Virtual tours propelled homebuying to the peak of COVID-19. Now that the world has returned to normal, a new study shows these 3D tours do not significantly increase sale prices. They may even extend a property’s time on the market.

Isamar Troncoso is an assistant professor at Harvard Business School. He conducted a study that found virtual tours are less beneficial to sellers than other studies have shown. She evaluated the impact of virtual tours by analyzing more than 75,000 sales.

“MAYBE IT DOESN’T HELP YOU TO GET A 5 PERCENT SALES PRICE RISE BY USING VISUAL TOOLS–BUT IT MIGHT HELP SELLERS IN MANY OTHER WAYS.”

Troncoso claims that “virtual tours may have helped reduce the time it took to get a product on the market in an era when you couldn’t go see it in person.” This benefit was only short-lived. Once the restrictions are lifted, we return to our normal world, where this virtual tour does not make much difference.

Virtual tours still have some benefits for both sellers and buyers. Troncoso and Mengxia Zhu, a Western University assistant professor from the Ivey Business School, conducted the study. Technology continues to shake up all areas of business, but few are more closely watched than real estate.

Troncoso explains that using visual tools may not help to increase sales by 5 percent, but it could help sellers in other ways.

Virtual reality house hunting

Researchers used machine learning to sort 75,178 homes sold in Greater Los Angeles from March 2019 until March 2021. This time frame gives an idea of the potential impact that lockdowns could have.

The search was done using computer vision, natural language processing, and a database of listings. The researchers looked at the sale price of each home, its number of days spent on the market, and its initial price.

They then screened for 3D Virtual Tours, which combine interactive features and images to simulate walking through the home room by bedroom. Virtual tours can be created for as little as $300, depending on the quality of the images and the expertise of those who make them. However, they can also cost thousands if realtors hire professionals to photograph large homes.

Virtual tours are used by approximately 22 percent of homes. The authors looked at the 20 attributes of a house, including square footage and whether it needed repairs, to break them further down.

Researchers looked at data such as the number of homes that receive offers in a particular area, the average walkability score, and data from the US Census. This data was gathered by data curator SafeGraph. Researchers also looked at factors like the percentage of blacks and Hispanics in a neighborhood. This could be an important factor since listings for these neighborhoods often have fewer photos and lower aesthetic quality.

Location, location, location

The authors found that sellers who use virtual tours tend to provide more detailed descriptions and better-quality photographs. Researchers found that virtual tours have a “non-significant” effect on prices after controlling for captions and better photos. This is in contrast to the roughly 1.1 % increase in sales prices that researchers found from using virtual tours without these factors or the 2 – 3 % bump they saw in previous studies.

The pricing strategy of virtual tour agents could be one reason for the small effect virtual tours have on most listings. They tend to begin with a high price and then lower it when the home is sold. The authors point out that this can lead to listings staying on the market for longer.

“MAYBE it doesn’t really get you to say, ‘Oh, now I really like that house,’ but it’s going to help you be like, ‘Oh, I don’t LIKE this one, so I won’t bother to go and see it.”

The location is another factor. Virtual tools can be helpful in areas that are served by smaller firms or less desirable neighborhoods. Troncoso explains that if the listing includes a virtual tour, then the rest of it is likely to be of higher quality.

Troncoso explains that these are areas where the technologies have penetrated less. “So, that’s why there is a slight marginal effect on the sales when these sellers offer virtual tours. They may get more people to look at their listings.

There may be an even greater benefit for buyers that is hard to quantify: Virtual tours help buyers screen out the things they don’t like so they won’t make an offer. This could search for a home more efficient, especially in a market where housing is scarce.

Troncoso states that “it may not get you to really say, “Oh, now, I really love that house,” but it will help you be like, “Oh, I do not like this one, so I won’t bother going and seeing it.”

Virtual tour tips

Virtual tour technologies are improving and becoming less expensive so that smaller agents will be able to manage a larger portfolio of homes. This could attract more potential buyers.

Future research may focus on the use of virtual tours in short-term and long-term rentals, such as Airbnb. Troncoso believes that the tours are most popular with buyers and sellers.

When are virtual tours the most and least useful? Troncoso gives this advice:

• If you are on a tight deadline, it’s better to prioritize your listing with high-quality pictures and descriptions instead of virtual tours.
• Consider including a virtual home tour in your listing if your house is located in a Black or Hispanic community or one where the average household income is lower. According to the newspaper, virtual tours can reduce uncertainty regarding property values in neighborhoods with a higher percentage of Black and Hispanic residents.
• You can help your clients by highlighting the benefits of virtual tours, such as their ability to limit showings for buyers who are unlikely to buy.