New Real Estate Rules

Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries wrote Zillow Talk: The New Rules of Real Estate, Grand Central Publishing, 2015.  

Zillow launched in 2005, and had 1 million users on day 2, primarily due to Zestimates, the ability to put in any street address in the US, and get an instant assessment of home value. Their website crashed. They knew they were on to something big. 

In fact, data-driven businesses have become a key source of economic growth, and have led institutes like Hyper Island in Stockholm to train young people to become digital data strategists, an entirely new discipline. 

Anyway, here a few data-driven pointers from Spencer and Stan:

1. buying the worst house on the best street is not a winning real estate investment strategy supported by the facts

2. mid-range remodeling your bathroom has a better ROI than redoing your kitchen (which actually ranks 6th best not 1st as so many realtors tell you), especially if you add functionality like another toilet or even just separating toilet and sink from shower

3. using “unique” in your listing is bad–it implies to buyers that only you like it

4. better 3-d images and more drone footage will allow buyers to “visit” many more homes and “walk” through them virtually, winnowing out ones that don’t fit their wishlists much more quickly, and making their ultimate choice of a home more likely to actually suit them

5. real estate closings, the “last mile” of a transaction, are far too complex–the paper burden needs to be reduced/documents made easier to understand/the whole thing made more “lightweight”

6. homes near amenities appreciate much faster than those further away

This last point is particularly interesting to me. NIMBY has become a worldwide phenomenon–people are fearful that adding any type of new use, whether it’s something as limited as building townhomes near a residential subdivision full of single family dwellings or developing a corner store in an existing community, will crater their property values.

Not so says Stan Humphries. Their analysis of 17 years of home sales data in the US showed that houses within a ¼ mile of a Starbucks appreciated 96% while those further away, went up by just 65%, a huge difference. 

Mr Rascoff asks, “Is it the fact that Starbucks is great at picking locations or because after a Starbucks opens, other amenities move into the neighborhood that drives up value faster? Is it cause or effect… turns out, it’s a bit of both.”

I look at it somewhat differently: if you buy a house in a location where Starbucks is likely to (some day) build a shop, you’ve probably already picked a location that has a higher walkability score or, at the very least, has some tolerance for diversity–of built form and use. 

This is what leads to a steeper upward slope of a rent curve, which means NIMBY’s are wrong to oppose densification (eg, more towns nearby) and intensification (more mixing together of different uses like adding a convenience store or coffee shop), all else being equal. 

The key point here is that there is no fraying of the social fabric due to development–that is, peace and order are not being disrupted by neighborhood change. If change in built form or use leads to petty crime, graffiti, litter, lack of maintenance and repair not only of private property but in the public room, then all bets are off. However, experience shows that, in most cases, more street life, more community animation, more tolerance of diversity leads to safer higher value communities, not the other way round. 

@ profbruce @ quantum_entity