Redfin Turns Profitable, Real Estate Industry Shudders

http://www.techcrunch.com/2009/07/10/redfin-turns-profitable-real-estate-industry-shudders/

by OperaLover • 17 years ago

51 44 17 years ago

tybris• 17 years ago

There are a few things the Internet is incredibly good at. Content delivery, communication and administrative services. If you're in any of these industries, don't expect your job to be around 10 years from now. It's time to evolve.

Shooter8• 17 years ago

EVERY industry needs to evolve along with technology or suffer the consequences.

I think there should be far few real estate agents working in the US. And that the level of innovation should dramatically increase. But agents will not become a completely endangered species in the foreseeable future...certainly not within the next 10 years. The best agents will just become better at their jobs and BENEFIT from technological advances. The future usually doesn't shake out like people think it will, and disintermediation due to the internet is one of the forces that is usually overestimated. People who think real estate agents will cease to exist because of the internet don't fully understand what a good agent does. I know, because I was one of those people just a few years ago. There's a reason some people need agents, just like there's a reason I never ordered my dog food over the internet, Pets.com be damned.

I started a real estate brokerage after working in the software/internet and finance industries. Getting the license was just a legal formality because I was all about disintermediation. I was going to help eliminate those greedy, good-for-nothing agents. But then I learned that the good agents DO serve a purpose. And that the industry is much more complex than most people understand.

tokenadult• 17 years ago

I learned that the good agents DO serve a purpose.

What is that purpose?

sielskr• 17 years ago

Summary of the article: Redfin reimburses 50% of the fee they receive back to the buyer. And Redfin charges the seller a $5,000 - $7,000 flat fee. In contrast when the buyer and the seller of a million dollar house use traditional Realtors, together the Realtors take about $50,000 or $60,000 of the transaction.

Finally, here is a comment from the Techcrunch article:

I was an active Realtor for 8 years and I’m glad to see something like this taking shape. It’s only a matter of time before real estate agents are entirely obsolete, and for good reason. You used to have to go through an agent to get this kind of information on homes; now the general public has access to that same information.

jacquesm2• 17 years ago

Realtors in the US/Canada make far too much money on the transactions.

Derrek• 17 years ago

I agree

edw519• 17 years ago

6% may have made sense when houses cost $25,000. Now that houses cost 10 times as much, do they have 10 times the work on one deal? I didn't think so.

kapitti• 17 years ago

The realtor themselves don't make that much as it's a pyramid scheme. A realtor splits the commission 50/50 with the broker, and then pays fees (advertising, listing, business expenses, etc) out of their 50%. Take out taxes as well, and real estate, in most markets, ends up being a minimum wage job.

noonespecial• 17 years ago

This is really all up to the seller. When we listed out house (albeit in a very different real estate climate), we decided we wanted to get about $300,000. When informed that I'd really be getting $276,000 after "commissions and fees" I simply said, "No you misunderstand, we want $300k for this house."

What actually transpired was that it listed for more than 300k (but not 24k more) and both the seller's and eventually buyer's agents decided to take less commission to make a quick sale.

These numbers aren't carved in stone. Everything is negotiable. You just have to ask.

phatboyslim• 17 years ago

Given my last experience with a realtor, and hearing similar stories from others, I can't say I'm surprised that a website is doing a better job than a good number of them.

I'm not going to blanket stereotype, but when certain realtors are basically just setting up MLS feeds, and then forwarding matching listings to a client, how do they assume that someone couldn't program a site to do the same thing?

Afton• 17 years ago

The redfin UI needs to be massively cloned for location based services. Honestly, I love craigslist, but when I'm looking for houses to rent, I want to specify a polygon on a map. Maybe it's just me.

pmh• 17 years ago

While it doesn't allow you to draw a polygon, www.padmapper.com does give you a Google maps representation of Craigslist listings. The potential downside I see with this involves listings that include intersections or general locations instead of exact addresses; I'm not sure what the site does in that scenario.

sgoraya2• 17 years ago

I've been following redfin since their early days and was very excited by their business model. They were featured on 60 minutes about a 1-2 years ago too, which helped them gain some mainstream momentum.

The real estate industry, specifically residential real estate, is in the process of rebooting. A lot of the legwork that agents were doing in the past can now be accomplished by the buyer/seller and much of the information can be found on real estate aggregation sites. Not to say that residential agents will be extinct anytime soon (they still provide a service) but their commissions will definitely be affected.

Commercial/Industrial/Ag. real estate on the other hand, still requires professional agents, IMO. Specific knowledge (legal/zoning issues/environmental impact reports/etc. etc.) is needed in these areas to assist buyers/sellers.

silencio4• 17 years ago

I might just be dealing with a particularly bad commercial broker right now, but he is all about covering his behind and refusing to do anything beyond his bare minimum, that is to say, the only thing he's ever told me about phase 1 ESAs is a piece of paper detailing my responsibilities in general. Which, well, my lender and other people have already told me about. He also told me to go figure out all the other legal issues on my own with someone who specializes in commercial real estate law. I actually did do this with more than one lawyer prior to submitting an offer, and I ended up having a 4 hour long fight with the broker over changing some wording, only to get lectured at the end about how I need to learn to not change legal documents written by lawyers and how I should be leaving all the paperwork to the grownups because I was a 20 year old female sitting in front of him eating frozen yogurt...wait, we were having lunch and it is my corporation of which I have a controlling interest in that's buying this property and it is my bank accounts funding the majority of the purchase price, right?! I think I just stared at him and didn't sign anything until he conceded. He tried to lie his way into making me initial parts of the offer that were clearly voluntary as well. I'm extremely tempted to file some complaints...

So I honestly do see a market for a Redfin-esque service for commercial real estate and even buying/selling businesses. If only to get rid of that nonsense.

sgoraya2• 17 years ago

Ouch! That guy sounds like total asshole, to say the least! Definitely not doing his job and does not deserve your time and business.

My experiences with commercial agents has been relegated to the broker that we have been using for over a 10 year period.

I agree though, a redfin type service will also evolve and take shape for commercial properties. However, from the commercial side of things, a lot more due diligence needs to be done (depending on the property type) as opposed to buying a home. And often times many 'good' commercial properties never make it to a listing service like loopnet etc.

Shooter8• 17 years ago

I agree the guy sounds like a condescending ass, and I think maybe you should file a complaint.

That said, he MAY have a point about changing the wording on the legal document. Most states have had strict laws about real estate professionals changing the wording on contracts since the '50s or '60s, believe it or not. In most states, brokers and salespersons are only allowed to fill in blanks on printed form contracts that are 'customarily used' (usually defined as drafted or pre-approved by the local bar association) and to insert or delete items only at the direction of the principal in the course of negotiations. While the last part sounds like it allows what you want, it is very easy for the broker to get sued for doing these insertions and deletions, because almost anything they say when this is happening can be construed to be the "unauthorized practice of law." And when I say "get sued" I don't necessarily mean by you. It was complaints and lawsuits from bar associations that led to these restrictive laws...the attorneys didn't want more competitors for basic services, just like they have sued internet companies that are selling legal documents such as wills. Anyway, many brokers are advised to completely avoid changing the wording on contracts. E&O insurers sometimes even write stricter guidelines brokers have to follow in these matters in order to get covered under insurance policies. And the broker's company may also have its own policies.

BTW, depending on where you're located, there ARE companies that are more on the Redfin end of the spectrum and that have Loopnet-ish sites.

inaka• 17 years ago

I sold my house with redfin on Dec 31 2007. The transaction was absolutely wonderful. It was a money loser for Redfin - first offer fell through due to misrepresentation by the purchaser, second one was complicated due to an extremely picky purchaser, and it took a total of about 60 hours of work by the Redfin agent to get the deal closed. It was an unusual case but the point is i've done about 4 other transactions and this was the most professional and hardest working agent and it was the cheapest... So they don't drop you if your transaction turns out to be a statistical outlier... HIGHLY recommended.

kirpekar• 17 years ago

We bought through RedFin about a year ago. The $$$ refund makes it all worth it.

greyboy• 17 years ago

The major downside to Redfin is their service area. I hope they can expand by the time I need them.

Shooter8• 17 years ago

I was going to try to respond to a bunch of points people made here and on the Techcrunch site about the Redfin story, but unfortunately I didn't have the time to do individual responses while it was still a relatively active thread. So, instead, I'm going to just make a bitch list here now, in an attempt to start a new discussion. 'Cuz, you know, bitch lists are so productive ;-) Here is what I've started with, in roughly ascending order of pissed-off-edness:

4. I'm pissed at Redfin.

Redfin is not that innovative. I think Glenn is a good guy, and a fast learner, but there are better real estate brokerages out there. What do I mean by "better"? I mean companies that save the consumer even MORE money, offer BETTER customer service, don't cut corners or take advantage of OTHER professionals to save money, and have business models that better align their interests with the consumer. I think Redfin is a move in the right direction, but I'm sick of hearing about their "innovation." They're not doing anything other companies haven't already done - they're mainly just doing it more vocally. This all may come across as jealousy or sour grapes from a competitor. It is. I'm jealous because I have a better (and more profitable) venture-funded real estate company - but I can't shout it to the world like Redfin does, because I haven't figured out a way to scale our company while keeping our same quality of service. So I can't advertise or blog about it, and I have to turn customers away because we can't keep up with our current demand. Being the guy with a better widget who can't manufacture enough to meet demand may be a "nice problem to have", but it's extremely frustrating. At this point, I'm trying to avoid going down the "referral partners" path because that largely defeats some of our advantages. So, yeah, I'll have the sour grapes.

Shooter8• 17 years ago

3. I'm pissed at some Flat Fee MLS companies.

[This is basically a throwaway, but I bring it up because of the guy posting everywhere at TechCrunch.] Flat fee MLS is a way to save money if you're 100% sure you know what you're doing in selling your own home. For roughly $299-499, you can get your property listed on the local MLS. If you offer a commission to buyer agents, as they require, you will have accomplished almost everything a LAZY agent would have done for you. (If you're greedy, and refuse to pay a cooperating broker fee to buyer agents, you will not be able to list on most MLSs per their rules, and you will have lost roughly 80% of the buyer's market. Why should an MLS association or buyer agent provide their time and resources to help you sell your home for no compensation? Do YOU work for free?) One issue with flat fee MLS companies is that many, but not all, (knowingly) violate their state's 'minimum service guarantee' laws, because it is often difficult for them to do what they're actually supposed to do for that small amount of money. Not all states have these laws, but most do. If you go the Flat Fee MLS listing route, you should just know what you're getting for the money. Some companies are horrible and they blow smoke up your butt without alerting you to the downsides and dangers of this approach. They could improve, for example, by giving you a list of things that you are legally forbidden from saying when you're showing your home, and a list of things you MUST disclose. A second issue with this is that you probably DON'T know what you're doing in selling your own home, even though you think you do. Which goes to issue three...

Shooter8• 17 years ago

2. I'm pissed at the arrogance and ignorance of some consumers.

You simply don't know what you don't know. You know how some people who know essentially NOTHING about programming will offer to pay you $500 to create, say, a "better" Google, and then are shocked when you say there is more to it than that? In their minds, it's a simple thing. ("Jeez, all you need is to put everything into a database somehow, and then have people be able to search it in a little box, except faster and with better results...?" !!!) That's what it is like for good real estate agents when consumers assert that agents shouldn't get paid for what they do or that it could all be automated with a computer. ("I can find the homes myself on the internet, why am I paying you?") If you think a website can do everything a good agent can do, then you simply don't understand the process. Finding a house to go look at is just a tiny, tiny part of the process. The average consumer is completely ignorant about buying or selling a home, and they allow themselves to be taken advantage of by lazy and crooked agents, and by other consumers. People put less energy into researching the process of buying or selling a home than they would put into buying a new phone or stereo. Stupid agents and stupid consumers go hand in hand down the path together, ruining the industry for everyone else. Real estate is a specialized field, with thousands of things that can go wrong, and hundreds of state-specific and federal laws that govern it. Most agents, even GREAT agents, find it difficult to keep up with all the details and to cover every eventuality, what makes you think you can do it with no training? Most deals are straightforward, though, right? Few transactions have issues and "technicalities" are rare, right? (Well, I know people who have lost tens of thousands of dollars in earnest money because of "technicalities." I know people who have lost the home of their dreams because of "technicalities." I know people who thought they bought 'their' home years ago that actually didn't, because of "technicalities." And, I know a friend who recently saw about $2 million of his home value evaporate because his "private" lake access is no longer private, because of a "technicality." America is the most litigious nation on earth, and homes are the largest purchase people make. A recipe for disaster, yes?) Fortune 500 companies and real estate attorneys often use real estate agents. Do you know something they don't? Too many people think they do, but it can be an expensive and shocking discovery when you realize you don't. Specialization is a good thing. Ideally, you're paying an agent for their time and expertise. So you shouldn't begrudge them the right to make a living doing something you wouldn't do for the same money and/or something you couldn't do properly anyway.

Most agents make much less money than people assume. IIRC, the average "guess-timated" earnings for a real estate agent are 2-3X what they ACTUALLY are. Many agents make less than $10K, and the average earnings are usually in the mid-30s to low-40s. (Brokers make more, but they also have more headaches. It's a tough industry.) And agents pay ALL their own taxes and usually all of their insurance costs out of that. When you become an agent, your car insurance may triple or quadruple. You have to get E&O insurance, maybe bonding, etc. There is no consistency in your earnings, so managing your money becomes more critical than in salaried careers. You will LOSE money on some deals. Slow months you may have no income at all. Some customers are unbelievably demanding and will lie through their teeth. Blah, blah, blah. Basically, it isn't like taking money from babies - as some would have you think. Some of the blame for all this arises from the fact that there are way TOO MANY agents chasing the same deals. Especially during the boom times. The industry needs culled.

So, are many agents overpaid? YES!!!! Why? Because the incentive structure for the industry absolutely blows chunks, and because there are far too many ignorant and lazy people with real estate licenses. But you can negotiate the price you pay for real estate services. If an agent says there is a "standard" fee in the industry, then they're wrong. That gets into antitrust and price-fixing. They can personally turn you down at a certain price, but there is no "standard" price. You should always know what you're going to pay in advance.

Redfin Turns Profitable, Real Estate Industry Shudders

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