Posted on: Friday, April 2, 2004
Software aims for less emotional deals
By Mary Umberger
Chicago Tribune
CHICAGO — True story. Frank Cook swears it's true.
A young couple get so rattled by the prospect of going house-hunting the next day that they begin drinking wine to calm themselves, explains Cook, a journalist who has covered real estate for many years.
They worry about buying the wrong house, and so they drink. They worry about whether they can even afford a house, and they drink some more. The pattern continues into the night.
The next morning, when their real estate agent picks them up, they're so hung over that they want to end the ordeal as quickly as possible. So they buy the first house the agent shows them.
Might one infer a moral here? Never let your emotions get the better of you in a real estate deal?
Hardly. "For years, the couple agreed it was one of the best decisions they ever made," says Cook. He maintains that cut-and-dried advice about studying the numbers and sticking to financial logic is well-intentioned and useful, but overlooks the quirky power of emotion in real estate.
"Home buying is a lot more about you than it is about the house," he advises in his book, "You're Not Buying That House, Are You?" (Dearborn Trade Publishing, 2004).
"Home buying is more about your personality and who you believe you are than it is about mortgages, appraisals, closing costs and commission fees," Cook says.
Katherine Lebaric takes a different view. "You run into emotions, of course," she agrees, but she puts her faith in statistics to carry the day.
Lebaric, of Monterey, Calif., has developed software for agents and consumers that she says "strips away the emotion" of real estate negotiation. From the seller's standpoint, her new product calculates reasonable likelihood of a property's time on the market at a given price, or the likelihood of getting a better offer in a given time frame. From a buyer's point of view, her program specifically calculates what should constitute a fair offer.
Lebaric is not a real estate agent. Later this year she plans to begin graduate studies in computational finance at Carnegie Mellon University in Pittsburgh. For now she is concentrating on marketing her software, RealNegotiate, which she began to develop when her parents were considering making an offer on a house.
"We only wanted to buy if we could get a fairly good deal," she recalls.
Real estate agents suggested likely scenarios to them, based on comparative market analyses, which are commonly called "comps." But because of the Lebarics' analytical inclinations — her father is an engineer and her mother is a biologist — they wanted something firmer. They wanted statistical probabilities.
RealNegotiate spins such probabilities from market data — from the client's professionally generated comps or from those that her company will research for a fee.
"For instance, a buyer can go to the seller and say, 'You're holding to this price, but the likelihood (of getting it right now because of the time it has been on the market) is only 40 percent. Forget your list price; you're likely to wait another 60 days.'"
Lebaric says emotion is factored in when comps come from a sizable, reliable database.
But John Veneris, of Downers Grove Realty Executives in Illinois, said "emotion comes first" — no matter how meticulously the comps may have been researched.
"That (RealNegotiate) software hasn't been inside the house," Veneris says.
