Redfin 101 and the Debut of the Podcast
I made reference recently to the New York Times article last week, The Last Stand of the 6-Percenters?, and vowed to revisit it. The article dealt with brokerages they called “innovators”, primarily Redfin who has been the subject of tremendous, heated industry debate. The blogging community (see Sellsius, 360Digest, ) has been in a veritable lather over the emergence of the “new” discount (or, more appropriately, limited-service) anti-Christ. It’s actually not new, as the debate has been going on for some time. If you follow the hype, this has been nearly beaten to death. If you are new to the subject, it is worth some serious thought. I find the topic so chock-full of issues begging to be addressed, that it has taken me the better part of a week to collect my thoughts and figure out just how I’m going to skin this cat. Therefore, this will be the first in a several part series and a logical introduction to our first podcast.
Since I am writing from San Diego, an area not yet infiltrated by Redfin, and since as many of our readers and participants are consumers as industry professionals, let me begin with an overview of Redfin. Redfin is an online start-up brokerage offering services in the San Francisco Bay area and Seattle, for now. Their self-proclaimed better mousetrap is a business model wherein their buyers do their own internet home searches, arrange their own showings (unaccompanied by their own agent), and ultimately fill out an online form to initiate the purchase offer process. A Redfin agent then enters the information into the contract, secures their signature, and presents it to the seller. If accepted, the agent “coordinates” the closing and returns 2/3rds of the buyer’s broker’s commission to the buyer at close. All of this occurs without necessarily a direct meeting between buyer and their agent. Visit their website and you may just be horrified at what you read.
Rather than write a 40-page blog post, I will offer my “Kris Notes” (so as not to offend “Cliff”), a summary of the main topics of controversy surrounding this model.
- Agency and Representation - Whose Job is it Anyway?
- Is the buyer getting adequate (or any true) representation and protection under this model?
- Are listing agents obligated to personally show their listings to the clients of other agents? Is failure to do so a detriment to the interests of their client, the seller?
- Why does the seller (or, strictly speaking, the listing agent) offer a cooperating fee to the agent representing the buyer, and what responsibilities are associated with earning that fee?
- What duties should the buyer’s agent be performing to uphold their fiduciary relationship and obligations to their client? The NY Times article quoted one consumer as saying, “Is it really worth $10,000 to ride in a real estate agent’s Lexus?”. Yeah, that really sums up the buyer’s agent’s job description. - Liability
-If a buyer’s agent fails to show or even see the property for which they are “representing” their client, is there a transfer of liability to the listing agent and their seller?
-What happens when things get ugly? Who deals with the issues which may arise during the transaction regarding inspection, repairs, timing, occupancy, contract breach? What if there is a contingent offer, subject to another contingent offer? This is just an abbreviated list, of course. After many years in the business, I still haven’t seen it all, but I’ve seen some doosies, which I will discuss in a later installment. - Amazon.com it Aint
A Redfin director was quoted as saying, “Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com”. Oh, really?
Granted, Redfin has been transparent in their mission to manufacture controversy, as Marlow Harris from the 360Digest pointed out, and I guess it is working. But with controversy comes debate, and that can only be good for the consumer and our industry. With that, listen to my podcast as I vent on my first related topic, Agency and Representation. Since this is my first effort, know that the sound quality and my dramatic skills can only improve over time! 
September 10th, 2006 at 8:29 pm
Kris,
Excellent post! You bring up some great questions and issues and I look forward to more installments on this topic.
September 11th, 2006 at 3:32 pm
So many thoughts, so many issues to attack and so little time. Let me first start with the most basic. The Redfin agent has not seen the house and is allowing the client to make an offer based upon what? Zillow?? Moreover, the Redfin agent (and presumably the buyer) has not seen the homes of the 3 or 5 or 10 most recent comparable sales. How is the agent supposed to advise the client on PRICE? I can immediately think of a dozen more similar and relevant questions and/or scenarios where an agent needs to be in the direct loop. What in the hell is “Agency” and “Fiduciary” supposed to mean? I think Redfin is a lawsuit waiting to happen and when it does (and it will, I can assure you) their own client/buyer(s) are absolutely going to take them to the cleaners. Maybe Redfin’s legal team works for them in much the same manner as Redfin. I can just see it - Redfin Lawyer to Redfin Agent/Defendant: “Oh, just fax the lawsuit over to us and we will fill in the appropriate blanks for the Judge and send it over to the court. Just think, when were done, we will credit you 2/3 of our legal fees.” Right!
September 11th, 2006 at 4:48 pm
Oh no! Ardell at the RCG just called a two-week moratorium on Redfin bashing. NO FAIR! In San Diego, where we are just finding them the subject of our target practice, we can’t possibly be a party to the cease fire. Besides, I just introduced this multi-part, public service post and can’t backpeddle now. Being a reasonable person, however, I wish the Redfin chief well on his nuptuals.
September 11th, 2006 at 7:56 pm
Kris,
30 years ago I saw my first discount brokerage. They published a magazine as their central marketing tool, and generating much fear and trepidation in the ranks. Like all since them who have tried to buy the market while simultaneously cutting some pretty dangerous corners, they were less than a footnote in history before too long.
My favorite all time saying, passed on by my sainted grandma said - “About the time I got the old mare to work without eating, she died.”
And so will Redfin
September 11th, 2006 at 9:02 pm
Jeff,
The difference is that 30 years ago their weren’t cell phones, fax machines, and there wasn’t an internet. The internet has given people a sense of empowerment, and the prevailing do-it-yourself mentality gives Redfin an opportunity to capitalize. Redfin CEO Glen Kelman states, “It is the final frontier. Everything else that you could sell over the Web — from human organs to tennis shoes — you can now buy. But real estate, that’s a $61 billion market that has never been put on the Web”. Many consumers, armed with computer printouts and Zestimates, are convinced they have the knowledge and tools which will allow them to save a few bucks (while many times, unfortunately, losing thousands in the process). I do not fear Redfin’s presence in the marketplace from a cutting-into-my-business perspective. I do, however, fear the short term implications from the standpoint of buyer representation and protection. Truth be known, Redfin is just another .com start-up looking to make a killing, and I agree with you that their model in its current form will not succeed. I truly sense that our industry is heading in a different direction, however, and the Redfin’s of this world may just be the catalyst to effect some significant change in the way real estate transactions are conducted, for better or for worse. My grandma said - “Some people just don’t know what they don’t know”.
September 12th, 2006 at 6:17 am
All excellent points.
>My grandma said - “Some people just don’t know what they don’t know”.
Grandmas just know, don’t they?
September 12th, 2006 at 8:51 am
We at sellsius tried to review redfin from a buyers perspective. We regret that you, or others, interpreted it as being in a lather over a discount anti-christ. We acknowledged the fact that redfin provided customers with choice but we felt consumers needed full information to make an “educated” choice. We did not attack redfin or Mr. Kelman. We simply asked questions and pointed out information buyers should be aware of. If a buyer is fully informed and makes a choice, it is not our role to prevent their choice.
If you go to the comment section you will read Mr. Kelman’s comments. By virtue of our blog post, he is considering extending the guarantee period beyond 5 days and will change the legal boilerplate to better inform consumers. So, we think our post which did not attack but raised concerns yeilded positive results for consumers.
Likewise, your blog post raises important questions which will add to the consumers’ understanding of the redfin service.
September 12th, 2006 at 10:00 am
Joseph, As is so often the case here, I will eat some crow. By including the link to Sellsius, I wasn’t meaning to suggest that you were not balanced in your discussion. On the contrary, I found the discussion constructive. Others, however, and I am sure you will agree, are indeed in a “lather”. Just follow the most recent comments on RCG, and it is clear that many (agents, primarily) are not exactly jumping to Redfin’s defense. That fact their business model is getting so much attention tells me that there may be elements that have merit. When iPayOne hit the scene in San Diego, I didn’t hear anything even close to the clamor associated with Redfin. It has certainly been thought-provoking for me, and has given me cause to reassess the way we do business. Sorry for the misunderstanding.
September 12th, 2006 at 11:53 am
Not a problem Kris. We took no offense. No need to eat any crow on our account. And yes, you are right, others are in a lather. Keep up the great work. We are definitely fans.
September 13th, 2006 at 10:25 am
kris & steve - we have two podcasts up which include some interesting commentary from glenn kelman. i’m sure you’ll enjoy it
-rdb.sellsius°
September 13th, 2006 at 11:08 am
R-
I had seen that and listening in was on my “to do” list. Thanks for the tip!
September 13th, 2006 at 11:54 am
Nice work on the podcast Kris! Keep it up.
You can read my interview with the folks at Redfin here:
http://www.futureofrealestatemarketing.com/real-estate-20-market-leader-redfincom/
September 13th, 2006 at 12:11 pm
Thanks, Joel. Great interview (I had actually read it), and I will be sure to put the link front and center on my next Redfin “installment”.
September 23rd, 2006 at 7:55 am
[…] I had a mini tirade a couple of weeks ago (including a poorly produced podcast), the object of my rant being Redfin and their limited services model. For those new to the discussion, Redfin is a newer web-based real estate company courting buyers with this attractive proposition: “You find the home, local Redfin agents negotiate and close. 2/3rds commission refund”. Now, commission concessions are nothing new, nor are limited services brokerages. Redfin takes this one step further into dangerous territory, however, by washing their hands of many of the duties and much of the liability typically associated with buyer representation. […]
October 2nd, 2006 at 8:38 am
[…] What we are really talking about here is a desire to benefit from not having to pay a real estate fee or, rather, to “earn” the fee thereby reducing the effective price of the property. As an example, a $400,000 property offering 3% to the buyer’s broker would result in a $12,000 savings to the licensed principal, assuming the licensee’s broker takes nothing. In a typical new-hire scenario, this number would be closer to $5,000 after paying franchise fees, broker splits, insurance and Board dues. If you believe that this pencils out when you consider the loss of detached advocacy and your investment of time, and if you are confident that your pre-licensing studies have truly equipped you with the required knowledge, then go for it. Be careful, however, that it isn’t a case of “I don’t know what I don’t know.” Here’s the punch line: I think I have finally found a Redfin match. If you are licensed but not trained and not practicing, perhaps you would be better served to find someone who is and who is willing to credit back some of their commission. And if you want the corn, you can instruct them to write it into the contract. […]
October 23rd, 2006 at 12:33 am
I was pleased to see your post and podcast, as I just posted an interview concerning this sam eissue of lowered commissions that seems to be sold as a consumer benefits.
The other side makes great arguments but I have argued at my blog at
http://www.houseblogger.com and in a recent interview podcast
http://www.interviewswithrealestateexperts.com/2006/10/22/mike-work-where-is-the-real-estate-business-heading-2/
that the industry is under assault by alternative models yet, they seem to be asleep at the wheel. As was recently posted at Rain City that Trulia will have more postings than Realtor.com in a part of the Seattle area.
This is only the start as you as a broker or agent are restricted by what you can do with your data, while I and Trulia as non licensees can seemingly do as we please with 2nd generation iterations of the data.
October 27th, 2006 at 10:05 am
[…] Saturday (tomorrow) will mark our six month anniversary at the San Diego Home Blog. 96 posts and 415 comments later, we have written on topics ranging from (prepare for link overload) Presale Property Inspections to Termite Inspections, from New Business Models to Agent Licensing, and from Real Estate Fees to Good Escrows to Bad Agents. We’ve talked about Marketing, Technology, Financing and Market Trends. Did all of this silly talk provide value to our clients who follow our blog? I certainly hope so. Providing value through information dissemination is but one way our blogging serves our clients, however. Smart agents know the value of their professional network to their clients. The network, however, can no longer be limited to the guys at the water cooler, as there is a vast world out there thinking with a different perspective and approaching our business in different ways. Technology is providing access to information like never before, is changing the way we view our world, and is changing our industry by the minute. As agents, a broader perspective makes us more knowledgeable in our profession, and increased knowledge can only translate to improved service and value to our clients. So to mark our impending anniversary, I will offer my linkation love-fest to honor the bloggers in the industry who have most educated me and inspired me to think in larger terms. While this list represents the blogs I count among my favorites, it is by no means inclusive. (In other words, if I didn’t mention you, don’t put pins in the Kris voodoo doll). […]
May 13th, 2007 at 8:05 pm
[…] me again thinking about the Redfin model and the inherent flaws of which we have talked ourselves blue in the face. The Redfin buyer is charged with finding their home of choice and delivering it to the […]
July 29th, 2007 at 6:53 pm
[…] think this agent makes some good points in the flaws of the Redfin model. Real estate IS a high-touch industry. […]