In the first part of my “Disrupt or Be Disrupted” series here at REALTOR® Magazine, I introduced innovations such as robotics, sensors, synthetic biology, and 3-D printing and how real estate pros can profit from them. Most often these technologies are quite abstract for people outside of scientific fields. The resulting unawareness, ignorance, or half-knowledge creates grave headlines, sometimes depicting a “Blade Runner”–style dystopia.
But as the founder of the Future Real Estate Institute, I take a different approach. I choose constructivism over fear and research over ignorance. That’s why in this second part of the series, I’ll show you both sides of artificial intelligence and how you might profit from it.
Artificial intelligence is commonly defined as a programmatic system mimicking or transcending human intelligence. While artificial intelligence could also be developed by means of genetic engineering, I want to focus on the programmatic approach. I see a huge vacuum of applications of artificial intelligence in real estate, which creates an opportunity for disruptive business cases.
Artificial Intelligence: Not The End
There’s a lot of trepidation when it comes to this topic, and not just in real estate. In the United Kingdom alone, more than 30,000 jobs in the legal sector have been made redundant by artificial intelligence applications in the last few years, which is a great example of the magnitude of the disruptive force this technology could have upon future job markets. This is one reason for the negative perception of artificial intelligence. Another is simply the fear of the unknown. We cannot really forecast what will happen when we develop more powerful applications that might not be controllable by humans.
Since artificial intelligence can optimize many business processes, assist in research, and automate repetitive tasks, it is economically attractive for governments, institutions, and corporate entities to develop such technology. That’s why it’s vital for brokerages to get in on the game and to develop their own artificial intelligence tools, so they can adapt and create new jobs in order to continue to profit.
Business Opportunities Thanks to the Status Quo Vacuum
There are dominant players in most business sectors, including real estate. Yet, with emerging technologies like artificial intelligence, new players can challenge them. This state is what I call a “status quo vacuum.”
What if you created the startup that finally developed the perfect matching algorithm for clients or the best way to aggregate listing data? Here are some ideas of how innovators in real estate could use AI to change the way business is done.
Seller and Buyer Matching
There are already various platforms offering matchmaking algorithms to pair buyers and sellers. Yet, the models lack holistic data aggregation, learning functions, and adequate parameters. We will see eventually a platform combining it all, making the home search process easier, smoother, and more efficient.
Legal Research and Financial Due Diligence
Companies like Leverton are already using artificial intelligence in semantic language processing, which can read through complex legal contracts and work through financial data, to smooth transactions. This is just the beginning. In the future we will see rapid text and voice data analysis, which can improve market research, competitor monitoring, sentiment analysis, and customer service. Such services may eventually allow real estate transactions to happen faster and at lower costs.
Prefab’s reputation isn’t exactly fabulous. Studies show consumers associate words like “prefab” and “modular” with mobile homes and double-wide trailers, and they feel factory-built homes don’t offer the quality or diverse options of conventionally built homes. But prefab manufacturers have a new message to share: These aren’t the boxy, plain vanilla, kit-made homes that in the past you could order from a catalog. Today’s factory-built homes, they argue, can be just as stylish and sturdy as homes that are constructed onsite (which are also known as “stick-built”).
They’re not necessarily cookie-cutter either. Computer-aided design allows for greater customization and personalization, offering shoppers the ability to design their new homes themselves. Those interested in smart-home technology and sustainability will be able to seek out those features, too.
Still, prefab’s public relations problem may be stifling demand. In a 2007 study, the Department of Housing and Urban Development found that limited awareness about advances in factory-built housing—particularly regarding its visual appeal—was dampening the style’s growth. But that could be changing, according to Fred Hallahan, a housing consultant with Hallahan Associates in Baltimore who specializes in prefab research. “The general public—and that includes real estate professionals and builders—have a big part in helping to change the perception of what modular and manufactured housing means today,” says Hallahan. “Prefab housing has the same degree of aesthetics and function at the same price—or maybe even lower price” than traditional homes.
“This is not your grandma’s double-wide ranch. We try to break new ground in what’s achievable in modular construction,” says Brian Abramson, cofounder of modular-home builder Method Homes based in Seattle, citing features such as vaulted ceilings and curbless showers. Abramson’s company offers styles from modern to traditional and is able to combine factory-built modular units with onsite construction elements to meet customers’ design requests.
Architect-led customization is helping these homes shed the homogeneous label. “We’ve never built the same exact floor plan,” says Steve Tuma, president of Landmark Home & Land Co. in Michigan City, Ind., which sells panelized home kits for anywhere from $50,000 to $10 million. “Every customer is different and has different needs. The belief that prefab is a production line that doesn’t want to change is untrue. We take advantage of having a production line, but we give customers what they want.” Home shoppers work with a design team to customize more than 2,000 of Landmark’s standard plans. Like other panelized and modular companies, Landmark also ensures each home adheres to local and state building codes.
The booming data center property market creates opportunity for real estate professionals who can learn the field, mastering information technology and engineering issues. But this wasn’t always the case, according to Pat Lynch, managing director for CBRE’s data center solutions division in Denver.
“Five years ago, it was difficult to get a commission for tenant representation” in the data center space, Lynch says. “Now certain data center REITs aren’t just paying us commissions but are sponsors of our events and attending our conferences. There’s an embrace of well-run brokerages.”
The strength of the sector is illustrated by the returns on REITs. The FTSE NAREIT data center index returned a whopping 33.17 percent in the first seven months of the year, trailing only the industrial sector, where REITs returned 33.18 percent.
“Banking, trade, insurance, retail sales, social media—all that information [which goes through computers and mobile devices] is processed and resides on servers, including data stored on the cloud,” says Bo Bond, managing director of JLL’s data center solution business in Dallas. The facilities storing those servers “are a very important part of real estate,” he says.
Companies with major offerings in cloud computing—such as Google, Microsoft, Amazon, and Oracle—need their own buildings to house these servers. Companies with less of a need can rent space in colocation facilities. Even the smallest of businesses need data center space for securely storing customer information, hosting websites, and managing transactions.
“Everything is being done online,” Lynch says. “For companies big or small, cyber security is important. Financial services are a large component of our pipeline, so is healthcare.”
These companies have specific needs for data center space. The massive power needs of the machines housed in data centers requires robust, reliable air conditioning systems to keep the machines from overheating. This means buildings also have to be secure and have a tight envelope. However, that hasn’t stopped some developers from adapting old industrial buildings from the 1920s and 1930s and turning them into data centers, including the Lakeside Technology Center in the near south side neighborhood of Chicago, a former printing plant that was converted into a 1.1 million square foot space serving the city’s commodity markets.
The biggest markets supplying data center space include New York, New Jersey, Dallas, Silicon Valley, and Chicago. But the biggest market for this niche is immediately west and south of Washington, D.C., due to both historical and monetary reasons. “Northern Virginia is the epicenter of the internet, which grew from there,” says Tim Huffman, director of Colliers’ technology solutions group in Atlanta. “The cost of power is 40 percent less than the national average and tax incentives are robust.” Energy costs are a major issue due to the cost of running the servers and the climate control issues faced by these large warehouse spaces. Lynch adds that Northern Virginia has earned its spot at the top of the data market due to the types of companies it serves: “The government creates demand, there are a lot of technology companies in the area, and it has proximity to Europe.”
What do you say to buyers who look at a listing’s floor plan only to focus on the large space labeled “dining room” that they know they’ll rarely use? The fact is, buyers and sellers may have vastly different perceptions about how they want to live in the same home. But that doesn’t have to be a deal-killer.
Part of the problem stems from how architects and builders label rooms on plans, says Chicago-based commercial interior designer Mary Cook. “Rooms get designated and labeled for specific purposes, so it’s difficult to break that perception and think about them as spaces that are something else,” she says.
But as a real estate professional, you can help make a difference with the descriptions you write in your marketing materials and with the way you talk about space in a listing. Clever copy can provide just the right inspiration for buyers who might have otherwise turned away.
A huge log-burning fireplace dominating a living room can be recast as a “built-in entertainment center to gather around,” suggests designer Lonnie Unger of Fredman Design Group in Chicago. Just be sure to make concrete suggestions that buyers can visualize, even before they zoom in on photos or step through the front door.
Whether you’re working with sellers who have outdated notions of their listing’s assets or with buyers who can’t imagine how they’d use a space that doesn’t seem to apply to their lifestyle, we’ve amassed some talking points that can help you smooth out the conflict. Here are five examples to inspire you to help your clients imagine what can be, rather than allowing what is to become a deal breaker.
1. What it is: Oversized walk-in closet
The big closets that came along with the McMansion trend were often outfitted with shelves, rods, cabinets, and even storage islands and seating space. As conspicuous consumption falls out of favor, these spaces may seem like a waste for some buyers, who’d rather spend their square footage elsewhere.
What it can be: “Practical laundry space adjacent to master bedroom.” Because large walk-in closets are usually well illuminated and may even have a window for daylight, they offer numerous possibilities. How about an upstairs laundry by the bedrooms? After all, this is where most of the dirty clothing originates, so why should home owners trudge down to the basement with their hampers? If the space is large enough, a built-in ironing board or folding counter could work well, and closet shelving can be repurposed as a place to keep laundry supplies. If there’s leftover space, home owners could carve out a corner for crafts. Jennifer Ames, a salesperson with Coldwell Banker Residential Brokerage in Chicago, notes that this idea is often appealing because few home owners want to give up a whole bedroom for such activities these days.
2. What it is: Built-in kitchen desk
As kitchens became gathering hubs with more equipment, counters, and seating, many home owners wanted a desk with wall plugs and phone jacks where they could pay bills, schedule family activities, and place a large desktop computer and landline. But the downsizing of computer equipment, greater use of laptops, tablets, and cell phones, and the pervasiveness of Wi-Fi throughout a home has resulted in fewer people demanding this feature, says designer Leslie Lamarre of TRG Architecture + Interior Design in San Mateo, Calif..
What it can be: “Bonus kitchen storage space with universal design counter.” Because desk space is usually lower than traditional counters, it can be an awkward space to stage. But as more home owners look to open up the cooking experience to the whole family, they might benefit from having a prep space that can be used by kids or adults who may be more comfortable sitting. Have sellers pack up that old desktop and stage the space with colorful ramekins and a playful, sturdy cutting board. Desk bookshelves can be transformed with a few nice cookbooks and cabinets can easily be reimagined as pantry storage space, since there’s rarely enough of that in most kitchens anyway, Lamarre says. If sellers want to make some easy upgrades, they might consider adding pull-out racks that permit easy access to kitchen gadgets and dry goods. A light can be installed to switch on automatically when the pantry opens, which is always a nice touch.
Traditional vinyl siding, long the go-to material for home builders, is increasingly being snubbed in favor of trendier manufactured stone products that may or may not contain any actual stone. The appeal of faux stone to builders and home owners is easy to understand: Fabricated stone or stone veneer exteriors are lighter weight and less expensive than natural stone and are offered in a wide array of colors and styles. Manufacturers have reported double-digit sales increases in recent years. But home inspectors are sounding off about the need for caution: Reports of water damage due to poor installation techniques have become widespread.
Home inspector Scott Patterson with Trace Inspections in Nashville, Tenn., says that in nine out of 10 homes he inspects with stone veneer siding, the product has been applied incorrectly. And home owners are reporting that water seepage behind the siding is leading to rotting walls and mold problems. Sometimes the problems don’t become evident for years after installation.
These damage reports related to manufactured stone sound eerily similar to those from the 1990s when synthetic stucco (also known as exterior insulation finish systems or EIFS) generated a lot of public attention. Like artificial stone, synthetic stucco was initially touted as a more affordable, versatile alternative to the genuine product. EIFS were also more crack-resistant than traditional stucco. Years later, home owners discovered water penetrating small openings around windows and doors, leading to costly repairs. Home owners filed lawsuits against manufacturers, and class action settlements resulted in affected home owners receiving generous payouts.
To avoid a case of history repeating itself, the American Society of Home Inspectors has urged members to become familiar with manufactured stone siding and to inspect it vigilantly for budding problems given its porous nature compared to actual stone. ASHI has offered seminars about how to spot problems resulting from improper installation. Home inspectors nationwide are also posting articles on their websites warning home owners to have their manufactured stone inspected.
That said, not all homes with these exteriors are doomed, says Frank Lesh, executive director at ASHI. Home owners typically experience no problems when faux stone is installed correctly and appreciate it as an affordable, lightweight alternative to natural stone exteriors. The artificial product, running about $3 to $8 per square foot before installation, is one-third to one-half the cost of genuine stone, though still about double the cost of vinyl siding. “It’s a durable, long-lasting product, but there are still things to watch out for,” says Lesh. “It has to be installed the correct way, and among subcontractors—of even some big builders—unfortunately this isn’t always the case.”
Consumers purchasing a home featuring manufactured stone veneer might consider hiring a home inspector with specialized training. Real estate pros can direct clients to ASHI’s homeinspector.org website and recommend that they search for inspectors who list an expertise in these materials in their profiles.
So how do home owners know if they have a problem? There may be visible signs; Patterson recalls one recent incident where home owners noticed the trim boards inside their home were starting to separate and found a slight discoloration on a section of their hardwood flooring. Patterson discovered the exterior’s artificial stone was not installed with sealants or the needed backer rods around a huge window frame, which led to water pouring into the walls and eventually damaging the interior wall.
Another test for potential problems is to simply tap on the stone to see if anything feels loose. “If there’s water behind it, the glue starts to come off and you may get some movement,” Lesh says. Also, look for water damage around the siding. However, inspectors warn that the problems are often hidden behind the stonework and difficult to detect until the damage has become extensive.
It may feel like no other career compares to selling real estate, but professionals in other fields can relate to you.
“There’s a lot of listening and a lot of complaining and errors to fix,” says Linc Thelen, founder of Chicago-based Linc Thelen Design. “It’s a stressful job at the end of the day, and you have to be very communicative.”
Know the feeling? Well, Thelen isn’t a real estate professional; he’s talking about his work as an interior designer. We heard from him and dozens of designers, architects, developers, and others at the Chicago Design Summit this month. In the process, we gleaned three thoughtful ways for you to work better with clients, make properties shine, and help your business rise above the noise.
Helping Clients Declutter
Interior designers have to convince home owners to pare down or update their decor all the time, so they have a few tricks up their sleeves that you can learn from.
Marshall Morgan Erb, an interior designer in Chicago, told attendees every home owner he works with has an existing design element they can’t part with for one reason or another, even though it doesn’t fit their final vision. Erb suggests making modifications to the item, such as upholstery, painting, or staining, or considering giving the item to a family member or friend who would appreciate it. But sometimes, clients just need a little time to change their perspective.
“I like to let other things develop in the project, and then we circle back on the fact that the dining room table doesn’t fit the home they want,” he says. “It takes a while for them to be truthful to themselves… but eventually, they distance themselves from it.”
Taking Magazine-Style Photos
Open any architecture or home design magazine and you’re likely to see at least one photo of a home taken just before sunset. “We all love those dusk photos,” admits Celeste Robbins of Robbins Architecture. It’s not just the glow of the golden hour that draws us in; Celeste Robbins of Robbins Architecture notes that a twilight setting allows a photographer to highlight the interior and the exterior of a home at the same time. A warmly-lit family room appears to glow when framed by the dark blue of dusk from outside. But don’t forget to pick a focal point inside the home that’s visible from the windows (a dining room table centerpiece, perhaps) to capture the eye.
Another way to use windows is to incorporate a home’s natural surroundings in your listing photos. After all, there’s a reason it’s called a “picture window.” Robbins suggests making greenery a part of the staging to create a serene scene on the cheap: “Nature’s always a form of art you never tire of, so if you’re able to bring nature into the house, you’re starting in a good place.”
Responding to DIYers
Just as consumers think they can buy or sell a home on their own using real estate websites, they also think DIY design solutions can replace the knowledge and expertise of a professional designer. The key is to avoid getting defensive. Chicago-based interior designer Michael Del Piero says she embraces Pinterest and other design sites as a place to start building client relationships.
“It shows that you’re not worried and uptight, and it shows that you’re collaborative,” she says, noting that these sites also help emphasize good design as a worthy priority. “All that has helped us because it’s given validity to designing your space. At least it is interesting and important to them.”
What do you do about scuff marks on the hardwood flooring? Or nail holes from hanging pictures? What about dirty appliances? Can you charge a tenant to bring the property back into the same condition it was in before they moved in?
Of course, tenants want their security deposit back in full, but as a landlord, you must retain the deposit to apply toward any damage that the tenant is responsible for. When it comes to assessing what issues were caused by normal use and which problems are more excessive, it can get complicated.
When a tenant moves out, it’s up to the landlord to process their security deposit and return it in a timely manner. This deadline varies considerably from state to state, but for most areas, it’s about 30 days.
To further compound the issue, state and local regulations vary considerably on how security deposits should be handled. Not surprisingly, disputes regarding security deposits are among the most common reasons landlords and tenants end up facing each other in court.
To clear up some of the confusion surrounding this issue, here are some guidelines for the typical areas where damage occurs in a rental to help you determine whether it falls under the category of normal wear and tear or is something more serious.
In most cases, you can’t expect the floor to be in pristine condition after a tenant leaves. Carpet naturally has a limited lifetime, especially if it’s a lighter color. High-traffic areas will naturally become worn down, and it’s common to see a few light stains and indentations from furniture. A steam clean, customarily performed in between tenants, should bring carpet back into decent shape. However pet stains, holes, and burns generally go beyond everyday wear and tear. When it comes to hardwood flooring, the same standards apply. Worn or scuffed flooring in areas that receive a lot of traffic is to be expected, while deep gouges or an extensive series of scratches are usually indicative of tenant damage. With tiles or linoleum, it largely depends on the quality of the flooring and what has caused the damage. If linoleum is starting to peel near the door, for example, it’s most likely the result of normal use. Broken or chipped tiles or deep scratches in flooring could have been caused by dropping heavy items or dragging something across the floor and may be damage the tenant could be held responsible for.
Walls and Doors
Faded paint or wallpaper is considered normal wear and tear, and minor superficial damage — such as a few small nail holes, or a hole where a door handle hit the wall — is usually considered normal wear as well. These small issues can easily be repaired and shouldn’t come out of the tenant’s security deposit. However, pen marks all over the walls, or deep gouges or dents that will require more than some quick plaster to repair, are usually considered excessive. Similarly, the cost to repair or possibly replace doors that are hanging off the hinges or sliding doors that have come off of their tracks and been banged around can usually be deducted from the tenant’s security deposit.
Commercial spaces are benefiting from homey staging touches that draw client interest and close deals.
When it comes to creating favorable first impressions during showings, commercial practitioners are starting to take a page out of the residential sales playbook. Professional stagers are reporting an uptick in interest from commercial brokers who recognize that an office suite, a retail space, or even a vacant warehouse can benefit from an appearance boost. While only about 5 percent of commercial brokers currently use professional stagers to help get a building or retail space leased or sold, according to Barb Schwarz, founder of Stagedhomes.com, she and other staging pros see enormous growth potential. In the commercial space, staging can help with your clients’ company branding while offering value for a transaction.
Minneapolis-based stager Shar Sitter has a background in interior design and a strong portfolio of commercial clients. In her 11-year career, Sitter has staged a wine and liquor store, the entryway for General Electric’s Minneapolis headquarters, an 18,000-square-foot counseling and healing center, model units for assisted living centers, and even the entrance to a Keller Williams brokerage that sought to attract “high-ticket” agents. Her full-service business, Rooms With Style, includes a 3,000-square-foot warehouse stocked with residential furniture and accessories.
Her clientele was exclusively residential until a large apartment complex hired her to stage a model unit. “They liked it so much they said, ‘Will you do our common areas, offices, and entryways?’ [I found] it’s really not so different, because you’re still targeting an audience. Instead of targeting a buyer, you are targeting the client’s customers. It’s about conveying who they are and what they want to sell.”
If there is a key distinction between the goals of residential and commercial staging, Sitter observes, it’s that the commercial stager is more likely to be helping project a company’s brand rather than preparing a property for sale. Recently, she staged a construction company’s front entrance, which required her to create a space to reflect two distinct, and sometimes contrasting, needs: a professional space for client meetings and an environment filled with “men trouncing around in boots.”
The environment, she notes, had to be stylish, yet functional. The rough barn wood she selected fit the masculine environment of a construction company. But she also needed to appeal to homeowner clients who come in for consultations and need to see that the company is up on current home renovation trends. So Sitter staged the lobby with dark gray leather chairs and a soft rug, a large powerful horse as featured artwork, plus the company’s logo in metal hanging on the wall. The kicker: white shaker-style cabinets were added to the employee kitchen, demonstrating to visiting clients an awareness that “the number one kitchen color now is white.”
There are some situations managers and owners of commercial buildings hope will never happen on their property: natural disaster, large-scale theft, sexual assault, or even a terrorist attack. But all these things can happen, and real estate professionals have to be ready for them.
That point was brought home to Luis Alvarado, executive vice president for property management at Newmark Grubb Knight Frank in Boston, during the Boston Marathon bombing of 2013. His previous company, which he declined to name, was managing the building at 699 Boylston St., in front of which the first bomb was placed.
“Thank God we had plans in place, including how to evacuate,” Alvarado says, adding that their manual for unexpected disasters runs near 100 pages long. His company cooperated with the investigations of Homeland Security, Boston police, Massachusetts police, and the FBI. The building was shut down for almost two weeks. “You need to establish communication with every tenant and have three contacts for every tenant.”
So how should you prepare for such emergencies? “It’s important to have a written policy manual covering all those foreseeable events, so that standards of practice can be adhered to,” says Neil Merin, chairman of NAI Merin Hunter Codman, a commercial real estate services firm in West Palm Beach, Fla. “There has to be a reasonable approach that mitigates the problem but doesn’t inconvenience tenants excessively.”
The range of crises that could arise stretches long and wide, which necessitates thorough preparation. Jesse Holland, president of Albany, N.Y.–based Sunrise Management and Consulting, has virtually seen it all: “a bomb squad, a hurricane, fires.” He’s happy to note they haven’t had any reported cases of sexual assault, but have had to deal with “sexual offenders who didn’t belong on the property.”
Holland says there are four crucial steps in preparing for crises, and the first step is compiling pertinent information. “Where are the locations of the water shut-offs and gas mains? Who needs to be contacted in case of emergency and what are their phone numbers?” Holland says.
Being prepared can also help you deal with smaller emergencies. For example, when the computer system Holland’s company relies upon crashed, they were saved by the fact that part of their disaster plan is to print out the rent roll for apartment complexes each month. “All the information was there to rebuild our records,” he says.
The second major issue for Holland is relationships. “All emergency situations involve a lot of other agencies and stakeholders,” he says. For example, if there’s an active shooter on your property, you’re interacting with the police department. “That’s a lot easier if you already have a relationship with the police.”
When Sunrise puts up a new building, it invites the fire department during construction so officials can see where things are and how they are put together. “We have relationships with town officials and assessors too,” Holland adds.
U.S. cities and states are decreasing their spending on everything from highways and police stations, to sewage systems, which could have widespread effects on the economies of communities, The Wall Street Journal reports.
WSJ reports that state and local governments spent in August $248.47 billion on construction, the lowest amount since March 2014. States are curtailing investments in infrastructure and higher education in trying to spring economic growth forward, says Gabe Petek, managing director for state ratings at S&P Global Ratings.
“We’re seeing anemic [government] revenue growth and consistent austerity-oriented budgets,” says Petek.
For example, in Kansas, city officials delayed 24 road-construction projects this spring in trying to help balance the state’s budget.
Many states continue to struggle to fully recover from the Great Recession and the large declines in tax revenues that occurred from it. Pew Charitable Trusts reports that in late 2015, inflation-adjusted tax revenue was lower in 21 states compared with the peak before or during the recession.
State tax revenues continue to fall too, dropping 2.1 percent in the second quarter compared to a year earlier, according to the Rockefeller Institute of Government. Such revenue decreases are curtailing state and local municipalities’ ability to borrow money for capital projects.
The University of Connecticut has felt the affects. It had to delay a $150 million renovation of its Gant Science Complex by several months as well as a $10 million remodel of the roof at Gampel Pavilion.
“We’re trying to balance priorities,” says Scott Jordan, the university’s chief financial officer. The cuts are “forcing us to take a look at what things support our core mission and Connecticut’s economy.”
Nevertheless, analysts expect things to look up soon for municipalities. Construction of public buildings—such as courthouses, fire stations and other government facilities—are forecasted to increase in 2017, according to predictions from Dodge Data & Analytics in its recent annual outlook.
“This is expected to be the bottom of the cycle for public buildings, as government fiscal conditions have slowly mended,” the report notes.