When it comes to real estate, you’ve likely heard the expression “location, location, location” — and for good reason. A little more than half of a property’s price can be connected to traditional real estate data about the site itself, such as the year when the property was built, when and how it has been renovated, specific features such as access to parking or a swimming pool, etc. And while this may seem like a lot, it’s still only 52% — meaning that there is 48% that can be tied back to other factors, such as location, proximity to transit, retail and schools, the character of a neighborhood, and more.
What does this mean for real estate investing? Traditionally, developers and real estate investors rely on gut feelings to understand the area around the site. They are informed by personal experience in the market and boots on the ground site visits — essentially, subjectively assessing that remaining 48%. Today, however, in-person visits are sometimes restricted by the pandemic. Additionally, more and more clients and investors require and expect data-driven decisions. This traditional approach does not cut it. Luckily, it is also no longer necessary, as more alternative data is available.
The Impact of Data on the Current Real Estate Market
Historically, real estate investors have made their decisions based on professional experience and opinions on the market. However, today, data and data analysis helps to make it possible to use accurate insights — in real-time. As a result, this empowers those in the real estate industry, including investors and developers, giving them a clear picture of prime investment opportunities and a holistic measure of risk.
With this in mind, let’s take a closer look at four ways today’s real estate market leverages data.
Data Offers a Wider Scope of Analysis
Data not only improves the accuracy of predictive algorithms and helps to drive due diligence for successful real estate investment, but it can also be used with more applications. For example, data can be used to effectively in:
- Underwriting mortgages
- Insurance risk assessments
- Appraising property values
- Evaluating demand for specific housing types and marketing to consumers
- Minimizing the environmental impacts of development
Data Delivers More Accurate Property Evaluation
In the past, real estate professionals have relied on their personal opinion of the area and stats on the asset itself to evaluate and appraise a property. As part of this process, they will also perform a comparative market analysis, comparing recent, similar sales of proximate assets.
However, today’s property appraisals benefit tremendously from access to data that can be fed into AI models to help base home prices on current trends. These can include current market supply and demand, property characteristics, and more.
Data Allows for Better Prospecting, Marketing, and Sales
In addition to analyzing and appraising properties, data also impacts how properties are marketed and sold. Data is being used to digitize the sales process, from tracking visitors’ interactions on websites to delivering relevant ads online. Further, data is being used to closely analyze buyer preferences, budgets, and more.
Data Drives and Boosts Property Development
Real estate developers also see the value that data can bring to the industry to drive their bottom line. As a result, savvy investors are sourcing clean, quality data sets that can be used for a number of purposes, such as pinpointing specific parcels or properties that are poised to deliver a high yield return on investment.
Real estate developers can also use data to fine-tune properties to the unique needs and desires of the residents. In other words, quality data can be used to not only tell real estate developers where they should build, but it can also give key indicators into which amenities their residents really want in their homes — and what they are willing to pay a premium for. By developing properties that align with the features and amenities their potential residents want, these customized projects can, in turn, command higher prices, increasing profit margins.
Not All Data is Created Equal
Of course, it’s essential to keep in mind that there is data — and then there is good data. In the real estate industry, databases are going through a huge shift in accessibility and quality. This last decade, data was used in real estate to determine what a property was worth within a transaction. For example, investors looked at how much a commercial property was generating, made their best guesses, and then decided whether or not they thought the building would be a good investment and worth purchasing.
Today, investors can delve much deeper into the potential of a property, both in terms of risk and return. Thanks to a wealth of data available to them, from demographics reports and transit patterns to climate risk and access to parks, investors and potential buyers have an accurate idea of what their return will be from the very beginning.