I’m in the process of selling a house. So I asked my friends and posted on Twitter for referrals to real estate listing agents. Then I realized my mistake.
See, I have a diverse set of friends who own a diverse set of houses. The ideal listing agent for me might be completely different than the ideal listing agent for them. And asking on Twitter for referrals isn’t much better than going out into the middle of the street and shouting “I need a real estate agent”.
In that moment, I realized the weakness of referrals.
Referrals Require a Good Match
Referrals get provided to you by your friends. Whether a referral works for you depends on two dimensions: your personality and your situation.
Referrals work when you have a similar situation and personality to the person making the referral. The greater difference between your situation and theirs, or your personality and theirs, the less likely the referral will be relevant.
If you have a diverse set of friends with a diverse set of circumstances, you may be better off just picking someone at random. The value of referrals diminishes the farther the friend making the referral gets from your situation and personality. Referrals at this point serve only to help you avoid the worst, not obtain the best.
Referrals Require Repeated Interactions
All of us have good days and bad days. Limited interactions with a person or business being referred limit the usefulness of that referral. In real estate, most of us only sell a house every 5-10 years, if that. Many restaurants we only eat at once.
When the person who is making the referral has had a limited number of interactions with the business or person being referred, it’s difficult to get an accurate picture of the value of that referral. That person might be the exception, or random luck played a role with them having a good or bad experience.
Reviews Add Breadth
Looking at review sites can solve this problem. When any one individual has only limited interactions with a person or business, the aggregate of many individuals providing reviews provides a better sense of the overall standing of the person or business. Good businesses bubble to the top, while bad businesses sink to the bottom.
But review sites have similar problems to referrals. If your personality or situation doesn’t match those of the reviewers, the reviews may be useless. Weeding through reviews to find the relevant ones can be painful and most review sites haven’t created filters that let you find reviews that match your personality or situation.
Recommendations Add Depth
Recommendation engines can combine personality and situation with reviews and ratings to provide you choices targeted to your own personal needs.
Take the Netflix movie recommendation engine. While each movie shows how many stars on average it has, Netflix also calculates how many stars it predicts you would give the movie. This is your personal rating. It does this by analyzing all the movies you like and coming up with a personalized recommendation.
Netflix is able to achieve this because you rent a lot of movies, and it can create a computational profile of your ideal movies. Extrapolating this to real estate, Zillow or Trulia could create a recommendation engine that matches listing agents to the types of houses those agents are most likely to sell. By asking users to rate agents they interview when listing their house, they could develop the ideal listing agents for different groups of people.
The disadvantage with recommendation systems is that they often don’t take into account your personality or situation. Netflix provides great recommendations overall, but there’s no way for me to tell it my mood and have it provide recommendations based on that.
When To Use Each
Referrals, reviews and recommendations each have their place:
- Use referrals when you share a similar situation and personality to the person making the referral and when they’ve had multiple interactions with the person or business being referred.
- Use reviews when your friends have limited experience with the types of people or businesses being referred, but people overall have extensive experience.
- Use recommendations when you or others have had many interactions with a type of business, product or person and want to find others that are similar.
Credits: The photo used in this article was taken by Kevin Shorter.
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