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People often ask whether real estate is more science or art, or is it some combination of both? Well, one clue is that college-level and graduate degrees in various aspects of the field of real estate are deemed Bachelor or Master of Science and not of Art. And that, right there, is a decent-sized clue, when you think about it.
One example of a Bachelor of Science in the field of Real Estate is available at Fordham University in New York as an undergraduate degree. When it comes to post-graduate degrees, though, perhaps look on the opposite side of the country in Malibu, California, for the Master of Science offered at Pepperdine.
There are actually many undergraduate as well as graduate degree programs offered at universities throughout the United States. These degrees could be deemed Bachelor of Arts or Master of Arts, but instead, they are all “of Science”. While there are some exceptions throughout the world outside of the United States, they are far fewer than the overwhelming majority.
What is the No. 1 rule of real estate?
Let’s go a little deeper. What has been deemed to be the number one rule of real estate since the beginning of time? Location, location, location, right? Geography, of course, is a science. It’s a science that deals with all aspects of location. It’s considered a social science and a physical science as well as a natural science and a spatial science and it’s truly fascinating, as such.
It’s clearly very important to the field of real estate when you consider for a moment that without the science of geography itself, what would the number one golden rule of real estate be?
Real estate has to be a science. While it’s certainly not rocket science, there are so many other sciences that are a part of the science of real estate. These sciences play a role in real estate and in real estate-related decisions every day. Maybe it’s best defined as a science made up of other applied sciences.
Let’s explore, just a little more, how the following grouping of sciences (aside from geography) contribute to and help to form and define real estate as a science. We’ll list some of the pertinent bullet points on each.
Economics plays a significant role in the analytical process of real estate, particularly in understanding the dynamics of supply and demand, pricing, and market trends.
- Supply and demand
- Pricing and valuation
- Housing market trends
- Inflation and rates
- Overall health of the economy (local/national/world)
- Consumer confidence
NAR has a chief economist for good reason, and he is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report.
The law of supply and demand is a fundamental principle of basic economics. Real estate is no exception to the rule. Supply and demand directly impact market prices and valuation, as well as inflation, and will always be at the root of market trends that we tend to see “in the rearview mirror” via economic reports.
By staying current, and tracking and understanding economic data, we can paint a clearer picture for ourselves concerning why the market is the way it is at any given point in time and better educate our clients. This, of course, includes staying on top of mortgage interest rates and reports concerning consumer confidence and the overall health of the economy,
Demography, as well, plays a crucial role in the analytical process of real estate by providing valuable insights into the population dynamics that impact housing markets. We look at topics related to population growth, income and affordability and household formation when analyzing how demographics affect local real estate markets.
- Population growth and migration
- Age and household composition as well as new household formation
- Income and affordability
- Population projections
- Birth rates and average age of a first-time homebuyer
According to National Geographic, demography is the statistical study of human populations. As such, clearly, it’s a social science.
By taking into account income and affordability, population growth, migration and population projections, we can see developing trends in terms of demand and even perhaps identify “up and coming” areas. Information about birth rates, household composition and new household formation is important in trying to project or predict future demand.
The National Association of Realtors reported late last year that the age of a typical first-time homebuyer had reached 36 years of age (an all-time high). This is an increase from 33 years of age a year earlier.
By applying the average age of a first-time homebuyer to historical birth rates and current household composition, we can gain a pretty good idea about potential future demand for homes, at least from the perspective of how many potential first-time homebuyers might be in the market.
We can’t ignore that the population of human beings, at any given point in time, is where demand for homes is always going to originate. Knowing and working with this data is crucial in all aspects of the field of real estate.
Mathematics and statistics
It’s clear that there’s a lot of “mathing” involved in real estate. Whether involving basic mathematical calculations related to dollar per square foot or more in-depth related to qualifying a homebuyer for a mortgage, math is everywhere in the field of real estate.
- Investment analysis
- Property valuation and appraisal
- Mortgage calculations and qualification
- Market analysis
- Risk assessment
- Forecasting and predictive analysis
Mathematics and statistics are both branches of formal science. In terms of anything related to investment analysis, property valuation, market analysis, assessing risk, forecasting analysis or mortgage financing calculations, where would we be without mathematics and statistics?
Whether you’re applying a gross-rent multiplier formula or even trying to figure out how much your commission is, you’re on the hook with math. There’s really no question that mathematics is extremely important in real estate. It might simply be an equation of how much math can you get away with not doing.
We all certainly know full well what a significant role psychology plays in most parts of the process of real estate, particularly in understanding (or not understanding) both buyer and seller behavior and decision-making. We’ve all been there.
- Emotional factors
- Pricing strategies
- Marketing strategies
- Negotiation techniques
- Risk perception / tolerance
- Decision-making process
When it comes to making big decisions with emotional factors at play, the application of psychology in real estate cannot be understated. I’ve heard the term “emotional tax” used to describe challenges in getting a seller to price their home correctly, and we all know that some sellers seem to feel that there are no comps because there’s nothing that compares to their property.
The sale or purchase of a home is incredibly significant, and it’s certainly an experience that takes individuals on an emotional roller coaster ride. Here’s a visual of a homebuyer’s journey:
Truly knowing our buyer or seller and maintaining a relationship with them involves just enough psychology to get into their heads and relate to what they’re thinking and feeling. Knowing that their decisions are driven by emotions and learning how to deal with those emotions can make a phenomenal coach.
Communicating with clients and foreshadowing the feelings, thoughts and emotions that they will likely experience during the transaction is a great way to head some things off at the pass and certainly limit or manage their negative emotions.
Finally, we get to political science, which can (and most certainly does) play a role in the analytical process of real estate and the buying and selling of homes. It’s necessary to understand the broader political and policy context that can impact the real estate market, whether dealing with or pertaining to national or local district politics and policies.
- Government policies and regulations
- Economic policies including monetary policy
- Political stability and market confidence
- Housing policy and regulations including zoning and rent control
In Los Angeles, we just had a prime example of how political science affects real estate. Los Angeles’ mansion tax (Measure ULA) took effect on April 1, 2023. In March, leading up to this new law taking effect, there were over 200 closed sales at $5 million or above, according to my MLS (CLAW). In April, there were fewer than 20.
Most of 2022 showed an average of about 120 closed sales at or above $5 million on a monthly basis. Either way you look at it, that’s quite a decline in the number of sales in that segment of the market due to local government policy directly related to taxes.
Each of the above sciences has an impact in the science of real estate. In real estate, we witness these other sciences intersect. Often, we will hear market predictions that cite particular facts or data and assert an idea or ideas about how the real estate market will act or react to that fact or data.
One data set from one aspect or scientific segment doesn’t typically move the market, though. All of it choreographed together paints the complete picture. Each local market also has its own set of local data to deal with and, of course, analyze.
One can never view an entire rainforest through a microscope. Perspective is an important aspect of analytics, in general. How much time do you spend in the “lab” analyzing data, concocting a winning formula or constructing a system or process to help you sell more homes and serve more clients?
We didn’t even get into computer science and artificial intelligence or how technological advancements over just the past couple of decades have literally transformed, and continue to transform, the field of real estate. Or how about architecture, engineering, geology or other environmental sciences? I mean the list of sciences contributing to the science of real estate is very long.
Before we jump to any final conclusion, though, I invite you to consider this one thing. Art is also most certainly involved. Effectively navigating the science, and the sciences of the science of real estate, in real-life application is indeed the art.
One must know the sciences as they constitute the medium and the canvas itself. The stage and the players and the whole playing field are subject to the sciences, but you are both the scientist and the artist.
Real estate is the science and selling real estate is the art. The selling part requires creativity and for the artist to apply their own flair, experience and talent to the facts of the science to achieve the best possible outcome.
As a final thought: It’s become obvious to me through the process of this writing that there’s so much to this topic and the concept of real estate as a science. I’m inspired.
Today, I checked to see if the domain name realty.science was available and it was. If, in the future, you’d like to contribute to this content in anyway, please reach out. I plan on creating a podcast and a channel around the subject matter and would absolutely love to collaborate with other industry professionals.