In a previous post, I talked about pretty lies that brokerages tell themselves to feel better about things, even though they know deep in their hearts that none of those will actually solve their problems. If you read that post, you know that I’ve been telling myself pretty lies about my weight and physical condition for years, and those lies were a barrier to my actually getting in shape. (I’m not there yet, but now, at least I’m on my way.)
Well, I just found an example of pretty lies that real estate agents tell themselves to feel better in the midst of chaos and disruption. It happens all the time, but this article on Inman News (subscription required) is a particularly good example. It is uplifting, inspiring, and certainly will make real estate agents feel better about themselves and their future… and it is filled with platitudes, red herrings, and the kind of imprecision that leads to nowhere.
[Since I have never sold real estate, this post will undergo rigorous examination by someone who has: my wife Sunny, who has actually sold real estate, and is a recovering broker with experience in managing real estate agents. If you’re reading it, it means that my observations passed muster.]
Let’s get into it.
The Premise & the Pretty Lies
The author, Troy Palmquist, is a good writer. Vivid imagery, tight language. Maybe that’s why this article got me going whereas the hundreds of other similar sentiments have not, because it’s so well written.
He talks about Top Gun, about fighter pilots being potentially replaced by robots, and analogizes it to real estate today. He notes that the real estate transaction is getting commoditized, quoting at length from Tom Ferry from a recent podcast.
Then he tells a series of pretty lies. Let’s go through them, in order.
Pretty Lie #1: “No robot can replace human interaction”
The first Pretty Lie is a giant red herring that is rampant within the industry:
Will the fighter pilot always have a place? Does Maverick’s kind live on forever?
You bet we will! No robot, algorithm or flashy new platform can replace good, old-fashioned, human interaction. It’s that plain and simple. But it’s up to us to ensure we don’t get left behind.
This is a red herring because there is not a single company in proptech that is trying to replace “good old-fashioned human interaction” with algorithms or computers.
The best example, the most “terrifying” of the companies using technology to replace real estate agents, might be REX.
REX is a brokerage that breaks all the unwritten rules of real estate. They don’t belong to an MLS. They don’t do cooperating compensation. They do everything based on “Big Data and AI” and technology. If anyone is a poster child for robots replacing humans, it would be REX.
Well… (video should start at 2:10 mark; if not, go fast forward to that point)
Why… those are two human beings! Who are REX agents with a sense of humor!
And from REX’s own website:
With REX you get a dedicated licensed REX agent who will help price your home, provide a complimentary professional photoshoot, host showings and open houses, and everything else you need up through the sale of your house. Traditional agents are judged by how much they make. Our agents are judged by the service they provide. Because our agents are not paid on commission, their focus is on you, not chasing the next client.
Those are… human beings!
The red herring flaw is that technology will try to replace all agents with algorithms or computers. That is not what’s going on here. What technology will do is make an agent so productive that he or she can replace dozens and dozens of other agents. It isn’t that computers will try to replace good old-fashioned human interaction, but that computers and algorithms will allow one human agent to do good old-fashioned human interaction with dozens or even hundreds of human clients.
So just because a robot won’t hug your client doesn’t mean that an agent who has robots and algorithms taking care of the mundane drudgery work won’t hug your client, your friend’s client, and so on.
The truth is that robots and automation and algorithms and such do not replace all humans; it just replaces all humans who do mechanistic repetitive tasks. Look at a modern car manufacturing line:
There are billions of dollars in robotics, computers, and automation in that manufacturing line. Yet, there are dozens of human beings there! What there aren’t are thousands of human beings assembling a car by hand.
That is what is coming to the real estate agent. Automation, algorithms, platforms, computers, technology… all of these things mean that the economy won’t need 1.4 million REALTORS. It will get by with 140,000 REALTORS. Human interaction won’t be replaced, but it will be concentrated.
Which leads to…
Pretty Lie #2: “Be the best you can be!”
The second Pretty Lie is just a bundle of confusion mixed with platitudes:
The moral of the story — be the best you can be. It’s crucial to continually take the steps to become as highly skilled and highly trained as you can. Know your markets backward and forward.
Know your clients’ needs backwards and forwards. Be like a fighter pilot: You need to use your heightened situational awareness, knowledge, networking and multitasking skills at full throttle during every transaction.
What in the world does this mean?
What does it mean to “be the best you can be?” Seems like “highly skilled and highly trained” must be part of it… but that raises the question of skilled and trained at what?
“Know your markets backward and forward” sounds fantastic, but… what does that mean? Running CMAs off of MLS data is something that computers and algorithms can do and do better than a human being. Redfin and REX have already proven that. iBuyers are proving that every day. So what does it mean for a real estate agent to know his or her markets backward and forward?
“Be like a fighter pilot” sounds absolutely fantastic… until you think about what it takes to become a fighter pilot in the first place:
You know what that sounds like the opposite of? The requirements to get your real estate license, or even to be a REALTOR.
And then we get this:
Pilots make critical time-sensitive decisions and are entrusted to fly multimillion dollar machinery. In the same way, our clients trust us, the experts, to help them make what is arguably one of the largest, if not the largest financial decision they will ever make.
Yes, clients trust you, the experts, to help them make the largest financial decision they will ever make. But you know what? Clients trust morons, who are not experts, every single day to do the same thing. I know this because real estate brokers and agents tell me and the world every single day on social media about some horrible, uneducated, untrained, unqualified agent on the other side of a transaction.
So the natural question one needs to ask is, “How is this happening? Don’t clients know how to distinguish between experts and morons?”
Because it is absolutely crystal clear that there are no moron fighter pilots. There may be different levels of skill and expertise, but no one at the controls of a $80 million warplane is an untrained idiot on his first flight.
But then… we get to the real “best you can be”:
I am talking going beyond sales, relationships and results. I am saying, nurture your sphere of influence. Master your customer relationship management (CRM). Be ready to act courageously and decisively, negotiate ferociously, synthesize a lot of information quickly, take risks and think on your feet.
Continuously hone your strengths and work to strengthen your weaknesses. Focus on increasing your skills in these areas and real estate agents won’t be headed for extinction, nor will there be an end in sight for our kind.
It all makes sense now. There is a reason why 90+% of “real estate agent training” is on lead generation and lead conversion, and precious little (at least, training that is actually attended) training is on contracts, negotiation techniques, the law, housing stock, building codes, geology, economic development, local ordinances, etc. etc. etc.
The idea appears to be, you won’t go extinct as long as you’re a great lead generator and converter who can get the client to sign on the dotted line. The transaction itself might be automated, but sales will not be.
Here’s the problem: there are only 5.5 million homes sold every year. That’s a function of the economy, not a function of how trained or untrained a real estate agent is. The better salespeople (and by that I mean selling real estate services, not houses) get more market share. That market share has to come from other agents. So even if every real estate agent became the “best she can be” at lead-gen, the more talented ones will still get the lion’s share of the clients, and then using algorithms, computers, automation and robots, they will get even more productive and get even more market share.
At some point, there aren’t enough transactions for two million real estate agents in the U.S.
Getting great at lead generation could save you from extinction, but it won’t save the bulk of real estate agents working today.
Pretty Lie #3: “iBuyers have a place in the future, but only to an extent”
The third pretty lie holds up a strawman, the dreaded iBuyer, and tries to comfort the real estate agent:
Obviously iBuyers have a place in the future. Just like CarMax did for the automotive resale industry and drones did for modern military aviation, next-generation ideas are welcome. But only to an extent.
What does “only to an extent” mean exactly? What exactly does Troy think happens with an iBuyer transaction?
The three largest iBuyers today — Zillow, Opendoor, and Offerpad — all use real estate agents in their transactions. A consumer submits a request for an offer, a computer spits out an offer, there’s a human inspection (just like in a Lexus factory), the offer is adjusted, and then negotiated. By whom? Why, a human agent!
What does it matter that the human agent is an employee of Opendoor? Or an agent selected by Zillow to represent them as a client, like George Laughton in Phoenix? There is a human agent in there.
Should the seller want his or her own representation, guess what? He or she can get one easily.
CarMax, which Troy mentions, is an interesting example, since it wasn’t as if people were routinely selling their cars on Craigslist individually before CarMax came along; they were trading them into dealerships. There is a night and day difference between CarMax vs. dealership and iBuyer vs. what it takes to list and sell a home with a real estate agent today. The speed and convenience that the iBuyer offers over traditional transaction is not even in the same universe as Carmax vs. trading in a car to the dealership. So what extent are we talking about there?
Perhaps Troy is talking about the “you lose tens of thousands of dollars selling to an iBuyer!” thing? Two things about that.
One, the actual numbers suggest otherwise.
Two, it’s not like those companies aren’t trying their very best to drive the costs down. It’s still very early, so wait a few years and see if those guys can’t get the costs to sell to an iBuyer down to zero (that’s Eric Wu’s stated goal). What will all the pretty lies believing agents do if Opendoor’s service fee comes down to 1%?
That’s what makes this a Pretty Lie. It holds up a strawman in the form of today’s early iBuyer experiments, and tells real estate agents they have nothing to worry about. Actually, they have a lot to worry about, and they need to be thinking about their fundamental problems.
The Truth About Technology
So let’s start with what should be obvious. The real estate agent is not competing against computers, robots, algorithms, or websites. The agent is competing against another agent who has computers, robots, algorithms, or websites.
And the core feature of technology is that it makes things more efficient. It doesn’t put a human face on things. It doesn’t make things better, or worse. It just makes things more efficient.
That has been the case from the wheel (makes moving things more efficient) to windmills (makes grinding flour more efficient) to the steam engine to the computer to the Internet. All of it just makes things more efficient.
What that means for the real estate agent is that technology makes your human competitor more efficient at lead generation, more efficient at doing paperwork, more efficient at compiling market data, more efficient at a whole bunch of tasks (especially repetitive, mechanical tasks) which then frees her up to do the human touch thing, the relationship thing, the lead generation thing.
The real problem of the real estate agent in 2020 is not that technology is going to make them extinct. The real problem is that another agent with technology is going to make them extinct. And it doesn’t matter if that agent is a 1099 team leader at eXp or an employee of Opendoor. It is an agent, a human being, who is made far more efficient than you thanks to technology.
The answer, then, is not technology but… what do you bring to the table once technology has made everything far more efficient? If it’s sales and lead-gen, then great — that will keep you valuable. But recognize that you’re going to be competing with other agents who are also driven, great at sales, and have technology to make them more efficient. Recognize that all of that tech costs money. Go from there.
The other fundamental problem of the real estate agent is that they are working in a hypercompetitive environment with extremely low barriers to entry. Those newbies can pay for technology too.
Pretty Lie #4: The Technology Bogeyman
Which is why we end with the final Pretty Lie:
Technology is something to test out, embrace and use when it makes sense for you and your clients, not let it overrun your industry and allow it to eliminate your position. And like players in other industries, we might have to adjust our roles in the industry, but they’ll never go away.
Technology is not a self-aware predator. There is no “it” that will overrun the industry, or even seek to. Technology is just a set of tools and resources that other human beings in the industry will use to get more efficient and more productive. It is they who seek to overrun your industry. They are the ones looking to eliminate your position, not some computer algorithm in the cloud.
And frankly, you are quite likely part of the “they” who seeks to do that… because success means just that: dominate your competition and “overrun” the industry. The fact of competition makes it very very hard (if not impossible) for any one person or one company to do that… at least for long… but that’s what’s truly happening here.
There is no Skynet that is looking to make real estate agents extinct. There are only other agents looking to take your business away to grow their own.
Which is what has been going on since the dawn of time.
Takeaways
So, what should the real estate agent of 2020 take away from this exercise in logic and rationality?
- There is no technology bogeyman; technology is not out to get you.
- Your fellow human agents are out to get you, because they’ve always been out to get you, just like you’re out to get them. That’s what competition is.
- Technology makes your competitors (and you!) far more efficient at tasks. The mechanical, the repetitive, the boring — those are precisely the kinds of tasks that technology is really good at making more efficient. The artistic, the creative, the emotional… those are things that technology is not good at making more efficient.
- No one is looking to make human agents extinct. They are looking to make human agents far more productive, which will make other human agents who aren’t as productive extinct. This is not necessarily a bad thing.
- Lead generation and business development are fine things to focus on — just understand that in the years ahead, only the very best, armed with appropriate technology (which gives them more time to do lead-gen, lead conversion and bizdev), will survive. The numbers of agents will be reduced; the only question is by how much.
- Expertise and skill are meaningful only if they are meaningful to your customers. Are they? Would they even know how to tell the difference?
And finally, the biggest and most important takeaway of all has to be: don’t tell yourself pretty lies. They’ll make you feel better about yourself and your future prospects… and lead you right into extinction. To every extent possible, tell yourself the truth no matter how unpleasant, no matter how harsh, and then decide whether you want to do something about that or not.
The truth and your decision to act are separate from each other. Just because I forced myself to face the truth about my body does not mean that I had no choice but to start working out regularly and change my eating habits. I could have simply accepted being 30 pounds overweight and enjoyed the hell out of tonkotsu ramen. But at least, I would have done so knowing the truth, instead of misleading myself with pretty lies.
Observe. Orient. Decide. Act. Don’t lie to yourself.
-rsh
28 thoughts on “Pretty Lies: The Real Estate Agent Edition”
“Running CMAs off of MLS data is something that computers and algorithms can do and do better than a human being.” – That complete bullshit. AVMs are a starting point but can’t replace the key points of an agent’s evaluation of a home – area knowledge, property condition, location, noise, view, neighborhood aspects – just to name a few. AVMs use machine learning not actual AI. AI one of the real estate industry’s “pretty lies”.
I haven’t read the whole post, but that little nugget pissed me off because it isn’t true. It’s an opinion.
Thanks for proving my point.
What point? I said I “hadn’t” read the whole post. Not that I wouldn’t read. That would be ridiculous. I got that far and had to make a comment at that point while it was fresh. So, no point proven.
It’s easy to say there will be only 100,000 agents serving the entire county. So let’s have a timeframe. We got a timeframe from you on the 50 to 60 percent market share for iBuyer platforms. Which by the way will not happen and I’m willing to bet on that with absolutely no hesitation.
By the end of the decade, I’ll go with 150K agents total doing 10 million sides (5.5 million homes x 2 sides). That’s only 66 per agent, or 5.5 per month.
And here it is from March 19th 2019: “60% of Home Sales by 2024 Will be iBuyer”
I can’t even read that without laughing. The one thing I never read about these outlandish predictions, is where the money comes from. Annual sales of residential homes is roughly $1.1 trillion depending on where you get your stats. At 60% that would be $660 billion.
It’s one thing for some of these iBuyer companies to get $100 million to $500 million in loans or funding. It’s a completely different thing for them to find someone who’s going to back them on an ongoing basis for $660 billion per year. If you can show me where that money comes from, then maybe I’ll be convinced. But it’s pretty laughable.
Why are you even here when it’s so laughable? Don’t you have something more productive to do with your time?
I could ask you the same thing. It’s a tiny part of the day. A blip in time. Not that big of deal really in the grand scheme. Just because I decided to doesn’t make it any less laughable.
Hahahaha, Roland. Well, let me help you recover that blip in time! You have outlived your entertainment value. 🙂 Thanks for visiting! Try YouTube or Facebook for your blip in time fix.
I just wish people I block on Facebook would also be blocked on blog comments.
Don’t feed the trolls, Rob.
Rob are you a Colonel Boyd acolyte per chance?
Roland Estrada what leads you to believe that 60% iBuyer marketshare is unattainable? Once the narrative around iBuyer takes off, growth will be more exponential than linear. Think about it: they already have the consumer’s trust and attention, and now they have the product.
The only counter to iBuyers are make-shit-up Realtors and bought math paid for by NAR. Sure, it worked against FSBO’S. But when speed and convenience collide with venture capital and savings (both in time and equity), there is bound to be a connection with the hearts and minds of sellers.
Regarding iBuyer, I believe you are making some significant assumptions and deductions. These are not cars or Carvana where one can buy a car where there is less attachment from the seller to the product being sold. The iBuyer programs I have read about will sell a home for the least automated value, not top dollar. The assumption is that sellers will opt for convenience and speed instead of maximizing their proceeds. And venture capital/savings is greatly overrated and have made many mistakes. It all sounds good and convenient until it doesn’t.
Did you read the article? I address this specific Pretty Lie….
Andrew read more on the math regarding iBuyers. At this point it will be hard to differentiate reality from “statistics”. NAR has always run the same counter-narrative on FSBO (+13% by listing with an agent) by lumping depreciating personal-property assets together with real property to skew data sets.
Essentially, it’s too early to tell. iBuyers have capital and economy of scale on their side. They have a real incentive to drive down costs overtime, as opposed to the (essentially frozen) 5.5-6%. There aren’t any sacred commission-cows on Z/RF/OD’s side of the equation.
Much of what is said in many, if not all, articles about technology replacing human agents is rhetorical. If a new or newer agent (like me) does not understand these levers or technological ways to attract and organize buyers and sellers, market properties and yourself utilizing technology and social media, as well as dozens of other digital tactics, it just becomes wheel spinning. Even with all these tech tactics it’s still a dogfight, prison rules, the Wild West. There is truly ONE thing that separates good, great, exceptional. An agent has to make themselves invaluable, indispensable, to the point that a buyer and seller NEED you. That means the same to many agents but different to others. You have to care more about your clients than you do yourself/commission. When that shines through, you will know it. When you know it, just keep repeating.
Again, I wonder if you read the article…
“If a new or newer agent (like me) does not understand these levers or technological ways to attract and organize buyers and sellers, market properties and yourself utilizing technology and social media, as well as dozens of other digital tactics, it just becomes wheel spinning.”
No, you just never become an experienced agent because you are uncompetitive. YOU spin your wheels; the others are more productive.
“There is truly ONE thing that separates good, great, exceptional.”
Invaluable and indispensable… how? Specifically?
And what happens when the exceptional agents who make themselves invaluable, indispensable, etc. ALSO have all of the technology tools to make them even more efficient and productive? This assumption that top producers are somehow lackadaisical commission monkeys who only care about commissions, and the only thing an agent needs today is caring more about the client, is baffling.
Wow, what a misinterpretation of my post. Yes, I did read the whole article and the article you refer to on Inman. The Summary of my post is that if you are new or newer one needs to harness the new tech or one will be “spinning wheels” because there are 100,000s of agents that do, including myself. I had a social media analytics and engagement background coming into real estate so I had a huge leg up with the 21st Century Tool Box. And… to make yourself indispensable you go further than the average agent by offering to do things proactively that most agents wait till they pop up. One example, calling a condo community association for pending assessments, acceptance of emotional support animals, scope of work on future building work, etc. I’m essence being a step ahead and leaving no stone unturned. And your assumption that I might be one of the one’s “spinning my wheels” you are quite mistaken.
Oops! My apologies Andrew for so badly misreading your comment. Apparently more coffee is in order. Sorry about that.
Andrew read your comment from January 20th. I’m not a r̶e̶a̶l̶t̶o̶r̶ REALTOR®, but I come from a similar background as you and I’m currently behind-the-scenes in “support”.
It drives me NUTS when I need to make 15 phone calls to run that info down when the LA could have easily put together a quick .pdf in Docbox with all of the pending assessments, contact info for management companies, etc.
One thing I have witnessed is that DD is rarely performed to a standard worthy of the commission charged on EITHER side of the transaction. Being proactive solves that problem, so kudos to you!
Thank you. Appreciate it. I put in the extra effort and think my reputation has benefitted. Listing agents often don’t include things that make their listing look less desireable. Happens all the time and makes me nuts too. Our MLS has a spot where an agent has to tic a box if there is a special assessment on the books and more often than not, they never do it. I have to find out myself and it always kills a deal.
I think I can add a unique perspective on at least part of this post. I was the initial Texas broker for REX and was there for the company’s launch in Texas. After a few months of seeing the operation from the inside I became convinced that there wasn’t nearly as much “big data” and AI being applied to sell homes as there was leaning heavily on the Zillow platform and social media for advertising exposure. In Austin, the market is so hot and inventory so constrained that it doesn’t take much to sell a home. REX shows 26 active listings and around 80 Austin homes sold on their website since the early 2018 launch in the city (which also happens to be REX’s HQ after a move from Los Angeles). Contrast these numbers to the Austin MLS December 2019 stats: 6,765 active listings and 3,097 closed sales. After I chose to depart, I joined a local start-up brokerage with a heavy tech focus and we were able to source and close many more transactions in the same period with effectively two agents working the Austin area. The difference? The MLS. Despite its many flaws, the MLS remains the most effective marketplace for listing visibility. Zillow is just a parasite that takes MLS data and rebroadcasts it on a consumer platform, but its lack of data standardization, enforcement, and accountability renders it almost useless to real professionals.
And for the “iBuyer” market, I have been to many of the properties listed by iBuyer companies. Being a technology city, Austin residents will readily try these alternative models. The majority of what I’ve seen are properties that have serious deficiencies either in condition, floor plan, location, or other factors and often sit on market for extended periods with the price being whittled away every 7-10 days. I find it amusing to look up the mortgage information on these listings and see a $500,000,000 line from Deutsche Bank. Deutsche doesn’t have the best track record of making loans (see: current President). And I say this from the perspective of a former private banker for one of the major banks. The iBuyer model may hang around as a niche product but I don’t see it becoming anything more and once investors lose interest in the next market downturn it may disappear entirely.
And let’s look at this little nugget: ““Know your markets backward and forward” sounds fantastic, but… what does that mean? Running CMAs off of MLS data is something that computers and algorithms can do and do better than a human being. Redfin and REX have already proven that. iBuyers are proving that every day. So what does it mean for a real estate agent to know his or her markets backward and forward?”
Excuse me? Redfin and REX have proved what? That they can use services like Black Knight and House Canary to come up with pretty good CMAs? I’ve used both and sometimes the results agree with what I, the inferior human, come up with. And where do Black Knight and House Canary get their data? In large part from CoreLogic, i.e., the MLS. At least this is true in my market because sales data is not public. But often the numbers from the AVMs are off because of the peculiarities of the local market. For example, two-unit condominiums are now quite common in Austin. These units are often erroneously entered as houses in the MLS and sometimes show up as townhouses in the tax assessor roles. The only way to know that they are truly condos is to look them up, research their history, look at legal descriptions, and look up condo filings with the TXSOS. Even appraisers often miss these properties when looking at comps. I welcome the use of technology to make me more efficient but to assert that Redfin and REX have proven anything gives me a chuckle.
Two things.
1. This independent study: https://www.tegova.org/data/bin/a591190c05b2c3_Geoge_Matysiak_Valuation_Report.pdf
2. Redfin’s study (which you’ll be tempted to handwave away): http://redfinstaging.wpengine.com/wp-content/uploads/2017/02/Findings-Report.Final-Draft.Revised.2.2.17-FINAL.pdf
• Redfin’s median error rate of 2.06% is better than the 4.5% median error rate of listing agents in the TEGoVA study above.
• The 79.69% of Redfin’s estimates that were within 5% of the ultimate sale price is better than the 56% of the final list price in the TEGoVA study above.
Therefore, we might conclude (or at least suggest that there is room to believe) that Redfin’s listing-price informed AVM estimate is superior to a local expert’s final listing price.
Believe what you want, though!
I read the Matysiak report, and the only reference to 4.5% median error is comparing the agent valuations to Zillow estimates, which were worse at 6.3% (see excerpt below). Taking the 4.5% and comparing it to a completely different result from a different data sample in a separate study is exceptionally sloppy. Further, the report concludes that: “The distribution of the accuracy figures of the US models, across both locations, and within locations, appears to provide tolerable results which could be considered as acceptable levels of statistical confidence for AVM valuations. However, a purely derived statistical or data-mined valuation risks being widely off the mark, as reported in the various Tables in the report. Consequently, despite the high degree of accuracy reported by the US AVM vendors, there remains a requirement for professional judgment to augment model-based valuations, thereby arriving at a more broadly considered valuation estimate.”
The Redfin study only compared Redfin, Zillow, and Homes.com predicted values, not those of actual agents. You might be tempted to say that the original list price reflects what the agent recommended. This would show your naivete not being on the front-line and pricing properties in the real world. A large percentage of list prices reflect a strong seller bias/influence and may not accurately reflect the professional’s recommended price. Here’s an example: I recently listed a property at $649,000 at the owner’s insistence. My recommended list price was $619,000. After 50 showings and no offers over several months (including several nominal reductions), I convinced the seller to lower the price to $619,900. We received two offers right away, one above list and one below. We accepted the lower offer because I convinced the seller there was still an appraisal risk and the lower offer included a 100% appraisal waiver. And guess what? The appraisal came in too low at $604,000 (I had warned my seller many months prior that this was a distinct possibility). How do you think the AVM robots would have handled that?
The 2.6% margin of error across 50% of the valuations only means the final sale price was within +/-$8,240 of a $400,000 home in less than 50% of the cases. Looking at 95% of all sales in the comparison, Redfin’s predicted value had a margin of error of 14.6% compared to the actual sale price. That’s equivalent to +/-$58,400 on a $400,000 home. There is no shortage of bad agents, but I rarely hear of someone missing the mark that badly.
To further my previous point, the report concludes: “Based on these findings, SSRS concludes that Redfin’s performance in predicting actual sale prices (prior to sale of properties that subsequently sold) was superior to those of either Zillow or Homes.com.” Gee, I don’t see any mention of human-calculated valuations in this statement.
Reminds me of Benjamin Disraeli’s quote that there are “three kinds of lies: lies, damn lies, and statistics.”
Excerpt from the Matysiak report:
“The accuracies for both the list price and the Zestimate in Table 1 show that the initial list price is within 5% of the final sale price for 48% of the properties, whereas the Zestimate achieved this accuracy for 31% of the properties. The initial list price is within 20% of the final sale price for 90% of the properties, whereas the Zestimate
achieved this accuracy for 81% of the properties. The overall median absolute percentage error for the initial list price is 5.6% (50% of property valuations were within 5.6% of the sales price), whereas the median value for Zillow’s estimate was 9.2%.
Table 1 also shows the accuracy for the final list price (the list price immediately prior to the sale, possibly after several price cuts) and the final Zestimate (Zillow’s estimate of the sales price just prior to the sale). Both the list price and the Zestimate are much more accurate when measured closer to the time of sale, which is to be expected; the median absolute percent errors are 4.5% and 6.3% respectively, for the final list price and the final Zestimate. The overall conclusion is that the valuer estimates were more accurate than the
Zillow estimates, over the period March 1st 2012 and June 1st 2012.”
Good points, Robert.
However, I find interesting the following from the Matyasik study: Final List Price (the list price immediately before sale, which takes into account the anecdote you tell) is within 5% of the sale price in only 56% of the time. That’s with a human agent, obviously, updating the list price. The Zestimate back in 2014 was at 42% — significantly behind the agent of course. But Zillow has spent enormous sums, including offering a prize, to make the Zestimate more accurate. One wonders what that figure would be in 2020.
As for mixing the two studies, yes, I admit that is a bit less than ideal. I wish Redfin had done a Final List Price as well by human agents. However, I think it’s reasonable and entirely justifiable to look at the “within 5%” range across studies.
In the Matyasik study, agents came within 5% of the sold price with their Final List Price 56% of the time. That was in 2014. In the Redfin study, Redfin came within 5% of the sold price with its AVM 80% of the time. That was in 2016. Nothing changed between 2014 and 2016 to make human agents more accurate or less accurate, that I’m aware of. So absent evidence to the contrary, I see no reason to believe that human agents would have been more accurate in 2016 than they were in 2014.
Accordingly, I think it is entirely reasonable to suggest that computers have gotten very, very good at pricing homes. Additional support for that proposition comes from FedReserve, OCC, and FDIC accepting AVMs in lieu of human appraisals (recently raised to $400K) as well as the 0.22% margin between Zillow Offers and final sale. Both those are documented well on the web.
Plus, the computers are getting better every single day as technology and access to data improve. Hard to say the same for humans still relying on the same old CMA.
The larger point, however, is this: an experienced agent armed with the latest and best AVM technology, who can make minor changes based on her personal knowledge of the area/home, can do pricing far more efficiently. This isn’t a “tech replaces you” situation, but a “someone with tech replaces you” situation. That’s the larger point.
Wow great article! Defining the agents value and service into the future is going to be critical. My current obsession is to understand the “perceived value” of the service we offer … you nailed it with, how the customer perceives the value of the service. It’s incredibly difficult to figure out how to “get a new client” and at the same time obsess over how to “serve new clients.” The good news is tech can help with the lead generation problems, we just need smarter “pro agent” tech marketers that are so fucking greedy to help out. It would be nice if us trainers and coaches didn’t have to spend so much time on lead generation and marketing … but we do, I would love to spend more time on how to level up the value of our service starting at the consultation … but if I did I wouldn’t have any clients. Thanks fun read!
Thank you for your article Rob.
Just to fortify your argument, this research from MIT touches on some what you have described. https://realestateinnovationlab.mit.edu/research_article/automation-in-real-estate-cutting-through-the-hype/
What a great article from MIT! I skimmed it and will look to dig in 🙂
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