“Wisdom of Crowds” Meets Real Estate: Introducing My-Currency.com
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Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. () |
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February 1st, 2007 · 1 Comment
As noted by Altos Research and FOREM, there’s a new kid on the AVM block — My-Currency .com (don’t forget the “-” ) . For predictive firepower, it depends on the “Wisdom of Crowds” concept popularized by James Surowiecki in his eponymous book. The idea, as thought-provoking as it is controversial, is that if you create an appropriate bidding environment, in which market participants drive collective wisdom by “buying” and “selling,” that collective wisdom is often more accurate than the insights of any one expert.
Confused? My-Currency trades in real estate futures. It lists properties for sale — at this stage only a handful — and then challenges you to predict what the final selling price of that property will be. The aggregate of these predictions is the “CrowdValue.” Once the property sale consummates, the actual selling price gets compared against the predictions, and those who were best at estimating get paid in “reputation currency.”
I gave it a test spin and entered a local Palo Alto property, 359 Creekside in Palo Alto (link will be active only until the property sells). With the market here going crazy again, it’s pretty easy to predict that the final price will be above the list price, but unfortunately last year’s rule — final price is roughly 2% per bid above the list price — is no longer as trustworthy, so it’s anybody’s guess exactly how much the property will sell for. The property I entered is listed at just under $1.2M, and my estimate is a tad above $1.35M.
So, where’s the beef?
Simple, really. Those who are consistently more accurate than others in predicting property prices become neighborhood experts and get highlighted more. For real estate agents, that’s great publicity. For civilians, it just feels good. (Regular readers may remember that this very concept was my prediction #4 on what Zillow was releasing on December 6th. Zillow may not have heeded my hint, but perhaps Karim Tahawi, My-Currency’s CEO, did?)
How’s this going to play out? Very predictably, I suspect.
- Once again, innovation in the real estate biz is consumer-focussed and is being driven by outsiders. What this means is that 95% of the market participants will be consumers, not real estate professionals. Those professionals who do participate, who most likely have seen the home and have a sense of its “unZillowables,” will likely have an edge.
- There will be insider trading — almost a given in a market in which there is so much information asymmetry. Only local real estate professionals, and the civilians they were representing, for instance, know how many bids there were on the property I entered.
- Zillow will resist the temptation to add a similar feature to its site. Already stung by industry criticism that its Zestimate is just a game, Zillow won’t want to increase the criticism by adding another feature that will look, at least as first, frivolous.
- My-Currency will get sued within 3 months. Part of the financing for any savvy real-estate oriented service is a legal contingency fund, and I hope Karim doesn’t have to dig too far in to defend his otherwise brilliant idea. For what could he possibly be sued? Hey, come on, this is the real estate biz — it doesn’t have to be something substantive or real. Though temporarily pretending to play nice — due to the ever-entertaining DOJ vs. NAR carnival — the real estate industry will borrow from the RIAA playbook, and write a nasty legal letter, probably centering around the idea that My-Currency is “advertising listings without permission.” Karim, meet Glenn, another real estate entrepreneur whose great ideas often butt heads with the reality of the real estate business.
- The next logical mashup? Karim, meet Lloyd Frink and Richard Barton. I’m sure somebody’s already working on a Zestimate-CrowdPrice combo.
Tags:
Glenn Kelman,
James Surowiecki,
Karim Tahawi,
Knowledge markets,
Lloyd Frink, My-currency.com,
Prediction markets,
Real estate,
Richard Barton,
Wisdom of Crowds
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1 response so far ↓
1 wendy kandasamy // Feb 1, 2007 at 6:56 pm
Just my 2 cents —
Using the traditional valuation model for real estates, the “comp” for comparable homes, I guess the value to be in the low $1.4M range. The comp that I am using is 281 Creekside which is just a few houses down on the same side of the street. There were no less than 11 offers when that house sold for $1.27M in August ‘06. Adjust upwards for condition (~$50K) and larger (and more usable) lot size (~$80K), this puts the value at $1.4M. The value is “seasonally adjusted” to be about 10% higher (for spring market), then the value would be closer to $1.5M! The “collective” will bunch up ~$1.35M. Desperate buyers will know to go higher just to leave the pack. If the property has over 10 offers, it’ll probably shake out over $1.43M. The new owner knew that they would have to overpay what most buyers are willing to pay. The amount of over payment is what most buyers would like to keep as low as possible. So, the most serious buyer should use the collective intelligence model to predict the lower end of the selling price, not actual. Personally, I hope it goes as high as possible since this sale would be a fabulous comp for mine!
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