My-currency puts home valuations up for debate
By Andy Denton on Saturday, February 10, 2007 - 11:50 am
Last summer, I was introduced to Karim Tahawi, the creator of my-currency. Karim comes from a markets background, and at the time was developing the infrastructure of his newly launched service. He explained to me his efforts to integrate a wisdom-of-the-crowds platform to home valuations. At the time I had a hard time trying to wrap my head around the idea. And to be honest, I still am.
my-currency has received a lot of press recently. Some good, and some bad. They even gave their pitch in front of a big crowd at DEMO.
Ok, so we have another socially interactive website centered around home prices (see Zillow). And yes, instead of relying on Zillow’s “black box” algorithm, you the people have the power to provide your input as to what value you actually place on the home. Sounds great, but useful? Will people really care? Which people will actually care? Do we really want anyone controlling the valuations of homes?
The way I see it, this my-currency prediction model is significanly flawed. We all know that something is only worth the value of what you can actually sell it for.
The real predictive, wisdom-of-the-crowds valuations of home prices are already being done when a prospective buyer submits an offer on a home which is for sale. Multiple offers are evaluated, one is ultimately chosen, and these offers resultingly dictate the actual market value of the home.
Receiving input from non-participatory parties in the sale transaction simply creates a value which is unusable and unrealistic. This would be the equivelant of asking your taxi cab driver of what value he places on your stocks and bonds. True, trustworthy values are created by those in the trading arena - not the bystandards.
So, with this being said, what are the possible applications for this model? Instead of opening this application to the entire world via the wide-open internet, what if this software was modular and was available at open-houses? Give a survey box to every person who walks through, and allow them to grade the home’s valuation as they are there in person. (Kitchen outdated? Minus $10,000. Breath-taking view? Add $20,000).
I’m sure there is a benefit for this type of modeling system within the home buying industry, but I’m sure making home valuations this wide open isn’t the sweet-spot.
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Category: Real Estate, Web Services
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Comment from Rod Dahl
Posted on Saturday, 10 February 2007 at 2:44 pm
Andy, your understanding of how prediction markets work (also, for that matter, the so called “Wisdom of the Crowds”) is as polished as Bush’s of foreign policy.
I should note that Hollywood Exchange, a well know and respected prediction market, for instance, has been nailing every single Oscar winner for the past decade.
http://slashdot.org/articles/06/08/07/1821232.shtml
For starters: http://en.wikipedia.org/wiki/The_Wisdom_of_Crowds
Cheers!
Comment from Andy Denton
Posted on Saturday, 10 February 2007 at 4:31 pm
Rod,
I’m not a pro on markets. And I acknowledge that Karim certainly is. I’m just confused as to how it will work on the scale My-currency is using.
It certainly is a different approach, one which may work if they find the right entry point. But, buzz can only get you so much traction. I think we’ll see a new strategy or a buy-out of their technology in the future.
But, I could be wrong.
Comment from Karim Tahawi
Posted on Saturday, 10 February 2007 at 9:21 pm
Hey Andy,
Karim here from My-Currency. Thanks for taking a look at what we are up to. Admittedly, our model is a radical departure from current practice so easy to misunderstand. Also, we are doing a lot more that using people to get values. We are also using markets (and other things) to help agents create a virtual reputation so that they can connect with clients online. We also have at least one other big card to play so stay tuned.
I guess the bottom line for me on this, as should be apparent by now ;-), is that the best way to get a value is to ask people. People are the market. So if you ask people, you are by definition, getting a market value. Is it true that the price of a property is determined, at the margin, by the final buyer. However, that buyer is just trying to pay $1 more than another buyer to secure the house. Of course, the buyers can’t see each others offers so it is probable that the final buyer grossly overpays. We have all heard of or experienced the stories of the next bidder being a mile away from the winner. Sad.
So you may be thinking, ‘what about the seller’. Well…is the industry just representing sellers? Do you have any doubt that if people *believed* pricing transparency was in place that transaction volume would explode? (hint: you shouldnt)
Comment from Will
Posted on Saturday, 17 February 2007 at 10:47 am
Very insightful AD. I think the mycurrency idea is a good one, but as you pointed out, is the value the “crowd” gives a truly trustworthy one? This is an issue I will watch with much interest as it plays out in the next few years.
