The vast majority of real estate professionals I encounter dismiss the value of these models, sometimes for very good reasons which I’ll discuss later.  Technology enthusiasts like myself, however, find the same fascination with these valuations as the average consumer.  It’s a brave new world in the real estate industry, and the amount of intellectual and financial horsepower being driven toward these online outlets of real estate data seems almost unlimited.  In the end, though, my concern is with who really benefits from online automated real estate valuations?

Clear Benefit:  Real Estate Consumer Websites

Zillow, Trulia, and their cohorts are in the business of differentiation.  There are already tens-of-thousands of agent-based local websites delivering accurate, timely listing data for consumers.  Recreating this same database on a national scale doesn’t add value for a local home buyer.  To pull a consumer away from their comfortable neighborhood home, something shiny and new is required.

The national real estate websites are leveraging their superior finances and workforces to create tools that an average agent cannot.  Automated valuations create a unique, interesting, and (potentially) financially valuable tool for consumers.  When a home buyer begins using one real estate site to compare home values vs. home prices, he or she is likely to continue using that same site for a long period of time, to guarantee the consistency of the metric being used in the search.  This creates a consumer who not only views a large number of pages within a site for comparison purposes, but does so repeatedly, day-after-day.  Consumers will many times become quite loyal to the site, out of appreciation for its unique value, or even out of fear of making a mistake by not coming back and consulting this source of information.

This loyalty and traffic, generated by the unique content, creates a great amount of SEO and financial value through advertising.  For a real estate portal with no associated brokerage actually selling homes, this is the number one goal.  Profits come from advertising, and advertisers buy traffic visibility.  Make no mistake, Zillow didn’t become one of the world’s most popular real estate sites because the forums had nice discussions.  Zestimates were the sparkling new bauble leading the news media and the public through the door and allowing the company’s introduction to a massive audience.

Unintended Benefit:  Real Estate Macro Market Statistics

Although I can’t guarantee this, after watching a company like Zillow for years, I don’t imagine that the founders ever thought that their market data would be used in the way it is today.  The tools, in the beginning, were designed to compile large amounts of data and apply it to one home, creating one estimate of value at a time.  The massive undertaking and collection of data sources, in the end, created an unexpectedly-accurate database for national real estate forecasting that is nearly unmatched in size.

Stan Humphries, Zillow’s chief economist, has been making a name for himself by beating Case-Shiller to the punch on housing statistics of late.  The statistics are actually a very good thing for the overall real estate market, as they add another voice with a large body of credible data to back it up.  The extra publicity doesn’t particularly hurt the company either, as Humphries and CEO Spencer Rascoff are regularly featured as national real estate figures based on their data.

Partial Benefit:  Home Buyers

This point has been made by real estate agents ad nauseum, but I’ll repeat it because it is valuable.  Automated home valuations have a small benefit to a buyer in their home search.  In an introductory phase, buyers may want to see sales prices and values in a general area to begin to understand the area in which they’ll buy.  Estimates may flesh out the neighborhood a bit more than simply viewing recently closed sales.  The additional data could help a buyer understand that most homes in their preferred neighborhood are worth between $350,000 and $400,000.

That’s it.  That is where the value ends for a home buyer.  Estimates on individual properties are not worth the screen they’re displayed upon.  Since Zillow is the most popular, and I know and like a bunch of people at the company, I’m going to pick on them in particular.

Nationally, Zillow’s estimates missed the sale prices of homes 45% of the time by more than 10% of the value.  Zillow’s estimates missed the sale prices 25% of the time by more than 20% of the value.  From these two statistics alone, it’s clear that you’d be foolish to make a home purchase decision based on an automated valuation.

This isn’t an opinion, it comes directly from Zillow’s statistics.  The  company itself points out that its estimates are not to be used as an appraisal, and is highly transparent about its own inaccuracies in the data for individual homes.  Unfortunately, it seems that there are far more consumers relying on Zestimates than there are actually reading those disclaimers.  Buyers should understand that once they’ve gotten past the initial phase of scouting out a neighborhood, using an automated valuation model isn’t going to provide accurate information on individual homes’ values.

Net Zero Benefit:  Home Sellers

Home sellers register the most complaints with real estate professionals over automated home valuations, with good reason.  While home buyers might miss a potentially good buy because they relied upon an online valuation, there are always other homes to buy.  Sellers, on the other hand, have just one iron in the fire.  If a seller lists his/her home for sale and an inaccurately-low value is being posted next to their house online, the seller is stuck explaining a botched mathematical calculation to buyers instead of promoting a home’s best features.  There is no upside to a high valuation.  Sellers have already named their price, and buyers won’t be increasing their offers because of the high valuation.  While the number of potential buyers who may undervalue this home based on that valuation is unknown, it creates a great amount of anxiety for a home seller that they’re being unfairly judged by an outside source with little direct knowledge of the home.

All of the major real estate sites claim to have procedures for human input on their valuation models to adjust a poor valuation.  This is very temporary band-aid, however.  Human input will always be subjective.  High valuations won’t be appealed.  Listing agents and sellers will always appeal low valuations, even if their home is overpriced.  In the end, human input altering the outcome of the model just reduces the intergrity of the model itself.

Automated Valuation Models Have a Long Way To Go Before Truly Benefitting Consumers

We’ve certainly seen some benefits to real estate statistics and greater market knowledge, and I enjoy watching another statistical powerhouse competing with the old guard for the most accurate industry projections.  It’s fairly clear, though,  that these automated valuations have benefitted their creators much more than individual home buyers and sellers.  In the spirit of technology progression, I’m hoping that these algorithms are developed to the point that they become somewhat-accurate predictors of value.  However, as much as I’m admirer of our ever-increasing ability to manipulate data for research purposes, I’ve sold far too many homes to believe that a computer model can compare one neighbor’s shiny granite counters to another’s crumbling laminate.  The data is a nice tool for economists, but for the individual consumer it’s more entertainment than sound financial advice.

National real estate player Trulia began its foray into the home valuation space yesterday.

Trulia Estimates, as they’re called, are currently in beta and available for sold properties in the San Francisco Bay Area. Brian Boero of 1000Watt Consulting provides a thourough break down of the Trulia Estimate launch, so I won’t go any deeper. Instead I’ll focus on:

• What this move means to consumers,
• How it might affect the business side of things,
• What it means to SEO,
• A comparison of Trulia Estimates and Zillow Zestimates.

Consumers’ Perspective

From a consumer standpoint, I think this is great news. When I was searching for my last home I used my own real estate search site, of course, but was constantly heading over to Zillow for previously sold data and, more importantly, Zestimates.

Once Trulia breaks out of beta and launches nationwide for active properties, Trulia Estimates will provide similar useful data to consumers…and that is good news for home buyers and sellers alike.

Business Perspective

It’s no secret that home buyers use multiple websites when searching for property, as I did in my example above. And there is no doubt that this move is aimed directly at Zillow’s Zestimates. What this does for Trulia is provides their users with a reason not to leave their site. Smart move? Yes, and the same reason we’ve launched Value Scores on HawaiiLife.com.

For the time being Trulia’s Estimates pose no threat to Zillow, but once they’re available nationwide for active properties it will be interesting to see how much Zillow’s web traffic will be dinged.

SEO Perspective

Google rewards sites for providing useful information, and Trulia Estimates will definitely be useful to consumers. Over time this will be a positive move for Trulia’s SEO.

Comparison Trulia Estimates vs. Zillow Zestimates

For this comparison we’ll be looking at 88 King Street #717, San Francisco CA 94107:

• Trulia – 88 King Street #717
• Zillow – 88 King Street #717

Both sits provide valuable information, including price/sq ft and nearby similar sales. Zillow, however, gives much more previous sales history as well as tax history. Zillow also provides a graph showing several years of their Zestimate. I don’t think that Trulia can do this as their Estimate is brand new, but maybe they’ll figure out how to use their algorithm historically.

The one place where Trulia wins is that they offer the ability for consumers and agents to provide feedback on the home valuation. As Jim Bilbao comments on Mr. Boero’s post, “bringing crowd sourcing to home pricing is attractive.” I couldn’t agree more. Will this force Zillow’s hand to integrate something similar into their algorithm?

Conclusions

This is a great move by Trulia. A long time coming, maybe, but better late than never. The question is, can Trulia catch up to Zillow? After all, Zillow has a 5 year head start.

Click here to view the embedded video.

Trulia made a genius acquisition in purchasing this new mapping technology from Movity which vastly improves their own offering. Crime Map draw it’s statistics from three separate data sources that report to most the police agencies in the country. SpotCrime, CrimeReports, and EveryBlock power the map results.

View this example of Crime Statistics in Los Angeles. The heat map indicates where the higher concentrations of crime area, giving you several different metrics for determing the safety of the area. Trulia’s CrimeMap is interactive and allows visitors to view crime data, toggle between multiple neighborhoods, and compare between them. The social map aspect allows users to add their own comments and advice via Facebook comments.

Crime Map is still in beta so the reporting coverage is currently pretty limited. Right now Trulia covers 50 major metropolitan areas but has plans to expand it’s coverage area. I can foresee Crime Map becoming an invaluable resource for home buyers and Realtors alike.

I think, over the next 12-24 months, we will see a race between Zillow, Trulia, and Move (Realtor.com) to sign up the next wave of niche real estate sites and media outlets to their respective ad networks. Building an inside sales team to sell ads is an extremely expensive undertaking, but required to reach agents all over the country. Most niche sites that have traffic likely don’t have enough traffic & ad impressions to warrant hiring their own sales team. And let’s be honest — most of those companies would rather spend their time and effort building more cool features and growing their traffic than managing a sales team. But of course they also need to make money – so having another party handle their ad inventory makes sense.

Any guesses as to which niche real estate site is next in line to sign on the dotted line?

For the real estate professionals reading, how important is it for you to advertise on the “largest” real estate network? What do your clients say when you SHOW them (hat tip to Chris Smith) you are spending money marketing their listings on the #1 real estate network?

http://www.youtube.com/watch?v=iDC8dbUHvOs

[via Vendor Alley]

I asked the same question, “my landlord is selling my apartment, what are my rights as a renter?,” on both Zillow and Trulia, and I was pleasantly surprised by the results.  Between the two sites, I received 15 answers (12 on Trulia, 3 on Zillow) to my question within just 24 hours!  Beyond just the quantity of responses, I was actually pretty impressed by the thought and detail that several agents and brokers put into their answers, there were truly some useful tidbits in several of the answers.  It was also helpful to see some consensus – when multiple responses contained the same suggestion, it made me feel fairly confident that it was accurate advice.  All in all, it was a great consumer experience and very helpful!

You may be asking “so why does this help me as a real estate professional?”  Forums like these can be great marketing platforms and are a terrific way to showcase your local knowledge.  I know that as a consumer, I didn’t just read the answer, I also looked at each person who answered.  If their answer was particularly good, I clicked through to see their full profile and learn a bit more about them.  I’m not currently in the market, but if I were, I would be inclined to call a few of the agents with the best answers to my questions.  It builds goodwill while showing off your knowledge and increasing your exposure online.  If you aren’t participating already, the New Year might be the perfect time to kick it off…

What’s the consensus from the real estate community, are Q&A sites like these helpful in driving your online exposure?  Have you seen any other benefits, or better yet, converted clients?

I know it is inevitable that I will be asked (perhaps 100′s of times) “What did you learn from Inman Connect SF this week”? or “What was the most interesting thing you learned at Inman Connect SF”? or some variation of that general question. In years past I may have made something up to illicit a response like “That’s Nice” or “Wow, that’s great!”, but NOT this year!

This year something very accidental, yet incredibly enlightening happened and it all began with me accidentally walking into the wrong “MeetUp”…

It was like a Bad episode of “Reality TV”

Wednesday at ICSF was jam packed! Stuff happening from the morning bell to the 5pm cocktail call. I was constantly looking at my playbook, trying to decide where I was going…What topic? What room? What subject? It was crazy! So right after lunch I knew I wanted to go to a “MeetUp” of Real Estate Tech Vendors in Continental Parlor #2, that started at 1:00pm. Now the MeetUps were not necessarily open to the public, though they were not marked “Private” or anything, but they were designed for the Vendors to congregate and talk amongst themselves regarding what they were experiencing in the market. This MeetUp was Facilitated by a friend of mine, Greg Robertson from W&R Studios (Cloud CMA), so I knew he would let me “Sit in” on it. After all, I am a Techy!

So off I went on my merry way at about 1:10pm, feverishly typing away at Twitter on my phone, into Continental Parlor #1 ( for those of you who have had your morning Starbucks you probably got it, but for those who have not…I said Parlor #1!). Now in Parlor #1, I was not sitting in on my intended MeetUp, Real Estate Tech Vendors, but instead I was “Transported” to some unknown geographical location somewhere in the 1950′s … It was titled “MLS Operators, Vendors, and Staff” DA DA DUMB! (Cue the music from the 1950′s classic TV show, Dragnet!)

“Son-of-a-bitch!” I thought, I gotta get outta here! but I couldn’t. Something was mysteriously keeping me from moving, it was as if I were paralyzed. The conversation was about the “Consumers” (Keep this meaningless term in mind, it will come up again) perception of our Industry. Specifically, at that moment, about how when they see Listing data in multiple sources (MLS, Trulia, Broker Sites, Agent Sites ect…) that is not the same (different price, Sold vs Active ect…) they say “How stupid is this?”

That’s when it got interesting ….

Think Hatfield’s & McCoy’s, Shark’s & Jet’s, Snoop Dawg & Puffy!

Ok, so I will be the 1st to admit, I have a limited knowledge of the inter-workings of the MLS’s. I am however a keen observer of human behavior, and the overall atmosphere in this room was … hmmmm … What’s the right word? Depressing? no Frustrating? no oh wait… I’ve got it! EMBARRASSING!

Though the Facilitator, Marilyn Wilson a Partner at WAV Group (@marilynwilson), did her best to mediate, like a Beverly Hills divorce case, this was no small task. Don’t get me wrong, there were no punches thrown, no “F” bombs were dropped, nothing uncivilized, Though two MLS operators (one who resembled that Scottish Guy from Austin Powers movies & one who looked a bit like Santa Claus in the off season, ya know, beard was trimmed dropped a few pounds, but the whole grey thing was working for him) felt it was an appropriate venue to make off-color remarks regarding their sex lives. Then there was the MLS guy (who looked a bit like a character from The Sopranos) who felt very comfortable stating that “Brokers are the REAL problem, they refuse to fire the 53% of their REALTORS (c) who are a bunch of Morons and haven’t done a single transaction in over a year” that was kinda weird, being it had seemingly nothing to do with the conversation…other than that…oh wait…

The reason we are headed for Government regulation of our Data

… The room also had a number of bright young minds, from Tech start-ups, some Exec’s from 3rd Party Aggregators, and a few representatives of the Broker/Agent community. These folks were asking for some cooporation in areas like:

• Sharing of Data in more Open fashion
• Involvement by the MLS’s in a Rating system for Agents/Brokers/Affiliates/Aggregators
• More “Open-Mindedness” to new Technologies & Ideas
• An Intranet for the MLS’s to communicate with each other about questionable Vendors
• A more “Open” forum for New Vendors to present ideas

Ya know, Stupid stuff like that!

Each and every time a bright young mind in the Vendor community, or a Consumer Advocate, or a Forward thinking Broker offered a suggestion (some of which, to me of course, were awesome) they were met with the same response from The MLS Boys…”Good Luck with That!” and then came the round of “Belly Laughs” (led by Scottish Guy, Santa, & Soprano Guy)…at first I was amused by them myself. then when I realized that they came from a deeply rooted “Arrogance”, rather than a playful sense of “Humor”, I was faced with the realization that our Industry was “doomed” to be regulated. No one, and I am convinced, No one will be able to get these two opposing sides (Old School & New School) to join together and bring our industry into the 21st century.

The “Straw” that broke the “Consumers” back

It was all made so incredibly clear by a comment from “Soprano Guy”, in response to the statement from Marilyn Wilson “it’s abundantly clear, from all the polls, that the Consumer overwhelmingly wants the Rating System”!

Soprano Guy then blurted out “Who”? “The Consumer”? “That’s not my Customer, The Brokers are my Customers. They pay my bills, not the Consumers”.

In Closing…

You never know what life has in store for you. One minute everything’s all “peaches & cream”. You’re minding your own business, happily “Tweeting” about that nights cocktail parties, or the crazy new Technologies you just heard some Geek talk about on stage and then …. BAM! … Your visions of your industry’s future are shattered by a room full of “Closed Minds”…though it was “riveting” and certainly more interesting than the “Meet The Leaders” segment downstairs, it was then and will forever be my most disappointing “Wrong Turn”

I don’t know how this gets fixed. I just know somebody with the “Schwag” to do it needs to get involved and fix it!

If not, Obama (or the next elected leader of our country) will!

Stay Blogging My Friends!

@TheRECoach

I have known hundreds, if not thousands, of Realtors and Brokers as well as RENet professionals over the years. Some, I am proud to say, are now my friends. I take the profession seriously, and as someone who is constantly reading posts and stories on the Internet, I have been saddened by the recent onslaught of negative perceptions of what these people do, and how they affect the home buying transactions. So many times they are being labeled as “Unethical”, or “Piranhas”, and I may have over reacted to this simple exchange on Trulia, but maybe not???

You be the Judge….

Question – “

what should I offer for 21861 Palamca, MV. Thank you

That’s it! I did not change it at all, so you get the feel that this is suspect from the start…

Answer #1 – Hi XXXX,

It’s really hard for an agent to suggest an offer price without ever actually being there to view the home and to see the type of condition the property is in. There are many factors that can go into offering a final purchase price, and some of the factors include actually being there to see the property itself. Are you working with an agent/realtor right now? If you do not have representation I highly suggest you hire a professional realtor that can help walk you through the whole process.

If you have any other questions please feel free to ask

This Guy, did the best. Actually asking in his reply, if they are working with a Realtor, though he does start to give some advise, I thought this was ok, and I was probably too tough on him in my comment,but wait…

Answer #2 – As XXXXX said below, unless we see the property and the condition of it, we can’t tell you what to offer. I will tell you it most likely will go over the asking price. That area doesn’t have anything else less than $600,000. I’d be glad to check it out for you just let me know, I live very close to where those homes are.

Nothing! nothing about working with someone??? (PS – This was a Broker)

Answer #3 – It will probably have multiple offers and end up selling for at least $25k more than it’s listed for. I hope that helps. Let me know if you’d like an experienced South County Realtor to assist you in your quest to acquire a home.

Seeing a pattern here???

Answer #4 - This is a short sale, great location, nice floorplan, needs clean up and permit work on deck on master balcony, new carpet & paint. Lender is Indy Mac and it was scheduled for trustees sale, which has been postponed. Key is having an agent with a strong track record with short sales and writing a strong, clean offer. I can help you if you need help….let me know.

Am I crazy? or is this wrong? BTW – This Agent was a Trulia “VIP” and a Trulia “Pro”

Ok, so here was my comment – (I may have been under the influence of recent posts I had read)

While I love Trulia Voices, as well as Zillow Answers, for the role it plays in educating the consumer, it is questions like this one that make me “cringe” a bit…the Real Estate profession continues to come “under fire” for a perceived “lack of ethics” by the consumer, and though XXXX came close to asking, no one actually checked to be sure this consumer was not currently in contract with a Realtor? Many who read this will get the impression that our industry is “dog eat dog” or “cut-throat”, devoid of ethics and standards as we compete for a client. While I find it, overall, quite the opposite. The Agents and Brokers I have met are true professionals, active in their communities, and share openly their knowledge and expertise with others in the profession.

I’m not saying the consumer, XXXX, nor the 4 Realtors whom answered before me, did anything wrong. I am saying that it could be perceived that way, and it would take away from the fact that our industry is proud of it’s ethics and standards.

So the question is…Was I way off base, or was this an opportunity for the industry to add to it’s “Black eye”?

I always respect the comments from our GEB readers, and will promise to take to heart any constructive criticism regarding this post. I said what I said, because I care about this industry, and the fine people who work in it…

Stay Blogging My Friends!

@TheRECoach

Zillow.com circa January 2005

The Phoenix Real Estate Guy circa January 2006

Trulia.com circa October 2005

AgentGenius circa October 2007

RealCentralVA (Jim Duncan) circa October 2005

Wanna play? Head over to Wayback Machine and see what your favorite site used to look like in the internet ice ages.

1. REBlogCamp
2. Zillow Beer For Bloggers
3. Bloggers Connect
4. The Trulia House Party
5. The ActiveRain Gathering
6. The Internet Marketing Workshop
7. The Main Conference
8. Makeover 2 Takeover Contest
9. Foreclosure Workshop
10. Innovator Awards

There are plenty of other great things happening as well, from the EXPO to fine dining all over the City, this will be the best RE Connect in the History of the event. No pressure Brad, I’m confident in making that statement! Last Year was an exceptional, but this year will be extraordinary.

Here’s the list of Speakers, Conference Pricing, Hotel Information and Map, and the most Frequently asked questions. FAQ If you are at all interested in a guaranteed learning and networking experience, you better rush to get your fight, ticket and accommodations as well. Looking forward to a great venue with an action packed agenda.

See you in San Francisco…