February 02, 2007

Predicting Market Values: Using Wisdom of the Crowds in Housing Market

In the current housing market pricing has become the key to selling. With housing sales falling and the market showing signs of a recession buyers and sellers are unsure what to expect. After such a boom in beginning of the 90s into the 21st century there is still great confusion as to what the correct value of homes is for the current market. And it is causing problems; Overpriced homes sit without offers. More and more deals are falling through. What is the answer to this changing market? Yet another new website has been designed to help determine the market value of properties, but this one contains a new twist. This site uses “the collective wisdom of users to estimate the value of individual homes and generate price indexes by ZIP code and neighborhood.” Through the use of professionals in a certain area the website my-currency.com collects data. If Realtors in the area choose to take advantage of this site they are given a rating. This rating allows people to get to the site and automatically know whose advice is most credible. More controversially, it also includes "CrowdValue." If it does in fact become widely used it will change the real estate housing market.

Of importance is the opportunity for bias participants. If a Realtor wants to assist the buyer (his/her client) than he may lower the estimated value. If a Realtor then attempts to help the seller (his/her client) then again the valuation of the home can become unfairly skewed. Some websites have tried to avoid such problems with a Realtor rating (my-currency among them). However, the slanting of prices is still an issue when reputation and income are on the line for these Realtors. The solution: wisdom of the crowds. And this is the first website to focus not just on the use of professional knowledge, but also that of the crowd.

What makes this unique is its use of a person's knowledge of their neighborhood, home, and area. Who knows better than people who live in Granite Bay, California, what correct pricing is for homes in Granite Bay, California? However, it is important to note that if my-currency.com is to become a reputable website they need to find a way to regulate this public consensus. Some argue that people will try to increase their homes' value so it will be worth as much as is possible. How does one regulate this potential bias? As shown to the right the site has employed an estimate bar, which limits the minimum and maximum value for each house. My-currency has used the point system to further validate the "crowdvalue" opinions (same system as used for Realtors).

There are already home valuation sites on the web (Zillow, Active Rain, IRR, etcetera) and my-currency is just one of many. The items that set it apart like its "crowdvalue" system also may lead to some difficulty. It will not be easy, but it will be incredibly important to turn opinions into fact-based knowledge. As the founder and CEO, Karim Tahawi, of my-currency.com stated as response to such problems: "[with] 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."

If these initial problems of bias voting and gaming are solved, this website will be revolutionary. It has the capability to level the playing field for all home buyers and sellers with their professional Realtors. Everyone will be able to access the necessary tools and gain the appropriate knowledge about real estate in their area. In effect it will allow an informed buyer to find the right house and an informed seller to get that house sold at the right price for the market. Everyone wins.

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