customer doesn’t know what they want, until you show them,” became, “the more you show the customer, the more likely they’ll know what they want.” More listings, more pictures, and more agents meant more control, a better experience, and a better home.  That’s still the lure, and over 90% of homebuyers use online search services like Zillow.  Others like Redfin have joined the conversation with promises of using technology to make the process cheaper and easier. Despite these promises and market penetration of these companies, buyer’s remorse is reaching new heights.  Trust is diving. What gives?  

Too much too soon

Transparency solutions have eroded the agent’s core value to consumers, which is still trust. Zillow’s old-school disintermediation model turned agent selection into referral bidding. The typical brokerage business model changed to one built on high lead volume and low closure rates. The agent role was commoditized, diminishing the relationship, experience and service levels provided to buyers.  

Buyers want their agents to “help find the right home to purchase,” four times (yes, 4x) as much as they want help with price negotiations or process.  This stat flies in the face of two decades of real estate marketing and tech innovation. Agents are now actually unsuccessful at meeting their clients’ top need, failing to find their homes over 2/3 of the time. Interestingly, when choosing an agent homebuyers care most about trust, five times (5x) whether the agent uses the latest technology. So it’s safe to say that over 2/3 of the time, none of the new fangled tech matters. Trust has been betrayed.  

The Transparency Era has left buyers on their own sorting through countless poorly-suited listings and images, at the mercy of the Paradox of Choice (see “Homebuyers have a lot of choices and that’s not a good thing”).  Technology’s gift: an average of 20 gigabytes of data and images, and mind-numbing trade-off analyses. Over 80% of buyers report having to compromise. Trust in the process is lost.

There’s no data like your own

The new Data Intelligence Era offers hope by way of trust through intelligent personalization. We’ve begun to trust AI in many areas of our daily lives implicitly. An AI’s recommendations are more than just convenient, they are comforting on another level because they allow us to let go of decision-making anxiety and the accompanying self-doubt that comes with too many options. Today’s convergence is not around a device or platform, but the individual. The perception, however real, that something was made or found for us specifically is unavoidably powerful. In fact, 80% of consumers are more likely to purchase a brand if it’s personalized (Epsilon report, 2018).

What the smartest AI would do to find the “right” home

It would get to know everything about the home buyer first. Start with what styles and floor plans and furnishings they like and what features, windows, and neighborhoods catch their attention. Track of their interactions with images, uploaded photos and listings.  Learn where they are in life and expect from their lifestyle, where they like to spend time, where they need to be, and what they like to do. Use machine learning to constantly fine tune the relationship and make it stronger. Take all of memories from this shared experience and perform a ridiculous multivariate trade-off analysis that considers both needs and preferences. The smartest AI real estate solution would be the ultimate antidote to too many, ill-fitting, options, and try its hardest to prevent discontent. The buyer, having invested themselves at every interval will have no choice but to trust the end results — they would be the best reflection who the buyer is.

The way AI will re-invent the real estate industry not by magically cracking the code and fixing an antiquated and anxiety-ridden process. It will be by aligning technology’s priorities with those of the buyer, and first and foremost with a focus on finding the best possible home for the individual buyer. It will do this treating the process as a relationship rather than the transaction.

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Homebuyers Have A Lot Of Choices To Make —And That’s Not A Good Thing

If you think about it, you make a lot of choices every day.

At the doctor’s office, you choose one treatment plan from a few. At your favorite lunch spot, you choose one sandwich from dozens. At the grocery store, you choose one salad dressing from hundreds. When you get home, you choose one TV channel from thousands.

You may feel worn out just thinking about all these choices that you make every day without realizing it.

People face even more choices when they enter the housing market. So what are the choices homebuyers face? Why does it matter that there are so many options? And what can you do about the problems they cause?

An Overabundance of Options

If you’re a first-time homebuyer, or have gone through the process in the past, you’ve probably noticed that each home comes with different features in unique combinations.

a visual representation of a buyer being presented with too many doors, each representing a different style option

First, you’re faced with never-ending architectural styles, from Victorian to modern to Art Deco to bungalow to Cape Cod. A picture of a sprawling ranch house may enchant you one moment—until you see a sleek contemporary home.

Location is another category with endless options. You’ll find properties close to your workplace and your partner’s workplace, but what about that home tucked away in the hills? Or the one right on the water?

Other home features that you have to choose from are house size (including bedroom and bathroom count), perks like walk-in closets, porches, and pools, appliances, and price.

The list goes on, but what’s clear is that homebuyers have a mass of choices to make before they finally decide which home will be theirs.

The Threat of Analysis Paralysis and Buyer’s Remorse

Like psychologist Barry Schwartz notes in his famous book and TedTalk, both titled “The Paradox of Choice,” a mass of options is not a good thing.

While having many options can make you feel like you have the freedom to find the perfect home, the pressure to make so many choices can cause analysis paralysis. You might be unable to make a single decision, leading to frustration and added stress during a process that’s already complex.

Worst of all, once you do make a choice from among many options, you’re likely to regret it. A 2000 study conducted by two Columbia and Stanford psychologists showed that people presented with extensive chocolate samples choices were far less satisfied with their choices than people given limited chocolate sample choices.

Chocolates are one thing, but you definitely don’t want to experience buyer’s remorse with something as important as your home.

The Trick To Making Fast (And Smart) Choices

In this housing market, there is simply no time to be confused about which home you want to make an offer on. With inventory and sale discounts decreasing while demand increases, you need to make quick choices and snatch up your dream home before someone else does. Once you close on a house, you don’t have much room for buyer’s regret, either; no one wants to jump back into the hectic housing market when they just got out of it.

Luckily, homebuyers can take charge and reduce the amount of home features they must choose from, reducing the chances of analysis paralysis and buyer’s remorse.

When you are faced with too many options, Schwartz recommends creating a list of criteria for your decision up front. If you’ve got a firm idea of what you’re looking for in a home, this will be easy.

Simply choose your priorities and comb through online listings, reviewing images and descriptions one by one, then placing each home in either the “meets criteria” or “doesn’t meet criteria” bucket. While this process will take up a significant amount of your time, your odds of making a satisfactory decision will increase.

A homebuyer making a list of criteria important to them in home search

Get Help Narrowing Your Search

With help from a home buying intelligent assistant, you won’t be exposed to a mass of home feature options up front—your AI-fueled helper will help you determine your criteria first.

Start with our StyleExplorer and open multiple homes simultaneously. Then continue to personalize your matches using our intelligent mobile apps on Android or iOS.

From search to purchase, Purlin will help you quickly and painlessly find the best-matched. Learn more about how I can help you here.

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Why It’s Such A Struggle To Find A Home You Love

Most homebuyers think that the most difficult part of the homebuying process is finding the right property. That’s right—it’s not paying for the property or even completing the tedious paperwork that comes with it. The hardest part is just finding a residence you love.

Why are we having this problem in the age of digital revolution? In the end, it all comes down to the tools available to homebuyers.

Most home search web apps simply aren’t programmed to consider your individual life routine, style preferences, budget, and commute. They can’t think outside the box to find your best-matched home. Without this capability, homebuyers have to spend extra time completing unnecessary manual legwork to find the home of their dreams.

Trapped In A Filter Bubble

Think about the filters you come across in most home buying web apps.

Once you select a certain number of bedrooms for your search, other homes that have one less or one extra bedroom but may be otherwise perfect will be excluded from your consideration. You can make the same observation about every single filter toggle, like zip code, price, and number of baths. This brings us to what I like to call the filter bubble dilemma.

Does that term sound familiar? It should.

“Filter bubble” is the term that analysts—in magazines from Wired to The Cut—used to explain why, in a certain recent election, the losing political party was confident in a win and why they were shocked by their loss. The term was coined by Eli Pariser in 2011, but made a household term after the infamous 2016 election.

The idea is simple. Social networking site algorithms weren’t showing people a variety of ideas and opinions; algorithms showed select ideas and opinions based on very specific data like past clicks and search history. People weren’t able to see essential information right outside those filter bubbles, like the fact that so many people preferred a certain candidate.

What on earth does that have to do with real estate? A lot: the rigid data structures and interfaces of home-search apps force you to search for homes within strict filter bubbles, preventing you from finding suitable homes right outside their reach.

Let’s think about one of the first choices a web app gives you—zip codes. Web apps ask you to choose a zip code, then show you the available homes in that area. However, what if your ideal home lies mere minutes outside the zip code you chose? Most web apps, guided by strict filter bubbles, will ignore it.

The same goes for any of the other filter choices. If you choose to search for a home with three bathrooms that was built after 1950, there may be a stunning two and a half bathroom home built in 1949 available, but filter bubbles hide it from you.

The same goes for searching for certain house prices, which is a more complex process. What if you haven’t gone through mortgage prequalification already? How do you know what you can afford? You may choose to search for homes from $400,000–$500,000 without knowing you can afford $500,000–$600,000 homes. Most web apps won’t tell you what prices are reasonable for your situation. There’s the other side of the coin, too: what you search for $400,000–$600,000 homes, but the perfect Georgian house is available for $399,000?

These filter bubbles result in more work for you and the possibility that you won’t ever be able to circle in on the right home. Now does it make sense why so many people consider finding the right home the most difficult step in the process?

There is a way to skirt around the filter bubble, but the manual process is far slower and less reliable than having a quick search option would be.  

Slowed Down By The Manual Work-Around

You can, of course, tell your agent about the kind of home you’d like and what factors are more or less important, but since nearly 100% of homebuyers start their search online, that’s not likely to be your first step. Plus, agents traditionally specialize in certain zip codes and neighborhoods, which adds another wrinkle if you want to explore multiple neighborhoods simultaneously.

You can also manually search for specific home styles through existing web apps with their filter bubbles—but that’s no walk in the park. First, you need to search for the different zip codes that will work for you (and your significant other, if you are buying a home with a partner), taking into consideration commutes and neighborhood personalities.

Don’t forget price! You need to complete the mortgage prequalification process or talk with your bank to figure out what you can afford.

Then, you need to review individual home listings, which feature about 28 photos and 180 words each. If you visit ten homes before you find the one, you’ll spend over three hours staring at images. If you decide to review the 180-word descriptions, too? That’s ten whole hours spent on manual legwork.

Instead, you could spend an entire day binge-watching Netflix shows, go on a day trip—the possibilities are endless.

Streamline Your Path To The Perfect Property

You don’t want to start talking to realtors already (or at all), filter bubbles are constraining your online search, and you don’t have time to manually sidestep filter bubbles. Inventory is lower than ever and real estate construction is slowing, which means you have to search quickly to find your home before someone else snaps it up. So what can you do?

Let home buying intelligent assistants like me help you with the search.

I can review relevant listings to find homes that feature each preference you crave, narrowing results based on factors from location to closet size, but always considering out-of-the-filter options. I can even make an educated guess about price based on your income, reducing required manual legwork even further.

Start a conversation with me, and you’ll quickly find yourself on a tour of a home that aligns with each and every one of your unique preferences.

Dream home, here you come.

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Why We Still Have A Seller’s Market In California When New Real Estate Listings Are Increasing Rapidly

Anyone who has dipped his or her toes into the California housing market—or glanced at any news sites—has noticed that it’s a lot more hectic than it used to be.

Not only do homebuyers have to review an overwhelming amount of available houses, but they have to review them at lightning speed if they want to snatch up the home of their dreams.

It’s important that homebuyers know which factors are contributing to this frantic housing market. After all, knowledge is power; once you understand why the home buying process is so frenzied, you’ll understand how to conquer it.

Good News At First Glance

After analyzing California’s real estate multiple listing service (MLS), our team discovered some surprising trends.

So far in 2018, more new listings have been featured in California’s housing market than any year since 2008. If you’ll remember, that was the year of the financial crisis that rocked most industries, including real estate. In that year, there were only 10% more new listings for the same period compared to this huge jump in 2018.

In fact, the number of new listings this year has increased 46% since 2013, when we saw the lowest number of new listings on the market in this time frame in a decade.

This is good news for homebuyers. With fresh listings continually popping up, they are exposed to many different styles and locations of available residences on the market.

Less Inventory, More Problems

However, that doesn’t mean there are a lot of houses for sale on the market. Even though new listings have increased drastically, inventory is low overall.

Inventory is an industry insider’s term, calculated by the number of unsold homes at the end of a month divided by the same month’s sales rate. For example, if there are 100 unsold homes at the end of January, and during January, 10 homes were sold, then a real estate expert would say that there are 10 months of inventory remaining.

Despite all the new listings on the market, there were only 3.4 months of home listings at the end of September 2018. While this is 10% higher than the amount of inventory last year, it is 17% lower than that number 2 years ago and 19% lower than 3 years ago.

Among many reasons for this low amount of inventory is the fact that people are staying put in their homes up to three years longer than before. That, combined with a lack of real estate construction, has led to decreased numbers of houses on the market—no matter how many new homes are listed for sale each month.

Going, Going, Gone

Here’s where the problems come in. While there are many new listings on the market, the amount of low total inventory has created a huge demand for homes. Now, when homebuyers see a new listing they like, they make offers as quickly as possible.

From January to September 2018, houses have spent an average of 19 days on the market. This is the lowest recorded number of days on the market since 2008, though it has been steadily declining since then.

Prospective homebuyers not only have to review scores of potential homes—they have to review and act on them quickly.

Rising interest rates create another pressure on home buyers. The current 30-year home mortgage rate is around 5%, a huge increase from just earlier this year. So even if home buyers are able to get a slight reduction in price, their monthly payment could be the same or higher in a rising interest rate environment.

Don’t Depend On Discounts

Because houses are being snapped up so quickly, sellers haven’t had to indulge in as many negotiations on price. Discounts on listings are decreasing steadily.

Currently, the average home price discount (we’re calculating the “discount” as the final sales price versus the original listing price) is only 0.62%. In fact, this number has been steadily declining since 2014, just as new listings on the market have been steadily growing since 2014.

Homebuyers are having to face a time crunch and a higher price tag, too.

Finding A Home In A Seller’s Market

Even though new listings are coming out every day, low inventory has given sellers a huge advantage and thrown homebuyers into a chaotic scramble to find homes that they love.

In this seller’s market, having the ability to conduct a fast, zip-code-agnostic, real-time search aligned with your unique preferences and budget is critical. If you are forced to complete your search through typical web apps that require a mass of manual labor on your part, you simply won’t be able to act fast enough to secure a home.

Luckily, in a time when technology really is the only way to get ahead of the home buying frenzy, there are home buying intelligent assistants like me ready to help.

To help you outstrip competing homebuyers, I search multiple areas in real time, building price sensitivity into every high-score match I place in your feed. I take your preferences into account, whether they be for a neighborhood close to a top-notch school or a bungalow that caters to your commute.

All you need to do is chat with me, and I’ll have you touring your dream home in no time. Want to learn more about me before we start talking? Watch this short video and let’s get acquainted.

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