One of most interesting (if misguided) things about the RPR project is the drive to create an online property valuation “Gold Standard.” The RPR team intends to do this by layering Realtors’ street-level assessments of value on top of the algorithmic magic that can be worked with mounds of raw property data.
They’re calling it the “Realtor Valuation Model,” or RVM.
When I mentioned this to an investor friend he said, “Oh, that’s easy: the model will be true market value plus 20%.”
Sarcasm aside, it’s a very interesting prospect. Machine calculated property values may satisfy our idle curiosity or grease the skids of online engagement, but they are, still, an imprecise measure. In almost all cases, only a skilled Realtor familiar with the qualitative dimensions of a property and its environs can price a home correctly.
So capturing the practitioner perspective online – in essence, productizing the Realtor mind – would have immense value. Indeed, when Dale Ross explained the RPR to a group of MLS executives at the NAR conference last month he made a point to note (rather clumsily) how deeply interested Wall Street was in leveraging such a human generated measure.
I’ll bet they like cookies and back rubs too.
Part of me thinks that any Realtor willing to feed this beast is committing a profound, and perhaps final, act of value destruction. If big banks and consumers can leverage the knowledge of Realtors through something like an RVM, well, who needs Realtors? (I have always argued that the Zestimate is the good Realtor’s best friend precisely because it, unlike something like the RVM, is inaccurate.)
But I also think there are lots of value creating possibilities here.
One example: The Point2 Real Estate Confidence Index
Realtors from the beginning of cocktail party time have been asked one question:
“How’s the market?”
What if you could answer that at scale?
This past summer, the team at Point2 Technologies began working towards that [disclosure: 1000watt Consulting has performed work for Point2]. The company began surveying its nearly 200,000 members every month. The questions were simple: How’s the market in your area? Where do you see it heading in your area near-term? How about long-term?
The responses, of which there were thousands, were run through a well-designed survey instrument, sorted by state, represented as a value on a ten-point scale and neatly visualized. In time, the company intends to produce regional and local versions of the index. Survey participants can add a Confidence Index widget to their Website or blog; the rest of us get a glimpse of where the market is headed from the people who know.
Consumers have an almost insatiable desire for insight into their real estate fortunes. Zillow’s nine million monthly uniques attest to that. But I think we have missed half the opportunity. And the RVM gets it wrong.
The company that can refine, telegraph and merchandize the view on the street while at the same time delivering value to the those doing the looking will really be on to something.
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Brian,
The cry of agents for a long time has been that we don’t get the respect of other professions, ie. lawyers, doctors, etc. Setting aside the educational requirements for the vast majority of other professions, let’s look at one glaring similarity:
Professionals are paid for their ability to sift, sort, and analyze data and then advise based on that data.
Is there a comparable free or even “freemium” service in other professions? By giving up for free the “secret sauce” that is what makes an agent worth their weight in gold, I believe you are correct about agent committing “value destruction.”
And for what it’s worth, I’ve loved the conversation about Zestimates because it always allows me to show that my “secret sauce” is stuck between my ears…
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WebMD didn’t drive doctors out of business…
There is so much a skilled Realtor brings to the table above and beyond property valuation. The value of a skilled negotiator working on your behalf cannot be understated. There are so many nuances and moving parts to a Real Estate transaction that vary on a case-by-case basis. I think that those agents who are truly skilled at their craft are worth their weight in gold, and will utilize the many on-line valuation tools to bolster their already formidable skillsets.
Brian your posts continue to provide me with insight and new questions about my own business and the way forward. After a read I always find my self questioning the future for realtors.
The comparison of WebMD to RPR cannot and should not ever be made. A skilled neurologist should not be compared to a GRI.
I continue to use Zestimates and Cyberhomes data on listing appointments to show the value of my services. It continues to be a tool to educate the sellers about what the Buyer’s see.
Maybe the issue at hand is that our profession is one of convenience and not one of necessity. People don’t need a realtor to sell a home. The need strong marketing, negotiating and legal advice. People can do all of these themselves and potentially have the same results as using a realtor.
Before I get flamed…I believe 100% that every home buyer and seller should be represented by a licensed professional realtor.
I think NAR has wasted their money on the technology because they are creating another pitfall for realtors to trip and fall into. Justification of pricing and services in the face of what the RVM tells them is going to be a nightmare. Every realtor will have access to it and use it differently. This will continue to create more confusion and chaos for the client.
Your closing paragraph says it all. It comes down to being a local expert who can connect to the public at street level and in cyberspace while conveying their message clearly and concisely.
The future of real estate in my opinion is about transparency and outstanding customer service. Both of which you have keyed on in a number of your other posts.
Thanks again for the insight.
Will – Every profession has been assailed by innovation and “the internet,” Real Estate being one of the many. Stockbrokers, Travel Agents, Medical Professionals, Retail etc. etc. etc.
My point of contention is that a skilled professional in any field will always be worth what you pay for them. Perhaps a better parallel can be drawn between financial services and Real Estate. Many people can go to E-Trade, Scottrade etc to buy and sell stocks – and they do. However, “traditional” stockbrokers and financial services companies still exist – and prosper. Sure, they have had to revisit their value proposition and core service offerings to consumers, but they offer great value (albeit in a somewhat different form) to those who utilize their services.
Real Estate is currently in the same position.
Realtors bring far more expertise to the table than home valuations, and good brokers and good Realtors understand this and offer far more than a home valuation as a service to their clients.
As to my initial point about negotiation: buying and selling a home is (for the most part) a very subjective and emotional process for the parties involved. Realtors have the ability to negotiate on their clients’ behalf from a far more objective viewpoint, and again, the value of this (in my opinion) cannot be understated.
@Todd
Love “The secret sauce is stuck between my ears”
Nicely said.
I’ve always thought the data that’s collected by places like Book-A-Showing and Showing Solutions (3rd party showing scheduling firms) could be really valuable.
Potential buyers are asked to rank the attractiveness and pricing of the home after the view it. That could be incorporated nicely into the RVM tool and may be more reliable than realtor perceptions.
Also, I love Point2 but I can’t say that creating a new index metric that requires detailed explanation will be a home run.
Brian, you pose many excellent questions. The opinion based value system by Realtors and appraisers seems to have officially been busted by the foreclosure tidal wave. Valuation seems less accurate than ever, and I’d be scared to death to trust this valuation to new agent doing BPO’s.
As Zillow and other algorithms improve they have to be better than a human opinion. A quick appraisal by 10 different people will yield 10 widely varying results all with various levels of human bias introduced. It’s hard to compare real estate valuation to anything, but can you image if the car salesmen determined value and there was nothing standardized like Kelly Blue Book?
I hope this all shakes out soon and some standardization takes place in this industry.
Sounds like a huge undertaking.
Aloha,
Keahi
The reality is that AVM’s are abundant on the web and reviewed by homeowners daily. As a matter of fact, the use of AVM’s has nearly doubled in the last year alone as a result of the mortgage crisis. And when homeowners gather these AVM’s from multiple 3rd party sources they start running into questions and turn to their agent. So it just makes sense that we equip REALTORS© with the proper tools for their clients…enforcing their role as the knowledgeable source for interpreting this information.
It’s also important to understand the reason many AVM models vary so greatly is because they’re calculated based on data that is often out-dated or incomplete. Which is why we’re so excited about the prospect of creating this gold standard of automated valuation. The RVM will use real-time listing data to enhance the quality and reliability.
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The case-shiller index is the best method in real estate trends. I don’t think this index provides any value because its based upon opinion and not fact.
Who doesn’t have an opinion in the housing market?
Some thought the trend was going to continue upward. Option Arms were created allowing a broker to make 3% in the “back end” and 1% upfront with a 3 year prepay. Profits were made on opinions of so called “experts in the field.”
The bottom line is fact always outweighs opinion.
Generation Y is going to demand and expect this info and more,to be available to them on line. It is up to us to sharpen are skills all the time.Then we are worth are weight in Gold.
Reggie the Realistic: AVMs are here. Get used to it. Consumers have. Of course many of the AVMs they currently access are flawed, but the public wants this information.
Realtors shouldn’t be put in the position for looking incompetent because the consumer has come in with bad information: Realtors should have a superior product which can produce superior information. If we work together to build that product, that’s exactly what we’ll have.
“So it just makes sense that we equip REALTORS© with the proper tools for their clients”
Apparently Reggie thinks we are ill-equipped now.