My-Currency Wants to Use the Wisest of the Crowds
“Have you ever gotten screwed buying or selling a house?”
my-currency, the home valuation site, launched earlier this week (see my-currency Crowdsources Home Valuations) and you can now see a video of CEO Karim Tahawi’s presentation at the DEMO conference – he kicks it off with a bang.
Reactions in the industry, on the other hand, have been mixed. Here’s just a sampling…
Paul Kaihla at Business 2.0’s The Real Estate Economy calls it a Zillow-killer; while Bloodhound Blog, gives the site their First Honorary Cheez-Whiz Prize.
More reaction from bloggers:
3 Oceans thinks they’ll be sued in three months.
Altos Research believes the concept of predictive markets may have some legs.
Transparent RE thinks My-Currency could become a local venue where consumers and Realtors can connect.
Realty Thoughts wishes they had launched with a fuller database of properties.
Me? I think my-currency will eventually succumb to people wanting to game the system. Ultimately, Garbage In, Garbage Out. Too many of these social sites fall victim to the unscrupulous nature of the crowd; even the most successful examples of crowd wisdom sites (Digg.com) continue to struggle with this problem (e.g. Spikethevote.com). I think my-currency will fight an uphill battle against the gamers. The real world financial incentive to artificially boost a home’s valuation will likely be too enticing.
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- From Inman News Blog | Feb 4, 2007
- From Manhattan Real Estate: New York City Real Estate Tips | Feb 6, 2007
- From My-Currency Wants to Use the Wisest of the Crowds by Real estate marketing | Mar 1, 2007
- From Inman News - Real Estate News and Advice for Buyers, Sellers & Investors | Aug 17, 2007
jf.sellsius | Feb 3, 2007 | Reply
The wisdom of crowds is a catchy title and offers the promise of answers from the common man, unobtainable from experts. The “theory” however requires certain prerequisites, not easily met by the mob. In fact, a good chunk of Surowiecki’s book is devoted to the madness of crowds. Any home valuation that leaves out a physical inspection of the home and its appurtenant property, whether by zillowfied computer algorithms or crowd vote, is fatally flawed. MyCurrency is as likely to give a useable value as one from a confederacy of dunces (h/t John Kennedy Toole)
http://tinyurl.com/yv3cje
Check out this article in the New Yorker where Surowiecki talks about the problem of using median home prices (every statistician’s holy grail)
http://www.newyorker.com/talk/content/articles/061030ta_talk_surowiecki
Kevin | Feb 3, 2007 | Reply
I stand by my comment about their being sued in 3 months, but that’s an indictment of the real estate industry, not of my-currency.
As for the possibility of gaming the system, I think that misses the risk-and-reward system of my-currency. Sure, anybody who wants to can bid the house up, up, up to a zillion dollars if they want –whether they’ve seen it or not, whether they’re aware of its unZillowables or not. But in this particular “wisdom of the crowds” permutation — and this is where it differs from Digg — there is a final 100% right answer, and that’s the price at which the home actually sold.
Once that data is in, everybody’s guesses/bids get compared, and those who were best at predicting get “rewarded” with the social currency of higher placements — ie. there is some advertising value for real estate professionals in participating.
If — and I’ll admit it’s a big if — this thing takes off, it will be another potential venue for web-savvy Realtors to put their mark of authority on neighborhoods. “Look here, I’m the one that consistently gets the prices right in this neighborhood. Shouldn’t you be working with me?”
The problem I see with my-currency is not the fundamental one of skepticism of the whole “Wisdom of the Crowds” theory, but a less fundamental and yet quite important one — liquidity. It’s clear to me that few Realtors — except for the somewhat geeky ones like myself — will participate, and I don’t think this business model works with only “civilian” participation.
Karim Tahawi | Feb 3, 2007 | Reply
Hi Guys! Karim here from My-Currency. Thanks for the thoughtful comments.
There seems to be concern that we haven’t thought through the gaming aspect of using markets. Let me just say, I have been a derivatives trader for 15 years and Vice Chairman of the Pacific Exchange (now part of the NYSE) and so gaming is front and center for anyone in the financial markets – it’s called, among other things, ‘painting the tape’, ‘cornering the market’ and ‘insider trading’. History is filled with these stories so this is nothing new and I have experienced all of these first hand. This is largely why there are regulations in the financial markets via the SEC, CFTC and others.
My-Currency does have anti-gaming algorithms in place but they are turned OFF because we want to observe behavior during our Alpha period. Long-term, we believe that if My-Currency can grow a large and diverse enough community, we won’t need anti-gaming algorithms because price inefficiencies (prices manipulated to achieve some real world outcome) will be exploited by people who have opposing incentives or those who are motivated by or aspire to achieve reputation. The best thing that can happen, if you are trying to make your mark within the community, is to hunt down prices that are misaligned with reality and bring them back into line – and therefore earn community status (reputation currency).
Bottom line: Will there be gaming? Yes – even the financial markets observe this. Can gaming be managed? Yes – explicitly through our algorithms and organically through community. Can markets get it wrong? Yes but the question is whether markets will outperform individuals over time (the answer is yes!). Remember, markets aggregate small and partial pieces of information that by themselves are meaningless but in aggregate are complete.
Thanks and I look forward to hearing more from you on this issue. Cheers!
Larry Cragun | Feb 3, 2007 | Reply
This is a site for Geeks and Gooks not buyers and sellers.
jf.sellsius | Feb 4, 2007 | Reply
Kevin
Good points & I tend to agree with them, but I have a question concerning the 100% right answer:
>>>there is a final 100% right answer, and that’s the price at which the home actually sold
While this may be true for most home sales, it is not true for all. The selling price as part of an estate sale, or sale to a family member, or motivated (must sell) seller will render a sale price below generally accepted FMV and therefore not 100% right. And this does not even take into account various rebates and concessions which are not reflected in the sales price. (see Surowiecki’s New Yorker article link above for his analysis of this).
Does this in any way compromise this valuation system?
I guess I have a fundamental problem with the underlying philosophy of valuation and its applicability to price. Value does not equal sales price, mainly because of UnZillowables, many of which, like market pool and local market conditons, may be in flux. (A glut of golf course properties will render lower sales prices than the only one currently on the market).
I’m always thinking of Antiques Roadshow where the expert expresses the value as “at auction”, for insurance purposes, or at retail (in the shop).
In real estate, any of those values may apply in any given circumstance to determine price. A quick example. During the boom in NYC a few years back, it was “auction value” setting the price, as we had to manuever to outbid other offers, all over asking price.
There is an Eastern saying (and Joel will correct me on this
“Don’t mistake the finger pointing at the moon for the moon” The finger is valuation, the moon is price.
jf.sellsius | Feb 4, 2007 | Reply
Almost forgot. Nice one Lar.
Kevin | Feb 4, 2007 | Reply
Hey JF,
This becomes an epistomological discussion pretty quickly about “value” and “price” and for that matter “truth.”
My view — and I may well be way off — is that there’s really only one point in time at which you definitively know a property’s value, and that’s at the moment of sale (with the standard conditions: arm’s-length transaction, no coercion, etc.). At that exact moment, the property’s value is exactly what the buyer and seller agreed on. That price by definition includes all the unZillowables.
At any other moment in time, it’s just an educated guess. That guess might be made by an appraiser, an agent, an AVM, or a collective market mechanism. However the guess is made, it’s just that — a guess, nothing more.
If I guess that a property is worth only $200K because it’s 10 feet from the train tracks, but a retired train engineer buys the property for $300K because he loves its location, then its value at that point in time is $300K. A day later, we’re back to guessing. If our train engineer decides to sell and can’t find somebody else with a similar appreciation for that location, the value may be nowhere near to the $300K he just paid.
As for your example of times when there are price distortions — e.g. an estate sale, or an auction — whatever price is settled on is its value at that point in time. Predictors on my-currency with better knowledge of what’s happening than the general market will consider those factors when making their predictions.
john harper | Feb 4, 2007 | Reply
Maybe when all the dust settles from the GodZillow vs. AllComers smashup – the real estate industry and the consumer will have at least one product that – serves the needs – of all.
Right now – my opinion – everyone is more focused on a creating a viable revenue model than really trying to serve the needs -
Clifford over at the WebHomeUSABlog had a good post – What Would Google Do? Google got to where they are by serving the need first. Of course, they seem to have lost their innocence now as they try to monetize the entire GoogleSphere.
Incredible Agent | Feb 4, 2007 | Reply
Kevin & JF. I agree with both sides of the discussion. Why? Because we are all talking about things that can’t be determined by a computer, algorythm or a website. Since humans are buying the homes, no one but the person purchasing the home can make the final decision on price. What that price reflects can include an unlimited number of things, many of which we will never know about.
As an agent, you see the home price battle everyday. I have people ask me about the price they’re about to pay for a home all the time. Home prices are arbitrary and I don’t believe any of us are smart enough to instantly pre-determine a price for a home. I can only give them a price range if they’re not my client and I don’t believe anyone else can do any better. Not even a trained experienced assessor can give the actual price of a home everytime.
The issue does seem to be breaking down to an argument about value and price. We may actually need to define “value” and “price” before we really settle the discussion. Personally, value doesn’t mean anything to me because it’s subjective to opinion. If that opinion doesn’t come from someone who’s buying the house, I find it hard to gauge it’s credibility.
By the sounds of Karim’s words from My-Currency, they may be attempting to create a marketplace for homes that people can rely on. I don’t know if that’s a marketable/achievable idea, but it will be interesting to find out how they plan to work it out.
jf.sellsius | Feb 5, 2007 | Reply
Kevin
We fundamentally agree on all points.
My only concern is HOW does one know, simply be looking at the closing sale price, if it was indeed an arm’s length transaction?
Maximus | Dec 20, 2007 | Reply
I would like to see a continuation of the topic