Daria Dzyabura, PhD
In the first decade of the 21st century, a profound shift has occurred in the way people shop for real estate. Unlike past generations, this new generation of consumers, known as the Millennials, have access to information on listings, neighborhoods, photos, and other information to determine available options. Before such resources were available, consumers needed the help of real estate agents to provide them with information on properties for sale, pricing, mortgage rates, and other data relevant to the transaction. But today's consumers, especially those under 40, take advantage of all available information - they often come into a home showing knowing everything about the property. This more egalitarian information distribution model may have some home buyers thinking they do not require the help of an agent when searching for a home. However, our research shows that the help of a professional realtor, especially when looking for one's first home, can make the process far more efficient: a good realtor can help buyers find a better home faster than they would have on their own.
While the internet has aided the consumer home search process, it is important for real estate agents to 1) understand how and where they create value for the consumer and 2) how to communicate that information effectively to the consumer.
We conducted an online questionnaire among 140 real estate agents, asking them about their experiences when acting as the buyer's agent. Respondents were asked to answer with respect to their last client who was serious about purchasing a home, whether or not that client ended up purchasing. The survey, which took about 10 minutes to complete, consisted of four sections:
- Section 1: The preferences their last client stated at their first meeting, before going out to see any homes, as well as the realtor's impression, also at the first meeting, about how much these preferences would change;
- Section 2: The homes the realtor took the client to see;
- Section 3: The home the client ended up purchasing (if any), and how it compared to the preferences stated in the first meeting;
- Section 4: The real estate market in which the respondent works.
In Section 2, we examined several measures of how much the clients changed their minds during the course of the search. In the same section, we asked the respondents how many properties, in total, they took the client to see. The average number was about 10, and there was a very high correlation between the number of homes seen and the degree to which the client changed her mind about what she wanted. This means that learning what one is looking for is a key determinant in the length of the search.
We were also interested to see if realtors could accurately anticipate which of their clients will change their mind about what they want as they search for a home, and which ones are clear on their preferences. We asked the respondents to rate if they could anticipate, at their first meeting with the client, that the clients would change their minds about what they were looking for after seeing some homes. This means that realtors, being experts at helping guide people's search process, are good at identifying who is likely to change their mind as they search and who is not.
Additionally, we found that whether or not realtors observe their clients changing their desired attributes in a home impacts the homes they take them to see. This was measured using two scales. The subsection heading stated: "Please describe the following characteristics of your interaction with your client," and the scale items stated "I only showed the client properties that matched their stated needs," and "I chose some properties to help the client learn what they wanted." The respondents were asked to rate both items from 1 (Strongly Agree) to 5 (Strongly Disagree). The average responses were, respectively, 2.29, and 2.31. The correlations with the client's changing preferences were, respectively, -0.276 (p<.001) and 0.290 (p<.001). This means that the more the client changed his/her preferences, the less likely was the realtor to only recommend properties that matched the client's stated needs, and the more likely to include some properties to help them learn what they wanted.
What Exactly Do Agents Offer?
To understand the value that a real estate agent can provide to a home buyer, let us step back and examine the nature of the home-purchasing decision. The process is similar to other important choices, such as choosing a spouse or deciding where to go to college. While all three are very important long-term commitments, many people go into the decision without knowing exactly what they want from their ultimate choice. Some of the most common mistakes high school students make when choosing a college to attend are considering only colleges that their mom or dad attended, choosing a college based on the quality of the school's athletic teams, or applying to colleges based on geographical location. These mistakes do not arise from a lack of information about colleges, but rather from not knowing the importance of the information itself. Even in dating, research shows that people do not always know what they desire in a potential partner, even though they usually think they do (Finkel et al. 2012). Because people lack insight into what they desire in a potential mate, the characteristics they seek out in an online dating profile may differ from those that will create a connection in person, not to mention a good long-term relationship.
In all these examples, decision-makers reach out to knowledgeable people for advice. These may be college counselors (in the case of college selection), and therapists or family and friends (in the case of relationships). One of the most important roles of these advisors is to help the decision makers refine their thinking about what exactly it is they are looking for.
Aside from having full information on the characteristics of the property, real estate agents have another, more subtle, area of expertise: knowledge of what home buyers want, versus what they think they want. Often, what consumers start out thinking they want is not what they end up wanting. This is especially prevalent for first-time home buyers. If the buyer keeps changing his mind about what he is looking for as he visits properties, the process becomes much more time consuming and frustrating for both the buyer and realtor. For this reason, several experienced realtors said it is very important to learn exactly what the buyers need, and what they can do without, before even leaving the office. Realtors report visiting, on average, about 10 homes with each client. This number may be reduced if both buyer and realtor make a strong effort to clarify the buyer's needs early on. In fact, our survey showed that the more a buyer changes her mind during the course of the search, the more properties she visits.
Help Shape the Buyer's Decision Criteria
How can a realtor help the buyer better understand what the buyer is looking for in a home? One way is to let the buyer know about common mistakes other buyers have made in the same market. After having worked in a certain market for a long time, realtors are most likely able to anticipate what property characteristics consumers over- or underweight. For example, an agent in Boston said that people moving from the suburbs into the city tend to underestimate the importance of what the common areas in the building, such as the lobby and staircase, look like. Another observed that home buyers tend to focus too much on the price per square foot, while ignoring the fact that a large apartment with a poor layout may be worse than a slightly smaller unit with a more convenient layout.
Similarly, there are attractive features that some buyers may have not even considered in their search, but ultimately drive the purchase decision. As one agent put it, "Let's say someone is looking for a 1 bedroom with a good layout. I show them one, and then I walk in the bedroom and open up a French door to a private deck. They love that, and want me to look for more apartments with a deck." In our survey, the majority of realtors stated that they could anticipate which clients would change their minds about what they wanted as early as their first meeting with the client. While consumers may want to search for specific properties on their own, they greatly benefit from the help of experts who can advise them on what they may end up liking or disliking. By engaging experts early on in the home search, consumers can make the entire search process quicker and more enjoyable.
Help the Buyer Learn Quickly and Efficiently
How do realtors help their customers learn about what they want in a home quickly and efficiently? One approach is directly informing the customer about the characteristics that past customers like them have changed their mind about as they search. For example, one New York realtor warned a consumer moving from California that she would probably not like apartments with northern exposure because they get very little sun in the winter. This gives the client the possibility of thinking about the specific characteristic more carefully without having to take time to visit undesirable properties.
Another approach is taking the risk and showing buyers properties that do not align perfectly with what the buyers say they want. One example that came up in interviews was apartment condition: sometimes buyers say they want a fully renovated unit, but if they see something that needs a little bit of work, but has all the other features they were looking for, they may be open to the possibility. In our survey, most of the realtors who said they could anticipate that the client would change her mind showed some homes to help the client better understand what she wanted, even if she was unlikely to purchase those homes.
By thinking carefully about what consumers know when going into the decision to purchase a home, they are able to provide valuable advice to buyers. Even though today's buyers can find detailed information on available properties on their own without the help of a realtor, a buyer cannot find something if he is not looking for it. When beginning to look for a home, many consumers, especially if it is their first home purchase, have to learn not only what is available on the market, but also about their own preferences.
There is no question that the nature of real estate shopping has changed dramatically because of the internet. Almost everyone with access to the internet does some form of online research when shopping for a home - and although more people now use the internet to execute the home search, most still use an agent to facilitate the actual home purchase. This research explores one of the ways that realtors continue to provide value to consumers looking for homes, despite having lost their monopoly over information. Good realtors can do much more than search the database for the characteristics of available homes. They also have valuable insight into consumer behavior, which they use to help consumers find better homes faster than they would on their own.
By understanding how and where you create value for the consumer and learning how to effectively communicate that information to the consumer, you can reestablish your role as a necessary component of a successful home-buying experience. Help your clients understand that the internet is just a surface-level search tool - the agent is the key to a successful buying experience.
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Finkel, Eli J., Paul W. Eastwick, Benjamin R. Karney, Harry T. Reis, and Susan Sprecher (2012), "Online Dating: A Critical Analysis from the Perspective of Psychological Science," Psychological Science in the Public Interest, 13 (January), 3-66.
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About the Author
Daria Dzyabura, PhD
Assistant Professor of Marketing, Stern School of Business, New York University
Daria is an Assistant Professor of Marketing at the Stern School of Business at New York University. Professor Dzyabura's research focuses on analyzing complex decision-making rules and developing efficient forecasting methods for multi-faceted buying situations. Daria has published research in the Journal of Marketing Research and Marketing Science. Daria received an SB in Mathematics and a PhD in Marketing, both from the Massachusetts Institute of Technology.