To better serve you? Maybe they’ve just put on a little weight. And sometimes once you get in, it’s a little hard to gracefully get out.
Redfin offers a two-fer deal on press releases this morning. One announces “a new version of Redfin.com designed to give buyers the most thoroughly informed real estate search experience on the Internet.”
Redfin’s goal is to delight our audience of hard-core real estate fanatics by offering Freakish Depth on major real estate markets… The site also now supports the Apple Safari browser.
Nice site, but we have seen it all before. In fact, I can get Freakish Depth on any of a number of sites. At least you dudes, like, speak my language, you know, ’cause some sites are just so, like random. Safari rocks!
If you believe the rhetoric, they endeavor to turn the real estate industry on its head. Forget the rhetoric. They, of course, endeavor to make money acting as agents while pretending to be something else – Freakishly hip innovators.
The problem is this. Delivery of online information is no longer an innovation; it is a basic business practice. Their end game to profitability, of course, lies in moving more product. Redfin’s premise from the outset was to “sell” for less but “sell” to more. Volume discounts, unfortunately, only work when you have volume. Curly is stuck in his sweater, but how will they get him out?
Which brings us to the second announcement.
SEATTLE – Jan. 31, 2008: Online real estate broker Redfin Corporation today rolled out a 75-day trial of a new home-tours policy that allows visitors to its site to arrange four Redfin-hosted home tours without paying any money up-front or making any commitment to Redfin.
Hmm… The whole idea of showing homes to buyers sounds a little traditional. I guess now it’s hip to be square.
The first two tours would be free, and the third and fourth tours would cost $250 (each) at closing, with any subsequest tours costing $250 in advance.
What’s next? If, having connected the homes on a grid plane, the point of the intersection of the four lines lies beyond a ten mile radial projection of the Redfin Field Agent’s home office, and gas prices exceed $3.50 per gallon, a home tour surcharge shall be applied, but only when a transaction is not ultimately consummated by Arbor Day or Tuesday, whichever occurs first.
I predict this will be no more successful than the old program in which a single free home tour was offered. Keep in mind, the one tour of yesteryear was limited to three hours; now they limit the showings to two. Afterall, something’s got to give. They can’t make money if they are expected to spend all day with people.
For the first time, users can download data to a spreadsheet for in-depth analysis.
In the future, Redfin might just find that those same folks who clamored to see more homes might be lobbying for a professional to do a little of his own in-depth analysis on their behalf. I wonder what that will cost? Somebody get the tire iron.
ABOUT THE AUTHOR Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens. 
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{ 8 comments… read them below or add one }
Wow ~ what a concept!
Showing homes for FREE???
I am an expert at that, as I previously described here:
http://www.boiseblog.com/journal/2008/1/24/used-up-again.html
Shucks, I will even show homes to people who are working with two other agents and talking with them on the phone inside a home I am showing them
Phil, Phil, Phil. You didn’t read the fine print. YOU show homes “for free.” They show four homes for $500, 5 homes for $750, and then you must simply employ a straight-line projection. You need to work on your spreadsheet, silly.
Oh, and the four homes are free only if you DON’T buy a home through them. Pardon my lack of business savvy, but that seems a little backwards if you are going to charge at all.
I’m about to close on a house with Redfin. Their model worked for me. I’d be happy to work with somebody else (and reimburse their expenses) if they would rebate me $11,500 at my closing. They would be paid $5750 in my case.
In total, I’m guessing my agent needed to spend 20 hours on my purchase, which included 2 house tours and some back-and-forth on a negotiation. $287 an hour seems pretty reasonable, and the service has been as good as when I purchased my last place with a traditional agent. Why should I pay $861 an hour for the same service?
Thank you for your comment, Miles. Congratulations on your purchase, and I am happy for you that you feel you got excellent service at a fair price. We have always acknowledged that this business model may work for some, though I still believe you are an exception.
The overwhelming majority of home buyers will want to – need to – see more homes than two (many more). But that isn’t even the point. The fact that you see your agent’s role as limited to opening a couple of doors and “some back-and-forth on negotiation” is what I find most interesting. And, in your situation, this may have in fact been the case. Any of the transactions I am involved in require hours of carefully explained contracts, hours discussing market trends, area values and neighborhood comparable sales. That you feel you are positioned to do your own research, make your own unassisted determination of value, and understand the legalities of the transaction is laudible.
In the transactions we are involved in, we spend countless hours coordinating inspections, coordinating repair work, coordinating concurrent closings and moves in many cases, and protecting our clients throughout the myriad of decision points and events that arise during the process. One of my favorite quotes is that airline pilots are pretty useless too, except for the take-off and landing. It is when there is turbulence, or an engine blows, that you are darn glad you have a good one.
To breakdown an estimation (your estimation) of the agent’s hours spent into a $/hour figure is misleading, and I am sure you know this. In my business model, I spent hours upon hours touring homes and knowing the product. I live the neighborhoods I serve, and when I have a client who is interested in a home, I can speak to the idiosyncracies of each development and their builders. When I accompany my client to the property inspection, I can speak to the issues that arise – I have seen it before; I have been there before. I have, and Redfin has, business costs which I suspect would floor you – costs of equipment and licensing and ongoing education and insurance and, yes, marketing. We have overhead costs, and they do too, it is just that their overhead costs are primarily online where ours are both on- and offline. Our business systems, from online transaction management to e-signatures to eFax, cost money – a lot of it. And keeping current on technology and the statutory requirements of the transaction take time – alot of it.
All of this may sound like a lot of blah-blah-blah to you, but it is not, and I will not bore you with a bunch of examples of complex, even nightmarish transactions that required so much more than showing up with a purchase agreement and a full tank of gas. And it is in the less tangible of our duties that we deliver the most value.
The bottom line is this. You feel like you got a fair price for your home and “saved money” by receiving a check at closing from your agent. This is great. I won’t even argue that savings can not be defined purely in terms of what your agent makes and how much of his paycheck he is willng to give to you. By my calculation, you purchased a $575,000 home. You say you “saved” $5750. We save our clients much more than this every day through a better purchase price, seller concessions during repair negotiations, and more favorable terms. And, I suspect your time is worth something, yet you haven’t placed a value on this.
It is a little more complicated than the portrait you paint. And, yes, some of our own transactions are smooth as silk. Many more are not, and if yours had been one of the more complicated, you might have a different opinion. Or not.
In any event, I sincerely wish you the best of luck with your closing and your move.
(Note: I guess I should have read Kris’ post before I wrote this. Since they were posted almost concurrently, I apologize for the similarity of thought. Obviously, after all these years, we do actually agree on certain things).
Miles – I am sincerely happy for you. We have always said there is a small market for those who Redfin might appeal to. In San Diego, it’s a very small market. Regardless, your example does little or nothing to quantify the “value proposition” for the following reasons:
– We have no way of knowing the true value of your home purchase. The rebate you claim represents approximately 2% of a $575,000 home purchase (assuming a 3% buyer side commission). What if I were to have negotiated a purchase price of $560,000 for that same home for you? Redfin clients are so fully invested and enamored by the idea that they are going to get a commission rebate, that they take their eye off the ball; The ball being the bottom line. After all, for what other reason would you use them? If you were to suggest that Refin can negotiate a home price as well as a seasoned, top producing traditional agent, I would suggest that you are wrong. Why? Because they don’t really know the market. Their business model relies upon their agents sitting in front of a computer/spending their time on-line and not taking the time to really see and know the homes or the neighborhoods. All one has to do is check out how consistently and how far off Zillows Zestimates are to understand the pitfalls of “on-line valuations.”
– You claim to have taken two home tours. How many homes did you see? Were you charged for the tours? Typically, our clients will view anywhere from 5-15 homes on our first tour, alone. I can explain the value proposition for most homes we see because I have seen and/or sold so many in the core market areas I work. I can usually provide a history and the nuances of the homes and the neighborhood. Is that of no value in your deliberations?
– While you were in escrow, were you advised of any new listings of properties in the same neighborhood that may be comparable to yours but at a lower price? As the market adjusts, this is not uncommon. Wouldn’t you want to be advised of and see these new listings?
I could go on and on but I know it’s pretty much a waste of time. Those who buy in to the Redfin mentality will not be convinced otherwise and that’s fine. All that’s really important to you is the rebate. All else can be justified.
Miles,
Congrats on your purchase. I must say the Redfin model does provide for terrific opportunities. What is most impressive is that you were able to dial-in your realistic needs and choose from a realistic inventory. Frankly, I think we all would love to represent clients like you.
Reality however, brings us to the points made by Kris and Steve. I think that the business model of Redfin loses value in their upfront fee structure for most consumers. I have spoken to many former Redfin buyers who felt compelled to make decisions based on minimizing their showing fees rather than the best home available.
With that said, I do feel that our industry is changing and while I find fault in Redfin’s model, I also disagree with justifying my “take” based on what I see as basic business expenses like those expressed above (no offense to the authors). High powered attorneys or elite CPA’s never defend their fees based on the expenses they incur. They simply say, “That’s what I charge, my experience and success are evidence of that value.”
I suppose there is an inherent level of instinctual respect or lack-there-of in comparison. While many people have a low opinion of attorneys, I suppose the common knowledge of their educational commitment needed to become an attorney provides for a default perception of “expensive” and willing to except the levels of their compensations (even ambulance chasers) .
The licensing requirements for a real estate practitioner are a couple of classes, a state exam and you’re in. Unfortunately, our industry is riddled with these types of unprofessional snake oil pushers and part time bored house wives who complete one or two transaction a year. I can see why there are value considerations.
So do I think that at times we are grossly overpaid, Yes. But I also know that I wake up every morning to the uncertain life of a commission based independent contractor who bares the risk of working all day, week and maybe month without an income. Big risk big gain theory.
I am in the minority however when I say, change in the process of selling real estate is inevitable, and quiet frankly needed. The landing point, I believe, is somewhere between Redfin and classic models.
One thing for sure is, the Kris’s and Steve’s (and me
) of the world will always shine through and continue to earn their “take” in any fee structure…… because that is what professionals do.
Hi,
Just in case someone stumbles on this in the future, I think Kris’ points are all valid and demonstrate why a traditional agent can work, and why some people should select a traditional agent. A few examples: If you are moving to a new area who wants to hear about better/worse areas, find a good traditional agent. If you aren’t comfortable with the process, and want a bit of hand-holding (not a bad thing!), find a good traditional agent (and a helpful lawyer).
Where Redfin lacks (by my single experience) is in agents who really “know the neighborhood.” (Our Redfin agent lived in another area.) And there is real value in this — local agents may be able to tell you about neighborhood issues that should influence your decision. There is also a real money for time trade-off as you mention — for most people, real estate is a chore and you would rather pay an agent.
But this was not true in my case. What Redfin seems to have found is a niche (and I can’t argue how small or big it is) for buyers who see the real estate agent primarily as an access into the houses and the proxy during the negotiation. I was happy to do the data search myself. The online tools are (now, in 2008) fantastic. But you are right that this isn’t right for everyone. I may be the exception, but I hope that there are enough of people like me to keep their model going.
In my case, I knew the area — having lived there for years already, and just wanted to do a space upgrade in a down market, keeping my old place. I had a good idea of what was fair, and between Zillow and the Redfin website, was able to build up a good idea of comps and past sales. (While Zillow’s estimates are off, their previous sale data is useful.) I also felt comfortable with driving the negotiation.
After closing, I should find a place somewhere to post a review of the whole process, which was mostly but not entirely positive.
In reply to the Kris’ comments above:
– each house tour was about 6 houses, so I think I saw 11 + a couple open houses before I made an offer.
– I like the airline pilots quote. (although this is also why one needs a good and trusted lawyer and inspector.)
– I have similar costs in my business too, but for what I needed, a traditional agent would have been very, very well compensated on an hours basis. I’ll trust you that I do not represent the majority of buyers. (But on the flip side, Redfin’s model does encourage a buyer to engage them when I am ‘really ready’ or else pay for kicking the tires, which is fine with me.)
– I did spend a lot of time on this, but I would have spent the same time doing this with a traditional agent. I was thrilled to have really good tools. But I will say that the last time I bought (pre-Internet tools) I found it awkward to go through an agent to find out basic information about a house that I can find now.) It was so refreshing to the Redfin tools.
To reply to Steve’s comments above:
– I don’t think Redfin encourages buyers to take eye off ball on the negotiation. I think it gives wiggle for the buyer (and seller) to eat into that rebate to increase the offer price.
– I do think traditional agent knows the local area better.
– I think negotiation skills are pretty much person-specific. I was pleased with my agent.
What do you think about this:
If traditional agents wanted to offer a different “product” to me, then think the Redfin story evaporates. For example, I would be happy to pay a traditional agent who billed by the hour or had a fixed fee with an hours-cap, or did it by the job. That is how I pay my lawyer and my home inspector. Why not my agent?
But when I mentioned this idea to an agent, they balked. (”We just don’t do it that way.”) So Redfin it was.
Best,
miles.
Miles – That was a fairly balanced comment. Like I said, we agree that there is a small market for those like yourself who have the time, market knowledge and use the fabulous tools available now on the net. But if I had been able to have negotiated harder on your behalf and secured that home for you for $12k-$15k less, would my fee have mattered as much to you? Why do certain people always seem to worry more about what someone else is earning. Isn’t it your bottom line that you should be most concerned with?
I recently met a very nice couple at an open house I was holding. He admitted to me that he had started working with Redfin and almost apologetically asked if I had any other listings I could show them. They had already lost out on several transactions due to their pricing strategy, multiple offers and due diligence issues. That’s a lot of lost time, not to mention opportunities. I suggested that they submit “reverse multiples” (one buyer offering on several homes at once instead of one offer competing with many others for one home). Their reply – Redfin doesn’t allow it. Now this was obviously a very well educated, intelligent couple who could probably pull off what you did. But at what price and what amount of time. I sincerely wish them the best, but in the end, will they have really saved $$?
I also agree that an evolution is occurring. Redfin is slowly and stubbornly gravitating towards the traditional model, finally acknowledging that there is not enough of market-share of people like you who are comfortable with minimalist service. And while we traditionalists continue to try to add value, we are also feeling the pull of competitive pricing.
There are those who offer a “different product” as you suggest. As I am sure you know, so-called discount brokerages have been in the market offering a “menu” of services for years. During the strong years they were able to get by. Now that things are more challenging we don’t see or hear much of them anymore.