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May 31, 2004

Engineering alum applies computer science to real estate

By Tim Stephens

It takes a few years for most college graduates to establish a career and begin making a name for themselves.

Katherine Lebaric's software takes much of the guesswork out of real estate pricing.
Photo by Louise Donahue

Not Katherine Lebaric. After graduating with honors from UCSC's Baskin School of Engineering in 2002, Lebaric promptly launched her own company based on software she had developed in her "spare time."

Lebaric's software, called RealNegotiate, is used to evaluate real estate transactions and has been featured in Money magazine, the Chicago Tribune, and Inman News, the leading real estate news service.

Lebaric earned her B.S. degree in information systems management in just three years. She was also on the UCSC swim team, but had to give that up when she began taking upper-division classes.

"I had a very busy undergraduate career," she says.

She got the idea for RealNegotiate when her parents were thinking about buying a house in the Monterey area. Deciding how much to offer for a property is nerve-racking because a small difference in the sale price can add up to a lot of money over the course of a 30-year mortgage. Offer too little, though, and you risk being outbid by another buyer.

Real estate agents base their recommendations on comparative market analyses--known as "comparables"--derived from recent sales records for similar properties. But Lebaric felt that greater statistical rigor could be brought to bear on the problem.

"You hear different things from different realtors, and it all seemed very qualitative. I wanted something more quantitative," she says.

RealNegotiate takes the comparables data and feeds the numbers into a statistical model, yielding quantitative answers to the kinds of questions that buyers and sellers agonize over: How quickly will this property sell at the listed price? What is the lowest offer I can make for this house and still have a good chance of buying it? Should I accept this low bid or hold out for more?

The software does this by generating a three-dimensional statistical analysis that shows the inevitable trade-offs between three key parameters: probability, price, and time. Probability is the likelihood of making the sale (from the seller's point of view) or purchase (from the buyer's point of view); price is how much the seller is asking or how much the buyer offers; and time is how long the property stays on the market.

A seller can find out, for example, that at a given asking price the property has a 75 percent probability of selling within the next 30 days, and if the price is lowered by $5,000 the probability of selling would increase by 10 percent.
"It allows you to set your priorities in the context of the market, so you can see how much to ask if you really have to sell within 30 days, or how long you're likely to wait if you hold out for a high price," Lebaric says. "It's an objective way to see the tradeoffs between different factors."

In November, Lebaric demonstrated her software at the National Association of Realtors Convention and Expo in San Francisco. Her modest booth attracted a good crowd of interested realtors, even in the midst of flashy booths from large companies featuring everything from free fruit baskets to appearances by Fabio.

"I was doing demonstrations all day," says Lebaric, who at 22 was about half the age of most of those attending the convention. "It was a pretty interesting experience."

That's when reporters started to call. The publicity has certainly helped her business. While it isn't making her rich, she says her customers include individuals, realtors, and real estate companies.

Lebaric earned a California real estate license last spring. She has also been accepted to several prestigious graduate programs and plans to begin studies in quantitative finance this fall.

According to Lebaric, this remarkable trajectory is all part of a plan she had in mind before she even arrived at UCSC. She wanted to start a business-related project while she was in school, and she also wanted to graduate early.
"I came in with the idea that I would take very focused classes and finish early but finish well," she says.

Her information systems management degree combines computer science and business management economics. The engineering school describes it as "a rigorous, challenging major" for students who want to pursue a career of solving business problems through the use of information technology.

But much of the computer programming skills Lebaric needed to create the RealNegotiate software weren't covered in the courses required for her major. So she picked those up on her own. For example, building the GUI--the "graphical user interface" that gives the software its look and feel--was a big project that required her to learn a new set of programming tools.

At the same time that she was doing exemplary work in her courses, Lebaric was also writing the product software, preparing patent applications for the 50 or so patent-pending algorithms used in RealNegotiate, writing the help documentation, and setting up the web site.

"It was kind of a hectic time," says Lebaric, whose energy and enthusiasm suggest that she likes operating in high gear.

Lebaric's interest in business and finance started early. She remembers checking out books from the library on subjects like "Introduction to Stocks and Bonds" when she was still in grade school.

"It was fun because it related to the real world, like puzzles with practical applications," she says.

Quantitative finance, which she will be studying in graduate school, involves the application of statistics, mathematics, and computer science to investments and finance. After graduate school, she plans to work in the finance industry.

"Eventually, I'd like to run my own show in that area," Lebaric says.

If past accomplishments are any indication, it won't take her long to achieve that goal.

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