Redfin: Born a Discounter but always knew they were a Traditional

By
Real Estate Agent

Today Redfin announced that they will offer a higher level of buyers service called Redfin Select to a limited number of clients, and for those clients they will be reducing the commission rebate offered.

I hate to see Redfin move their business model away from the edge.  The edge is cool, daring, and exciting.  They sought to revolution the real estate industry. Their first vision had panache; "no buyers agents", schedule your own showings, drive yourself, and because you are not using a buyer's agent you save a bunch of money.  

Redfin Launches Industry's First Online Home-Buying Service:    February 6th 2006

"Unlike traditional agents, Redfin Direct agents do not offer private home tours, or advice on which property to buy. To see properties, Redfin Direct customers visit open houses, or for a private tour, contact the listing agent or the seller."

 

Then they started to offer tours... 

Redfin Launches Free Home Tours and Pre-Inspections: October 3rd 2006

"The first home tour with a Redfin agent, up to three hours per household, is free. Future tours are $125 per home or $250 for a three-hour tour."

 

Then they offered more tours... 

Redfin Offers Home Buyers More Property Tours: January 31st 2007

"The first two tours would be free, and the third and fourth tours would cost $250 at closing, with any subsequent tours costing $250 in advance... Redfin exhaustively surveys every client who attempts to use our service, and the most common request has been more home tours"

 

Now they are offering 'unlimited' tours and less of a rebate: April 8th 2008

"With Select, we take you on tour twice a week, every week, until you find a home. When you do, we give you a 50% commission refund, which is usually worth $7,500 on a $500,000 home."

 
I guess at this point I wonder if Redfin is still a game changer or are they just carving out a niche as an efficiently managed real estate brokerage? Was today's quiet announcement Redfin's way of waving the white flag on being the Expedia of real estate?

Comments (17)

"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL
:)
Apr 08, 2008 08:16 AM
Marchel Peterson
Results Realty - Spring, TX
Spring TX Real Estate E-Pro
When I got in to real estate 11 years ago I remember hearing that with the internet real estate agents just were not going to be needed.  All in all there are just too many variables and hiccups that occur in that transaction and there needs to be someone guiding it along.  Real estate agents are only going to work for limited money for so long because there are so many variables.
Apr 08, 2008 08:22 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland
It's cold out there on the "fringe".
Apr 08, 2008 08:30 AM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Joanthan, I guess Redfin has finally found out that to run a real estate company you have to make money. They are slowly evolving into just another "discounter". Their biz model would have worked during the boom but now is just not the time. In this more difficult model the consumer needs more help and commissions are in fact on an upswing. Bad timing for Redfin. 
Apr 08, 2008 08:30 AM
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Jonathan...

Sorry about that. I am just here looking at all the cool new pages.

I guess perhaps Blog Boy and I need to jazz up our AR :)

TLW...ROAR!

Apr 08, 2008 08:35 AM
Stephen Graham
Inactive - Atlanta, GA
It's a balancing act; providing service and a rebate requires a happy medium.
Apr 08, 2008 08:43 AM
Jay McGillicuddy
Berkshire Hathaway HomeServices Verani Realty - Exeter, NH
Real Estate Broker

Welcome to a Buyer's market not the first and not the last. LOL

Apr 08, 2008 09:15 AM
Jon Washburn
Seattle, WA

TLW, Park on my blog any time you like! I love to see that you are reading my stuff. :)

Marchel, Being a real estate agent is a tough job, and good ones are worth their weight in iPhones. It is amazing to watch the procession of online discounters come and go over the years.  I do admire Redfin for a host of reasons; for instance they have one of the most innovative client side home searches in the industry.

Lenn, Maybe be cold but it is where are all of sparks happen.

Bryant, I am not convinced their business model will not work as it is structured.  However, sadly I think that they have already evolved to being just another discounted.  What I would love to see is them focusing on their technological innovations more, and the commission savings less.  Selling something for less is not innovative, it is just cheaper.

TLW, I am so stoked about the new css options!  Gotta love Brad Carroll.

Stephen, I don't know if it is a balancing act.  I tend to believe that the closer a business goes to the edges the more successful they are. 

Apr 08, 2008 09:20 AM
Jon Washburn
Seattle, WA

Jay, Do you think Redfin's success is all about timing?  I tend to think that is not the case, look at ZipRealty and eRealty; both of those companies experienced a long run during a seller's market, but neither have really been able to achieve profitability.  

My opinion is that the model still needs a bit of tweaking.

Apr 08, 2008 09:23 AM
Cheryl Johnson
Highland Park, CA

Oh, but I do like their "lingo" for the new service ... A buyer must complete an "application" to "enroll" in program for "field tours" given by "field agents".

Apply?  Enroll?  You mean no more clients "walking in the door without an appointment and expecting immediate service"?  Hey, I could learn to dig that!

Apr 08, 2008 10:47 AM
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

I will drop back to my favorite point.  The current "average" commission didn't happen by accident.  It takes a certain amount to make a profitable company...  the self-described geeks that enter the business thinking that they can see a bunch on inefficiencies and know the answers to capitalize on them, find out that what they saw was a phantom. 

Of course, Redfin's original concept had a major flaw.  They wanted half of the money (much of it to rebate to the buyer) for not doing any of the work.  By telling their buyers to have the listing agent do a portion of their job, and then they would parachute in at the last minute to take the buyer's agent commission, they were were disingenuous about the inefficiency they saw there.

I think that they will burn through their VC money at some point and will be just another discounter with no special hook... and then they will probably disappear or scale back to the point of being invisible. 

Apr 08, 2008 11:49 AM
Marlow Harris
Seattle Dream Homes - Seattle, WA

Jonathan,

You just wrote a post last month about March 1st being the worst day in real estate and that your business was doing poorly.

By looking at your Brio website, it doesn't look like you advertise a discounted or limited-service model, but apparently your firm still is having trouble making it.

How can you be so supportive of a model like Redfin, that you know won't work?  You, as an owner, must know intimately how much it costs to run a real estate brokerage.  I like new, shiny things too.  But you can't take new and shiny to the bank.  As Lane points out in the last comment, it's no coincidence that the "average" commission charged is often the same from firm to firm.  It's not price-fixing.  It represents the true cost of doing business. 

Apr 08, 2008 02:58 PM
Ryan Martin
Pacific Continental Realty, LLC - Bellingham, WA
Bellingham Commercial RE Broker
Jonathan - That is definitely an interesting announcement. It is hard to argue that Redfin hasn't been riding on the edge.
Apr 08, 2008 03:59 PM
Courtney Cooper
Cooper | Cartwright - Seattle, WA
206-850-8841
Ya - I saw this, too - I think they are going to lose more money personally when all the looky loos start getting taxi rides twice a week with them:) It doesn't seem as innovative as I would have expected.
Apr 09, 2008 02:47 AM
Anonymous
Ray Pepper Broker www.500Realty.net

8 months in operation and we know the expenses must remain very lean.  We have 2 additional offices opening in 2009 and we understand to make the Brokerage run profitably it takes advertisers, a lean budget, and time efficiency.   Month after month we continue very profitable and started with just 50k.  We continue to Speak to the masses at the Home Shows and run our ads on CNBC. 

 

I believe there will be many more 500 Realty -type companies coming as soon as Brokers realize they can make a very profitable living doing it.     The marketing of the 500 Realty product has just begun and we continue to look for Brokers willing to step outside and give the consumers what they really want.

Apr 09, 2008 07:21 PM
#15
Marlow Harris
Seattle Dream Homes - Seattle, WA

500-Realty has only posted 23 sales in the last 16 months, from January 1, 2007.

10 were listings at $500 a pop for a grand total income of $5000.

They had 13 total sales and are refunding 75% of the commission.  With the average sales price being around $350K with a sales office commissin of 3%, they made an additional $35K for the last 16 months, for a grand total of about $40K (yes, $40,000) revenue. 

And that's before any expenses.

Apr 10, 2008 03:53 AM
Ron Tarvin
Residential, Investment properties, rehab projects, property management, luxury homes, new construction! - Katy, TX
Broker, Katy, Houston, Cypress 77450,77494,77095
I've never understood the idea of expecting the listing agent to SHOW the property and then discount their pre-negotiated commission with the seller so that the BUYER can get a deal.  If I'm discounting at all it's to my seller who I have a fiduciary responsibility to. 
Apr 16, 2008 07:32 AM