Virtual tours helped propel homebuying through the height of COVID-19. But now that life is back to normal, new research finds these 3D tours don’t significantly boost sale prices and may even prolong a property’s time on the market.
When factoring in the quality of photos and listing descriptions, virtual tours benefit sellers less than previous studies indicate, suggests research by Isamar Troncoso, an assistant professor of business administration at Harvard Business School. She studied more than 75,000 home sales to evaluate the impact of virtual tours.
“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.”
“Maybe in a time where you couldn't really go and see how it was in person, it seemed like having the virtual tours helped shorten time on market,” Troncoso says. “That appears to have been a short-term benefit. And once those restrictions are lifted, we come back to this world, where having this virtual tour doesn't really make a big difference in terms of sales outcomes.”
Still, some benefits of virtual tours persist for sellers and buyers alike, and knowing when to use these tools and when to forgo them is a key insight of the study, which Troncoso conducted with Mengxia Zhang, an assistant professor at Western University’s Ivey Business School. Technology continues to roil all sectors of the business world, with few areas watched more closely than real estate, an economic bellwether that remains white-hot despite high interest rates.
“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 says.
Virtual reality for house hunting
To parse selling behavior, the researchers used machine learning to sort data from the real estate platform Redfin for 75,178 houses sold in the greater Los Angeles area from March 2019 to March 2021. The time period gives a snapshot of how the effect might linger beyond lockdowns.
They combed listings for text and photos using computer vision and natural language processing. They examined each home’s sale price, number of days on the market, and initial price.
Then, they screened for 3D virtual tours, which combine images and interactive features to simulate the experience of walking through a home room by room. Depending on quality and expertise, creating a virtual tour can cost as little as $300 or less, or many thousands for realtors willing to hire a professional to photograph a large home.
Roughly 22 percent of houses used virtual tours. To break down those listings further, the authors looked at 20 standard house attributes in each, such as square footage, and whether the home needed repairs.
Researchers included walkability and bikeability scores, average number of offers homes in the area receive, and other neighborhood data parsed from the US Census via data curator SafeGraph. They also considered factors such as the neighborhood’s proportion of Black and Hispanic residents, a metric they think could be important since listings in these neighborhoods tend to feature fewer photos with lower aesthetic quality and more often are handled by smaller firms.
Location, location, location
Sellers who use virtual tours often provide longer descriptions and more high-quality photos, the authors discovered. After controlling for better photos and captions, researchers found virtual tours had an “insignificant” impact on final prices. That’s in contrast to a roughly 1.1 percent increase in sale prices from using virtual tours without those factors, or the 2 percent to 3 percent bump researchers found in earlier studies.
One possible reason for the tiny effect from virtual tours for most listings: pricing strategy of agents who use virtual tours. These sellers tend to start with a higher price, lowering it by the time a home is sold. That can mean listings linger on the market longer, the authors note.
“Maybe it doesn’t really get you to say, ‘Oh, now I really like that house,’ but it’s going to help you to be like, ‘Oh, I don’t like this one, so I won’t bother to go and see it.”
Location, though, provided another wrinkle. In areas served by smaller real estate firms and in less sought-after neighborhoods, virtual tools may help sellers. That’s because if a listing comes with a virtual tour, chances are the rest of the listing is higher-quality, too, Troncoso says.
“These are areas in which these technologies penetrated less,” Troncoso says. "So that's why you see a little bit more of a marginal effect when those sellers have virtual tours. Maybe they get more eyes on that listing.”
For buyers, there may be a bigger benefit that’s hard to nail down: Virtual tours can help screen out what a buyer doesn’t want, so they never make an offer. That may make a search more efficient in a tight housing market.
“Maybe it doesn’t really get you to say, ‘Oh, now I really like that house,’ but it’s going to help you to be like, ‘Oh, I don’t like this one, so I won’t bother to go and see it,’” Troncoso says.
Virtual tour tips
As virtual tour technologies improve—and become less expensive—smaller agents may be able to more efficiently oversee larger portfolios of homes and attract more possible buyers.
Future research areas may examine the use of virtual tours in long- and short-term rentals such as Airbnb. For now, the tours seem to be most used by buyers and sellers, and appear to be here to stay, Troncoso says.
So, when are virtual tours most—and least—useful? Troncoso offers this advice:
- If you’re working on a tight schedule, prioritize high-quality photos and descriptions for your listing, rather than virtual tours.
- When your house is in a Black and Hispanic neighborhood or one with lower average household income, consider including a virtual tour as part of your listing. That’s because virtual tours could mitigate greater uncertainty about property values in these neighborhoods, according to the paper.
- If you’re an agent or a virtual-tour creator, temper your clients’ expectations and highlight potential benefits, like their ability to reduce showings with unlikely buyers.
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Image: AdobeStock/DimaBerlin and ParinApril