“Saticficing” in the home buying process

Posted on 02/14/2013
Example of a great real estate photo

The visual is the most important element of on-line real estate marketing

 

In his 1982 book “Models Of Bounded Rationality And Other Topics In Economics”  Nobel-laureate economist Herbert Simon (1916-2001) coined the term Saticficing. With this hybrid term , a combination of satisfy and suffice,  professor Simon describes  a process consumers use to make decisions.   According to this concept consumers (and all humans really) are predisposed towards making satisfactory decisions instead of the “best” possible ones  mainly for three reasons: They don’t have (or feel they don’t have) enough information, their ability to process information is limited and/or they don’t have the time to collect all the relevant information and process it adequately.  According to Simon, humans have the tendency to select the fist or one of the first options presented to them if it meets certain basic criteria.

Invariably  this is the case with the home buying process. There may be hundreds of suitable homes in the market but the average home buyer will see no more than 12 before making a decision. It is notable that this is down from 15 in 2007  and it decreases steadily every year. As internet increases its utility as a primary source of real estate information and more and more visual information such as quality photography and high definition video is readily available, the home buyers will rely on the online material to rule out homes with less online appeal.

It is vital therefore to make sure that the home we are listing is within these 12 homes at least most of the times. How can we make sure of that? According to the “Digital House Hunt” report we discussed in our previous posts, 57% of the home buyers will search online for 60 to 120 days before going out to view homes. There is no doubt that the short list of the 12 homes they will view before making an offer will contain only the homes that really impressed them and stood out from the competition.

In the early years of Internet it was often prophesized that the real estate agents’ profession would follow the demise of a number of other trades most notably that of the travel agents. Unlike travel arrangements however where the choices are limited in a finite list of options, the home selling/buying process is a very complex one as it relates  to human communication. On one hand the increased regulation of the process makes it hard for non professionals to navigate it safely. On the other, and most important, side the proliferation of home buying choices and easiness of communication makes it necessary to employ more complex and efficient marketing processes.

Before the internet revolution a listing’s marketing budget would be hardly enough to allow for a few Xerox flyers and, in the best case, a couple of newspaper ads. These marketing methods have been entirely eliminated today by the vastly more  effective tools of real estate search engine placements and virtual tours with visual material of a quality that increases every day. That change precipitated a shift in the role of the real estate agent as well. Writing a contract, negotiating it and coordinating the sales process is the lesser and easiest of the Realtor’s tasks.  The Realtor adds real value to the process by offering superior marketing .

The Internet revolution changed the home buying process fundamentally. The real estate agent can now add much more value to the process than in the past but the required skill set has now changed: The real estate agent is now a marketer more than anything else.

The Digital House Hunt. Part 2

Posted on 02/07/2013
Quality photos are the most valuable elements of online marketing

The first time the prospective buyers will see your home is online. Impress them or forget a favorable Zero Moment Of Truth!

 

This week we continue discussing “The Digital House Hunt” report by the National Association of Realtors (NAR) and Google.

A very interesting finding  of the report is the one about the home buying process timeframe. The typical home buyers take 3 months to buy. If we also take into account the typical 45+ days needed to close on a contract these days, we realize that most of the buyers who are closing in May and June have started looking during or right after the Christmas holidays. How is that for dead season?

Buyers spend a long time researching online. About 40% will research online by themselves for 120 days and 17% for 60 days before taking any other action.  It’s surprising that 24% will take action the first day but then the report defines “action” as to register on a real estate website.

First time home buyers rely  more and more on the internet. Relative searches on Google grew 5% last year.  Other interesting stuff: “47% of first-time home buyers used the Internet to search for a home. 52% started their search online and 77% drove by a home viewed online.”

What happens after the buyers decide that they had enough online search? They find a buyer’s agent. “Agents bridge the gap between internet research and viewing/buying a home: 88% of buyers use an agent and 67% use an agent frequently.” Buyer’s agents remain a very important part of the home buying process but their utility as sources of information regarding listings is partially replaced by online sources.  As we already know from a number of studies, “TV, billboards, and print channels play minimal role in research and decision-making process for home shoppers”

Senior home buyers also use the Internet to find a home: 39% began their search online, 75% of them will do such a search at some point and 30% found the home they eventually purchased online. The top 5 states where seniors are searching online are Oregon, Washington, North Carolina, Virginia and Nebraska.

Foreclosure buyers use Internet in a similar way: “Buyers who bought a foreclosed home with help of a real estate agent are more likely to use the internet in their search. Buyers of foreclosed homes place a high value on website photos, and detailed information about properties for sale”. And there is no reason to be different, especially as the price gap between foreclosures and regular sales is narrowing fast. Gone are the days when a foreclosure was so low priced that a listing with one cell-phone picture would attract multiple offers and sell in 2 days.

The trends are the same for vacation shoppers: 93% of vacation home shoppers used the internet during their home search, 56% of them started looking for their home online and  1/5 used search engines.

In conclusion, I learned a few new things from the NAR-Google study about the digital house hunt: For instance, Internet home search is becoming increasingly mobile.

Most importantly, I reinforced what I  already knew. Nine out of ten home buyers will search for a home online. And when doing so, they expect to find the rich visual stimuli they are accustomed to. If your home doesn’t have a great internet presence the Zero Moment of Truth is not favorable: You better prepare to start lowering the price to compensate.

And there is a number of things I expected to find and didn’t: There is nothing about Social Media, the most important development in the Internet in the last decade. Google doesn’t miss the opportunity to advertise its subsidiary YouTube, although anecdotal evidence suggests that its role in the home search is secondary at best. Not a word about Facebook, Tweeter, LinkedIn or Pinterest.

For all its deficiencies, however this is an interesting study and if the subject interests you remotely you should take the time to read it. It won’t take long anyway!

 

The Digital House Hunt

Posted on 01/31/2013
NAR and Google Study of Digital Media Usage Among Home Shoppers

NAR and Google Study of Digital Media Usage Among Home Shoppers

The National Association of Realtors (NAR) just released a study that focuses on a very interesting subject. The title is “The digital house hunt: Consumer and market trends in real estate”. What makes this study even more interesting is that it’s conducted in association with Google, the supreme source of information when it comes to Internet.

A study like this was long due as far as I’m concerned. In the last decade the way prospective buyers are looking for information has changed drastically. Very simply put if you want to attract buyers for your listing you have to do it online. No exceptions. We are very well aware of that from the “Profile of Buyers and Sellers” report NAR releases annually. What we didn’t know, or knew very little about, was how that works. Where exactly do people look for information, how they use that information and what is their online behavior. This report tries to shine some light in the subject and I will talk today about some things I have learned from it. Here are some of the most interesting points:

Ninety percent of home buyers searched online during their home buying process. I find that number rather low. Especially in Northern Virginia the area I work in. I have yet to meet anybody remotely interested in buying or selling a home around here who doesn’t go online to search for months, even years before they are ready to transact. And even if it’s true that 10% will not search online, it must only mean that they will rely on information provided by their real estate agent, who, of course, will invariably obtain that information online.

Real estate related searches on Google.com have grown 253% over the past 4 years. That is impressive. And I expect the number to explode even further in the next 4 years.

Buyers use specific online tools during different phases of the home search process. Very interesting. But it would be even more interesting to go a little further to explore what these tools are. I suspect that they have to do with the big real estate portals/search engines and apparently Google views theses as competitors that have to be kept at bay.

“Local” search terms and websites are important for buyers. This is obvious as far as the search terms are concerned. If I’m looking for a home in Alexandria, VA I will include the local term ” Alexandria, VA ” in my search. Not sure (and they don’t say) what a local website is. I would love to believe that it means the websites of us local agents, but I know it is not so.

Mobile technology connects online to offline home buying—including the reading of online reviews. One of the interesting points this report makes is how many people use their mobile devices to search for homes: “89% of new home shoppers use a mobile search engine at the onset and throughout their research”. It’s not clear how many of these use the mobile device as their primary tool but it’s interesting to find out that “36% of new home shoppers utilize a mobile device while they are watching TV”. Apparently people prefer to search for a new home during commercials or boring TV Shows!

What’s the location where new home shoppers use their mobile devices? at home: 77%, at work 31%, waiting in line 28%, at restaurant 27% and at other people’s homes 26%. Fun to know, but what’s the use of this information to us Realtors and our clients?

But there are more fun facts in this report. We’ll continue discussing it next week.

Zero Moment Of Truth

Posted on 01/17/2013
A diagram of the traditional and the new model of marketing

Internet precipitated a fundamental shift in the mental model of marketing

The “Conversion Funnel” is a term and a metaphor marketers use to describe a process with several steps through which the buyers go from first search till they close on a home. As it is apparent the image of a funnel is used to describe the fact that as we progress through the steps of the process the number of clients decreases. All therefore the steps of the process are significant and merit the marketers attention but only very few are critical.
Very early the marketers understood that a very critical moment is the moment when the buyer first comes in actual contact with the product. For a toothpaste that’s when the buyers sees it on the store shelf. For a car it comes at the visit in the dealership. For the homebuyer that “Moment Of Truth” comes with the showing and the Realtors understood that well and coined the phrase “curb appeal”.

Today’s homebuyers however know so much more way before they step out of the car for a showing. They have now the opportunity to go online and find an abundance of information about the house they are interested in, including quality photos, videos and even reviews from other buyers. They can find information about the neighborhood and the area, the available shopping, entertainment, everything.

It is so important and influential this first virtual contact with the product that marketers now refer to it as the “Zero Moment Of Truth”
Twenty years ago the set of options available to a prospective home buyer were limited: Either they could contact a real estate agent who would research available listings and come up with a shortlist of properties to show the buyers. Or they could drive around the area looking for a “for sale” sign. And lastly they would have to resort to the local newspaper or the cheap publications you can find at every grocery store with the short description and the minute, obscure, black and white picture. In any case the moment of truth would come with the showing and very little information could be found before head.

Guess what: That moment of truth remains just as critical today. Nothing can compare to that short walk to the front door, getting inside, seeing, smelling, feeling the home for the first time with the excitement and the expectation that this can be the one, the perfect home we were dreaming of.
Internet however, as it changed everything, introduced an additional step, maybe just as critical, before that First Moment Of Truth.
The consumer now will first go online and dig as much information as possible. An although the first hand experience of the home is the most powerful one, this new kind of Moment Of Truth can be even more decisive because this is the one that will determine if a showing will ever take place. Especially in a buyer’s market it’s likely that there will be more homes than qualified home buyers. And with the available time being a scarcer commodity everyday, the online experience will determine the short list of the showings. This is the moment the buyers will make their first decision. For a number of homes that will not qualify, this will also be the final decision. This buyers will never view these homes and of course they will never buy these homes.
But even for the homes that will make it to the short list, the game has changed.

The buyer already know a lot about the neighborhood and the homes themselves. They have seen a video in YouTube, several pictures and a virtual tour online. The curb appeal is suddenly much less powerful because it’s not the first impression anymore. The first impression was formed in the homebuyers own living room where they were able to access over the internet all the information about the home they wanted to see. No, they will not buy a home online. But the foundation for the home they will like is laid. The first impressions are the most powerful ones.
That is the power and significance of online marketing today. And that’s why I’m so surprised with the number of listings with cell phone photos I see every day. So much the better for those of us who try to do a decent job and give our home sellers the great advantage of great real estate marketing.

Cost, price and value.

Posted on 01/03/2013

 

A conversation every real estate agent has very often with the homeowners in the course of putting  house on the market is the discussion about the right price. And one of the common themes in this conversation is along these lines: “I know what the value of my home is. I built it myself x years ago and I know what everything costs.”  This line of thought illustrates one major misunderstanding about pricing. One that is rooted in the belief that a good or service has an inherent or intrinsic value. What I mean is that many people believe that a good like an apple, a car or a home (but also a service like a medical procedure or cutting the grass) has a monetary value that depends on the qualities of the good or service and is mostly irrelevant of the external circumstances.  Unfortunately this cannot be further from the truth. Let me explain.

We need first to define three major concepts: Cost, price and value.

Cost is, obviously, the amount of money spent in order to built, produce or acquire the good in question.

Price is the amount of money the seller is asking when selling it. That amount should be higher than the cost, but as we’ll see that is not always the case.

Value is considerably harder to define. A usual definition determines it as the amount of money considered to be a fair and suitable equivalent for the good or service. Considered by whom you may ask.  By the market, of course and more specifically and importantly by the prospective buyers.

Under normal market conditions the selling price should be higher than the cost, so the seller is able to make a profit so they will stay in business and keep supplying the market with the product.  The value of the product to the buyer should also be higher than the price so the buyer has a motivation to buy the product instead of a similar or a substitute one.

In capitalism however there are no guaranties that this will be always the case. In free markets the value and consequently the price of a product is seldom defined by its cost or even its usefulness. The major factor that defines it is supply and demand. The example economists use to illustrate this concept is the comparison between water and diamonds.

The utilitarian value diamonds have is very limited at best. They have found some uses in some very specialized industrial equipment in recent years but that hasn’t significantly affected  their prices from a century ago when their only use was in jewelries.  The only reason diamonds are so expensive is that they are rare.

Water on the other hand is the most valuable substance for living beings. Our very life depends on the it’s availability. It remains however one of the cheapest commodities, at least in our part of the world, because of its abundance.

I understand very well the limitations of this example and its application on the housing market. I hope nevertheless that it makes a little clearer what I’m trying to say. The market does not care about how much it costs to built a house or any other similar factor. No matter what, if the supply of homes in a market is higher than the demand, the prices will inevitably fall. The value of a home is mostly determined by supply and demand and very little by its initial cost, utility or anything else. A good marketer – realtor should be able to explain this concepts to their clients, the home sellers. With information as readily available as it is today, the housing market has become a very efficient market place. The buyers are able to compare all the offerings in the market, find the best values and reject the not so good ones even before they set out to see homes in person. But that will be the subject of another post.

I would love to hear if you agree or disagree with my thoughts in the comments.