Quantitative vs. Qualitative Data Analysis and Real Estate

Austin Sales StatsNever 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.

11 thoughts on “Quantitative vs. Qualitative Data Analysis and Real Estate”

  1. I guess you can’t go wrong if you pull the county records to see what realtors themselves have bought as their investment properties and just buy in that area πŸ™‚

    From what I see the land in SW Austin just screaming to be bought, eh πŸ˜‰ ?

  2. I remember a better description of that paragraph. It’s just one sentence, and most of us are familiar with it. – Garbage in, Garbage out – you can back up just about anything with statistics….politicians are masters at that, along with economists. Real Estate is local, so it bodes quite poor for stats in aggregate. I remember posting this same topic with Steve back in May, with roughly the same points. Per RE investors, true, they look at numbers far more than owner-occupants, to the point that it is their main concern. It indeed is our job as real estate professionals to interpret the stats as we see them, bringing into play our own experience and knowledge, and coloring them with our own stamp, though it is as subjective as any other spin.

    We see into stats what we want to see. The only pure objectivity is what we see with our own eyes, but even that is colored. A blighted area
    may appear beyond return, but a true visionary may see possibilities in his inner mind missed by most. Ultimately, it comes down to forcasting, per investing, and its a hunch, when all is said and done, regardless of the quality of the data or experiences one brings to the table. If we were 100% clairvoyant, we’d all be billionaires per investments. That isn’t the case, as unexpected things happen, in a macro- and microeconomic sense that we can’t poassibly plan on. Like the butterfly that flaps the storm down the Atlantic, so many factors impact and change one another that we can simply, on our best hunch, prognosticate per what we have seen before. Sometimes it works, sometimes it doesn’t. Even Greenspan’s prognostications were hunches, when all is said and done, regardless of all the gobbledigook and mumbo-jumbo.

  3. I was just wondering if the pool of real estate data that realtors rely upon is becoming significantly smaller and skewed due the ever increasing number of sellers, investors, etc, completing sales via the DIY route online etc i.e, for sale by owner. If a seller is not working with a realtor then is there even a record of their sale as far as realtors are concerned or are prepared to admit?

  4. > what does the graph in this post have to do with it’s contents?
    Nothing. It was my attempt at decorating the post with something that looked graphical.

    > From what I see the land in SW Austin just screaming to be bought, eh
    We practice what we preach. South/SW Austin is a great place to buy real estate, in my opinion.

    > Garbage in, Garbage out
    True, but even perfectly good data relied upon at the exclusion of other information and factors can lead one to make poor decisions. That’s the point being made.

    > … the ever increasing number of sellers, investors, etc, completing sales via the DIY route online … If a seller is not working with a realtor then is there even a record of their sale
    There is not an increase in the number of FSBO sales compared to 20 years ago, even with all of this new technology. FSBO sales still account for about 13% +/- of all residential real estate sales, with a large percentage of those sales being between family and acquaintances.

    But to answer your question, most states make public the real estate sales data, so it matters not whether a home sold through MLS or not as to the availability of the sales data. The MLS sold listings do offer the advantage of listing the amounts for seller paid costs such as repairs and closing costs. Tax records don’t offer those details, only the gross sales price.


  5. Steve, I’m laughing at your comments! Good one per the graph question. LOL! I get the feeling that some folks that
    read this stuff hate realtors and pick nits out of spite. You can go beyond the graphical interface comment, and ask
    why you blog, why you sell real estate, that Fsbo’s are missing in the data, and so on, ad infinitum. I think there are
    more than a few people who read these things that hate agents, and love throwing little darts and digs out there
    out of spite. I’ve heard it all before. You know its a dig when they have nothing substantial to say themselves to
    add to the mix. Excuse me while I go pick a couple nits….

  6. We love a good agents. The sad thing is is that Austin is full of bad agents that think they are good because Austin home sales have been so good for so long. Now that the market is soft, their true colors are showing. The good agents will stay alive because they are good and the bad ones are squirming and don’t know what they are having a hard time making a sell. Yes, good agents-I said it for you. You know it’s true. Look at the article-not only was it the agent but it was the broker too.

    Can some one please tell me why agents hate FSBO homes? But yet, they all but beg you to list with them? It’s like, why do you want to list my terrible house that you won’t even show your buyers.


  7. What do you think of Georgetown as an investment area? Do you think the new highway will make it more attractive to communters rather than the agonizing I-35?

  8. Hi K,

    > Can some one please tell me why agents hate FSBO homes?

    I don’t think agents “hate” FSBO homes, at least I don’t. I don’t prospect FSBO’s either though, so they are neither here nor there for me. FSBO sales are still only about 13% of all total real estate sales in the U.U. Of that 13%, more than half are not even marketed but instead sold directly to friends or family members.

    > What do you think of Georgetown as an investment area?

    Hi Ed. Georgetown is certainly more viable than before. Toll 130 makes it more accessible from the airport, but I don’t see 130 as a good substitute for IH35 for regular working commuters coming in and out of downtown.


  9. I’m intrigued by the fact you dont belive Kyle is a good investment area. At least the west-side of IH-35 in Kyle. A new HEB, Seton Medical and RSI moving in. If an investor is simply looking for immediate postive cash flow, then maybe your correct. But the word investment means capital appreciation too. Remember when Katy, Tx was a small town.?
    Over the next 7-10 years, doesn’t the southern corridor’s growth prospects look interesting?
    P.S. Drive time from Kyle to downtown is still faster than from the more popular,more conjested Georgetown area. (drive it yourself and time it) and Hays County schools aint bad. (pardon the pun)

  10. Hi KKS,

    > I’m intrigued by the fact you dont belive Kyle is a good investment area.

    Kyle has a lot of foreclosure activity and a lot of newer neighborhoods that are shabby already. for a long term investor, it may be a great buy and hold, but I stay away from areas where the resale market still has to compete against lower end new homes.


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