Quantitative vs. Qualitative Data Analysis and Real Estate
Never has so much real estate data been so available to so many people. Most large US Metro areas have most Realtor listings online for public search (Austin has AustinHomeSearch.com). States that have mandatory disclosure on sales prices (Texas is not one of them) offer consumers a lot of sales data to peruse via aggregators such as Zillow and Trulia. Real Estate bloggers like me post all sorts of stats and information about real estate markets. People like stats, myself included.
What I’ve noticed though is that a lot of people look too much at stats and numbers and not enough at other factors when making a real estate purchase or sales decision. Case in point is the large number of investors who I DIDN’T work with over the past several years because I wouldn’t sell them a home in Hutto, Kyle, Manor, or other outskirt starter home areas. Some were truly shocked at this, but I’d simply tell them it was a bad idea and they’d need to find a different Realtor if they wanted to buy in those areas.
I personally knew these areas were not good investment areas, even though the “numbers” suggested otherwise from a strictly “cash flow” basis. In other words, to an investor who plugs everything into a spreadsheet to decide which house to invest in, it’s hard to pass up the home with better “numbers” in favor of a home in a better location.
It’s better, I argued (and still do), to stay closer in to established Austin areas with good commute times, better schools and convenient amenities, even though the “numbers” might not look so good.
A recent article by Angelou Economics makes the point about over-reliance on data better than I can. Though the article is not about real estate, it does do a great job of illustrating the ways in which over-reliance on quantitative data to the exclusion of qualitative data can produce bad information, and thus bad decisions.
Here is a clip from the article.
the risk of relying exclusively on quantitative information becomes increasingly tempting. Too often a comprehensive list of data points substitutes for a true understanding of the business dynamics within a given environment. Numerical information soon becomes gospel, leaving subjective judgment and qualitative factors unexamined.
That last sentence describes what I observed in many investors I would talk to who were convinced that their spreadsheet knew more about investing in Austin than I did.
Here is a link to the Angelou Economics Article which explores the topic of quantitative vs. qualitative information in more detail.