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With Algorithms Buying Homes, What Could Go Wrong?

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The Wall Street Journal reports that big players in the real estate industry have started to embrace quantitative data analysis and mathematical modeling, utilizing algorithms to evaluate how homes are scouted and purchased. For instance, Blackstone Group's Invitation Homes calculates how much a potential property may cost to renovate based on location, size and age, while comparing it to a database of thousands of properties. This computer arms race by players such as Silver Bay Realty Trust means homes with good scores are evaluated in minutes and bid on, often sight unseen, in order to beat rivals to any remaining bargains in the market. While in many ways it's a sign of a slightly healthier market, since the low hanging fruit of foreclosures and short sales have begun to dry up over the last few years, the practice recalls computer-aided trading (when has that ever gone wrong?) and the dreaded B-word, and can drive up the cost of rental properties.

The process hasn't become fully automated. The WSJ piece pointed to Atlanta, a particularly competitive market, to provide a glimpse how some firms have integrated these programs into their routine. Oakland-based Starwood Waypoint has developed a computer program that can place a first bid on a potential pickup in less than eight minutes, sometimes leading to bulk purchasing in the market. But after bids are made, they still sends agents with iPads to quickly scout out the situation and judge whether or not it's still worth pursuing.

Racing to Buy Homes Sight Unseen [Wall Street Journal]