Data collection on consumers is great!

Big data – a buzz word that causes massive debates in the public: Consumers often feel spied on and that a profit was made off their back. Proof of this is the previous Cambridge Analytica data scandal. Private Data on more than 50 million Facebook users was stolen. Another example is buyer behavior: For every purchase we make with shopping cards our preferences get tracked. This data is sold to marketers. Another example refers to buying a home. It is 3x more likely for someone to buy a car within six months of buying a home than any other time in life, so we get bombed by commercials from Ford after buying a house. The scenario seems clear, big businesses profit from the data and turn it into a big buck, whereas consumers get screwed. But is this true? I want to take a contrariwise view and present ways big data in real estate helps the consumer. 

First, let us talk about how critical data is in commercial real estate. Data is fragmented and collected by brokers through hard work and networking. What price has the recent office tower in downtown sold for? Which company is likely to need an extra 10,000sq feet soon? This is the most important asset for brokers. There is no public data available via MLS books like in residential. As an example, a local broker told me that his colleagues advised him to lock his office desk during the night! 

Denver developers obtained 1.2 million square feet of retail space under construction in 2018 with an average building cost of $150 per sq. foot, so stakes are high. The process of finding the right location is still a lot of gut feel instead of science. Technology changes this: 84% of investors demand focusing on predictive analytics according to Deloitte. Developers have the ability to track traffic patterns via Google maps or analyze search trends on Google to predict where is best to place a new shopping mall. By mitigating this risk, costs for developers will drop and given an efficient market, lower costs will translate to lower prices and rents for the occupiers. As you can imagine this data is valuable. In total, it is estimated to be worth $137bn by ATTOM, split-up in transaction processes, insurance, mortgage and marketing. 

But how does the consumer finally benefit? Big data companies collect public data from governments or they buy private data from companies like Google, Facebook, and Apple about the number of building permits, investments poured into a specific neighborhood, consumer spending in that neighborhood, school quality and much more. They sell that data to Zillow, which can then come up with their “Zestimate” for home values. As a user, you can access that data for free and get a better feeling for how valuable your house really is. Thus, you cannot get screwed over by an agent who offers you $10,000 less. In the past, we only could trust our agent. Big data brought transparency. 

 What also comes with buying a home is mortgage and insurance. In the past, insurance companies looked at the average damage as a whole and then split up that dollar amount among their insurance takers, plus adding a risk premium to make sure not to lose money. There is a company out there called CAPE Analytics. They scan homes with drones from above and check for trampolines and trees in gardens. In 2006, the Consumer Product Safety Review estimated that 109,522 injuries were caused by trampolines. Thus, the company can price every policyholder adequately. This means if you do not own a trampoline or have big trees, your insurance fee will be significantly lower than before by relying on the average of the whole community. Taking into account, the average nationwide home insurance fee is $1,288 per year, you can save up to a few hundred dollars. Other sources quote premiums paid for possible tree damages can be more than $500 a year. The same applies to mortgages. The more financial information the bank collects about you, the more secure they are about your capability to pay back the mortgage, the lower the risk premium you pay. Thus, big data collection helps to switch the power towards consumers. 

At last, the moral question comes into play. Quoting Georg Büchner “Us poor people. Try raising someone like me in this world on morals alone”. People′s actions often do not match their words. So why are people complaining about Google collecting data, but keep using its services? Because they do not care. Ask yourself the question: Would you rather use Google Maps for a $40 fee a month to offset for Google′s cost of driving around the country to create the maps, managing the software etc. or would you rather use it for free and Google earns back its cost by selling traffic data to shopping mall developers who can then make a more informed investment decisions.