Data. What Makes It So Important?

I recently looked at the National Association of Realtors blog that has a posting entitled, The Truth About Statistics. It got me thinking about the entire data craze that has been penetrating our markets. Our customers seem to want all sorts of real estate and mortgage data, which brings me to this discussion about the value of data in the real estate industry.

Many new offers for real estate related data have been developed to provide more data for buyers and sellers. Take Zillow, Altos Research, and DataQuick to name a few. Yet, I find that many of my clients do not understand what the data will do for them.

Let’s start from the perspective that data is no more then a marker in history. For instance, all this data has no relationship as to whether our market is currently moving up or down. Instead, if it is accurate, it just tells us where we have been. It’s like the common verbiage listed on stock market investment advertisements, “Past performance does not dictate future results.”

So, just to start our discussion surrounding data we need to make some major assumptions. First, lets assume we know where the data came from and the background of the individual supplying the data. Next, let’s assume the data is accurate. We can then acknowledge that the data can not predict the future. So what is data good for at all? Data gives experts the ability to make assessments and speculate about the future. With data an expert in an industry can get a glimpse at the possibilities that may exist in their market. They can make assumptions about where the market is trending.

This is an important time to note that it takes and expert to get a powerful assessment out of data. In other words, the history, experience and background of an individual highly influences the assessments they make. Sometimes we attribute this to what we call experience. The important thing for the consumer to recognize is that not all assessments are equally valuable.

For instance, as I transact in the real estate market I am constantly watching buyers and sellers acting on dangerous assessments of real estate market data. I can often easily see that their assessments are worse then a blind guess, because I acknowledge that the one who made the assessment is speaking from a history they no nothing about. When I think of this philosophy I think of my tax advisor trying to assess my ability to sky dive. This situation could provide me with a thrilling and also deadly experience. Then I imagine him assessing how I can limit my expenses so I can avoid the alternate minimum tax. In which background is he competent to act? The same is true with assessing data within a specific industry.

So, when I look to make an assessment of data, that is outside my domain of understanding, I first look at who is the most competent observer I know in the industry from which the data came. This is often someone who is constantly transacting in the industry and thus has a keen sense of the mechanics of their market. For instance, if I wanted to get advice about large capitalization stocks I might see if Warren Buffett was available to help me make an assessment. I wonder if he would take my call? With Warren’s help I believe I could speculate about how the current stock market data affects my specific stock investment situation.

All of this is not to say there’s no entertainment value in looking at data. Many people get a kick out of looking at what their home was worth last month. Did it go up… Did it go down… But, the reality with data is that its power is in your ability to make assessments with it and then to apply those assessments to your specific situation. Otherwise if you are just looking for real estate entertainment you might check out the new celebrity version of Donald Trumps TV show The Apprentice.
 

The above photo is entitled Light Data and illustrates the history of light caught by a camera at a specific point in time. Thanks pbo31 for the photo.