Lang Insights: Communicating value in real estate marketing
The process of selling real estate is an old problem, constantly being updated with new trends and technologies. However, the challenge for both real estate agents and their sellers remains the same: how do you attract potential buyers?
The traditional solutions were to write a short description for potential buyers to read, and to hold an open house. The use of websites, photos, video, and social media have led to dramatic changes in how buyers search the real estate market to find the home of their dreams. The question is: does this new technology add significant value to the outcome?
In our recent paper published in the Journal of Real Estate Finance and Economics we consider these types of problems more formally. We study the situation where buyers and sellers search for each other. Some features of a house are easy to describe, such as the number of bedrooms or bathrooms in the house. Some relevant and unique features are hard to describe precisely, because a buyer’s tastes can be very personal and, occasionally, eccentric. That is why buying and selling takes time and information. There is no shortage of experts offering tactical advice to real estate agents: which words to use in a description, how to stage a house, and which professional photographers to hire. Some researchers use machine learning to extract the information contained in the descriptive text, in order to predict the selling price or the time on market.
How to effectively communicate a property’s value
Sellers can use one of two types of communication tactics. The obvious tactic is to make the home seem as attractive as possible to as many people as possible. Marketing fundamentals reveal an alternative approach: positioning a house appeal to the most likely types of buyers. We argue that this distinction is misleading in a real estate market. First, if all sellers describe every house as “perfect for you” then buyers would quickly dismiss this jargon and ignore it. In a hot real estate market, trying to attract every type of buyer is strategically ignorant: if the tactic were effective then the price would quickly adjust to eliminate most potential buyers.
In a hot market, the second kind of tactic becomes more evident. Amongst all three-bedroom, two-bathroom homes, some are more suited to being positioned as a starter home while others are more suitable as a rental property. Positioning a house as a starter home would paint a picture of a place to raise a family. Positioning it as a rental property would emphasize the quality of construction and ease of maintenance. On the other hand, some houses might be damned by “faint praise”, which sophisticated buyers would decode as “not a place to raise a family or to use as a rental property”. Positioning tactics are more effective in a hot market if everybody else is also trying to position their property to attract a certain type of buyer.
Adapting to new technology
Photos and videos are commonly included with “for sale” listings. These days, in the hands of a skilled photographer, any place can look like a castle. So, there is a danger of too many pictures being interpreted as babbling. Our research argues that it is important to understand how the interpretation and decoding used by buyers adapts to changing market forces, including changes due to new technologies. Instead of using a dictionary to decode the meaning of a description, buyers will often decode based on the descriptions of competing properties.
Our research also indicates how selling homes might be affected by social media. It is easy to find real estate agents posting information on social media about a home for sale. They may hope that their Tik Tok video goes viral and attracts attention. We argue that this hope is misguided and based on a misunderstanding of the dynamics of social media in real estate markets. Social media helps sellers by simplifying communication between buyer and seller. The sharing features built into social media help sellers by using a buyer’s friends to relay suggestions to that buyer. The mistake that we note is that relying on people (i.e., “influencers”) to share information on houses for sale is misguided because, in the end, each house can only be sold to one buyer. Selling one home is not like selling a million bottles of Coca-Cola: having a million “Likes” is irrelevant to a house in a town with 100,000 people. More importantly, you should discourage your friends from sharing information on a property widely; doing so would increase competition and cause you to pay more.
Our research suggests that social media may be an asset to a real estate agent in a different way, by enhancing an agent’s reputation rather than selling individual properties.
There is an interesting exception to this logic. A developer of a large subdivision or condo wants to sell many units quickly and success depends on creating a favourable “buzz”. So, getting many people to be excited helps. In the days before social media, word of mouth existed and was effective. Now, e-word-of-mouth is faster and involves many more people.
Our work raises some questions concerning unresolved issues. For example, the differences between nouns and adjectives in a description: the effect of nouns should be relatively clear while adjectives (such as “new” or “modern” or “nearby”) can be used to exaggerate or minimize. Or, since some words translate between languages imperfectly, the effect of a description written in English may vary between people whose first language is English vs. those whose first language is not English.
Dr. Paul Anglin joined the University of Guelph in 2005 and is a Full Professor in the Gordon S. Lang School of Business and Economics. He holds a Ph.D. from the University of Western Ontario in Economic Theory and has presented his research around the world. His best-known research focuses on issues related to the processes of buying and selling property, with a special emphasis on “time-on-market” and “over-pricing”.
Dr. Liz Yanmin Gao is an Associate Professor of Accounting at Thompson Rivers University. She obtained her PhD in Accounting from the Sauder School of Business, University of British Columbia. Her research studies a range of issues of interest to academics, policy makers and practitioners, including accounting fraud, corporate governance, corporate social responsibility, and social media.