Real Estate Business Models

By
Home Builder with Retired

Real Estate Business Models

In This Post

When the unknown becomes known

 

Fear of the unknown can be a pretty incredible force. In the real estate business we often feel threatened when new laws (outside forces) change and therefore change the way we have to do business. And other times a new business model (inside forces) comes along and it seems like the entire structure we've learned to operate in might be changed.

My focus in this post is Redfin. I've recently sold a Redfin listing and it is my first personal interaction with the company. I remember hearing from other agents just a few short years ago about how Redfin's software engineers tried to put together the first offers that came out of the company. I didn't think of it at the time, but I can only imagine what the first offer by any agent looks like. Probably not a thing of beauty.

A Sold Sign

Redfin's founder did an amazing job of shaking up the travel agency industry with Expedia. They have certainly seen some deep and far reaching changes. Do I think that the same expanse of change will come to the real estate industry? No, not really. There have been many discount companies come and go over the years. And there have been many non discount/rebate companies fail during that same period. The success of a company is not based solely on the fees it charges.

I was out showing homes yesterday and my client pulled a paper out a folder and asked, "Do you have access to all of the homes that Redfin does?" "Well, sure," I answered. "They, and all other companies get their information from the multiple. We all have the same information." He went on to tell me what a great site Redfin has and I have to agree. It is a user friendly site and it offers a ton of information.

Back to my recent sale. The transaction took a few turns at the beginning that were unfamiliar to me and I learned and moved through it. Everything is going like clockwork now and I have no reason to suspect the deal is doomed. I ran into my broker at the office last night and he's seen my sold strip on the Redfin sign, which of course pleased him. We talked a little about the company and how they have slowly been changing their business model by rebating less to buyers, by offering more service to buyers and sellers. Why are they doing that? Well, our thought was that buyers and sellers interested in doing it all by themselves are a limited segment of the market and to survive, any company needs to increase their market share. When times are tough, like right now, a company needs to reach out more to everyone that needs help, and less to those who don't need any.

Redfin, like all companies, has only 3 ways to go. They will survive (and I might add that they will adapt to the way the industry works, not change it significantly), or they will sell to another company (who wouldn't want the website in their chest of tools?) or they will quietly fade away.

Although this seems a little late in coming, I welcome Redfin to the business and wish them all the best.

Posted by

 

 

 

 

Glenn Roberts
Retired

 

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Comments (60)

Matt Goyer
Redfin - Seattle, WA

Glenn,

Thanks for writing about your experience closing a deal with Redfin! I hope the rest of the transaction goes smoothly. 

Just wanted to correct one thing though, Redfin was founded by David Eraker, and is currently run by Glenn. I think you may be confusing Glenn Kelman, our CEO, with the Zillow team. Many folks on the Zillow team are ex-Expedia.

But you're right, we've found that buyers and sellers need to have more hands-on assistance than we originally thought. In response to that we've dramatically increased the level of service we offer and have made substantial changes to the experience of buying or selling with Redfin. As such we did have to reduce our refund from 66% to 50%. The primary reason we're able to offer such a large refund is that we use technology throughout the entire transaction to make everyone more efficient, as well our agents spend all their time working with clients instead of self-promotion. 

In regards to how we'll keep our agents when the times are better, did you see our blog post on agent compensation, what kind of person would work as a Redfin agent? Our agents in Seattle are in the 90th percentile in terms of pay. 

As for whether we'll make it... Last summer we announced our first month of profitability

Hopefully we can work together on more transactions soon!

Brian, as a Canadian I hope we come to Canada soon.

Corinne, our partner agents, who help Redfin buyers in areas where we don't have our own agents, do not compete with us. You can learn more about our partner program here

Margaret, I'm sorry to hear that. We strongly encourage people to not switch to Redfin at the last minute just for the discount. Just like how we ask people who use Redfin agents to see homes when there non-Redfin agent is busy to stay with the agent they started with. 

Tim, five of the top ten producing buyer's agents in Eastern MA work at Redfin so I disagree we're not a big player :)

Aug 16, 2010 12:48 PM
Glenn Roberts
Retired - Seattle, WA

Matt - Thanks for stopping in and I'm happy to stand corrected on the history part. And yes I do confuse the two Glenns with two ens as I am one myself and for years thought I was the only one. I have doubts that your model will become a standard because most companies do not have the ability ($$$) to hire the engineers you have to create and maintain the programing. It will take a few more years to see how it all shakes out. Someone is promoting Redfin agents and the company, so if it is not the agents, it still needs to be done.

Welcome to the fray.

Aug 16, 2010 12:59 PM
Matt Goyer
Redfin - Seattle, WA

Happy to stop in!

I agree it will be hard for someone to compete with Redfin on the engineering side without investing a lot of money in an engineering team but you never know! John L Scott acquired the company they use for website development a few years ago and I believe Windermere has their own in-house team. 

In terms of promotion, we don't spend a penny on advertising. Instead we've invested it all in our website which attracts plenty of customers for us to work with (or refer out to agents in areas we don't service).

Aug 16, 2010 01:23 PM
Bryan Robertson
Los Altos, CA

I think Redfin has strong technology and offers a great deal for people who want that sort of thing.  However, the Redfin agents I've dealt with were not responsive and didn't offer the level of service people in this area expect.  I see then capturing a limited market share but I don't see it improving.

Aug 16, 2010 01:42 PM
Glenn Roberts
Retired - Seattle, WA

Matt - definition of terms. I believe all of my Internet activity is self promotion/advertising. I want people to get to know me and know what I do and for whom I do it. Redfin's excellent Internet presence is your advertising. And your Glenn knows how to reach the media = free advertising.

Bryan - I'm sure that's a well shared opinion that Redfin is addressing. In Seattle their professionalism has improved by leaps and bounds. And they will have a market share.

Aug 16, 2010 01:48 PM
Matt Goyer
Redfin - Seattle, WA

Yeah, Glenn knows media :). 

Bryan Robertson, I'm so sorry to hear that. We pride ourselves on our customer service and I'd expect that our agents would be responsive not just to our customers but also to the local agents. I'd be happy to dig in on the specifics if you drop me a line at matt@redfin.com as local agent relations are really important to us.

 

Aug 16, 2010 02:00 PM
Stanley Stepak
Howard Hanna - Avon Lake, OH - Avon Lake, OH
Realtor - Avon Lake, Avon, Bay Village, Westlake,

Like Maureen we do not have redfin out this way but they do sound interesting.  What kind of problems would you fear running into with such a company working the other end of the transaction?  Just curious and I do like that trophy idea. 

Aug 16, 2010 03:26 PM
Glenn Roberts
Retired - Seattle, WA

Stan - The problem that arose early on was that Redfin ws collecting the "cooperating commission" with out much cooperating. Listings agents let their clients in and listing agents opened the door when they need access for the inspection. Redfin thought they could do it all and never leave the desk top computer. And then, when they wrote offers it was evident that they hadn't done so before. It's better now, but let's face it, they've learned that customer service is the name of the game, no matter how much info you put out there for buyers.

Aug 16, 2010 04:01 PM
John McGuire
Mortgage Banking Consultant and Investor - Overland Park, KS

Very interesting model and a very comprehensive website.  I really liked the totally straight forward approach to describing how the system works.  I was surprised there wasn't more in the way of mortgage loan officer referrals.  Just a few in each market but there is a lot of great mortgage home loan content including a good forum for mortgage related topics

Aug 17, 2010 07:00 AM
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

Run for the fridge Glenn!!!  John McGuire is offering you a SPAM sandwich!!! Three extra links to his site in his comment...

Aug 17, 2010 07:17 AM
Glenn Roberts
Retired - Seattle, WA

Maureen - That's funny.

John McGuire - Didn't you ever read the guidelines? Maybe you'll edit your post.

Aug 17, 2010 08:03 AM
Alan Bruzee
Long & Foster Real Estate, Inc. - Rockville, MD

Real estate is local and the models sometimes have to accomodate.

Aug 18, 2010 11:39 AM
Yvette Chisholm
Long & Foster Real Estate, Inc. - Rockville, MD
Associate Broker - Rockville, MD 301-758-9500

The RF site is very popular with clients.  They love using it...all the other companies downplay it...but give the buyers what they want.

Aug 18, 2010 11:49 AM
Glenn Roberts
Retired - Seattle, WA

Alan - It sure is local. Where I started in Minnesota we were getting 8% on most listings.

Yvette - Yes they do love it. Especially the younger set who want to see everything.

Aug 18, 2010 11:53 AM
Chris Alston
Chris Alston (Keller Williams Realty, Silicon Valley, California) - Campbell, CA
Silicon Valley, California

In the past 7 years, I have not had an agent close a transaction with redfin on the other side of it.  When the market was booming, the discount brokerage gained ground...  Since then, their market share has decreased.  There will always be those that want/need that type of business, and it will never really go away...  We are no longer the keepers of information, we are not the keepers of the customer service...

Aug 18, 2010 05:28 PM
Todd Clark
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

Our neighbors who bought through Redfin before we moved in and they say it was actually a really great experience, but they wouldn't do it again. They said they bought through them because Redfin would sell their house for free if they bought through them. Now it has almost been a year and now they have two mortgages. Can't really switch companies or they will end up paying, the reason they wanted to use them in the first place.

Aug 18, 2010 07:23 PM
Glenn Roberts
Retired - Seattle, WA

Chris - yes, keepers of customer service and customer relationships.

Todd - If Redfin can afford to do that, with full service, they must have gotten some more venture capitol. Why do those neighbors want to move so quickly, and was that in their mind to start with?

Aug 19, 2010 01:38 AM
Matt Goyer
Redfin - Seattle, WA

Chris - It's too bad we haven't worked together yet! Hopefully soon. As for market share, the agent who used to work with us in that area just made the WSJ/Real Trends top 100 agents list and our data pulled from the MLS shows us increasing market share in the Bay Area. 

Todd, generally it is not free to sell your home your home if you also buy with Redfin. Our deal is that if you both buy and sell with us we'll refund you an additional $1000 (except in Oregon where we aren't able to refund money but instead credit it towards closing costs). Our typical listing fee is 1.5%. Of course, I don't know the specifics of your neighbors situation... 

Aug 19, 2010 08:37 AM
Anonymous
Mohammad
Get a broker! There are brekros out there that sell your business for you. Search for "Selling Business" on the web and you will see tons. They walk you thru all the legalities of selling the business / real estate / etc. You will drive yourself crazy trying to figure out every little part without them. They get paid by taking 10% of whatever the sale price is. Your friend should just include that amount in his asking price calculations.
Jul 28, 2012 09:50 AM
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