Algorithms For Agents: The Mathematics Of Choice

There are many resources available to agents and the general public that, while not directly related to the real estate industry, provide an interesting perspective on the problems faced by its professionals. There is often a mathematical basis to human behavior, and this human behavior is the lifeblood of your field.

By knowing the statistically optimal solutions to various common problems that you and your clients and colleagues may confront, you give yourself an uncommon edge in negotiations, professional development, and business management.

Optimal stopping

Perhaps a better term for this algorithm, when applied to the real estate world, would be “optimal shopping.” Optimal stopping theory is based around the idea that there is a certain time to take action after considering an increasing slew of options, and that taking the action at this optimal time will maximize rewards or minimize risks.

Optimal stopping can be applied to both buyers and sellers. For example, when is the best time to make a deal after trying to sell a home for a certain period of time? When is the best time to stop looking for a home and settle on one after you’ve spent a certain amount of time searching?

There are many ways to solve these problems mathematically using different time constraints and examples. At its core it is a computer science problem, played out in the arena of human decision-making.

Decision-making

Real estate is a union of mathematics and psychology. It is informed by all sorts of disciplines, from economics to sociology. This doesn’t mean that you need to be an expert on all of them, but knowing about some of the contributions from outside your specific field can serve you well as you help clients make decisions.

Many times, clients will feel the pressure on them to make a decision, but won’t be able to articulate where it’s coming from. Whether this pressure is mathematical or psychological is of little consequence; what matters is that you understand the anxiety of being faced with a decision and confidently play your role in the making of that decision.

You can make your clients feel empowered by showing them how the odds line up in their favor, and helping them see into the future – after the decision is made – to observe what benefit they could bring to their lives by making the decision.

Having the answers

You can also use your knowledge of optimal stopping to assure them that there is a difference between the right answer and the best answer.

The right answer might be out there, but there is no guarantee that they will find it this week, this month, or even this year. At some point, even the “right” answer ceases to be the best answer because so much would be lost in the interim on the way to achieving it.

The best answer is the one that most closely approximates the “right” answer your client is looking for, and that does so in the most appropriate amount of time. There is a balance between seeking your goals and knowing when to stop. You can help your clients balance idealism and practicality, which, in the end, will result in a better deal for both of you.