11 ms·

A Startup Shies Away from the Gig Economy

90 points by hvo 10y ago

FussyZeus 10y ago
I thought most realtors earned commission? Does the company keep the commission here then instead? It's an interesting idea, I think I would trust one of their theoretical agents more since they aren't directly incentivized to get me to buy a more expensive property.
- codemac 10y ago
  They say in the article around half their yearly pay is in the form of bonuses from completed sales. I'm sure it looks a lot like commission.
  - niels_olson 10y ago
    The difference being that would focus more on number of sales if their market doesn't have many high value properties.
  - adamqureshi 10y ago
    Redfin agents receive bonuses for completed transactions that typically account for more than half of their annual compensation. Its a commission even when you don't call it that. See what happens to a sales person when she/he don't sell for a month.
    - billmalarky 10y ago
      Right after your quote is pretty relevant info imo: |But a big factor in calculating the bonuses is the agent ratings provided by Redfin customers after they buy or sell a home. Top performers get stock options. |“I’m not going to lie — we’re motivated to sell homes,” Ms. Goetz said. “But it’s always in the context of the client and wanting them to have a good experience.” The model could reward agents who sell less but have higher ratings, since Redfin is concerned with building a brand.
      - adamqureshi 10y ago
        Yeah. I read that too. Uber does the same thing with drivers, When a driver gets a bad rating he gets less calls therefore makes less money. CX is a natural part of the sales process. You only get feedback on the deals you close therefore the more deals you close the more ratings you get. You don't close the deals with bad CX. It is in the best interest of the agent to provide a killer CX. IMO: You can be a nice guy and get great ratings, but if you don't close, you'll be canned quick fast.
- imglorp 10y ago
  In the US, typically 6% goes to the two realtors, divided 3 and 3. Of that, their office will get roughly half and they get half, so their takehome is around 1.5. I just sold without an agent and discovered that even these are negotiable, when you're talking as a peer with the buyer's agent. I ended up paying 2.5 to the BA and $1300 to an attorney (notably an hourly rate, not a percentage).
  - the_watcher 10y ago
    > Of that, their office will get roughly half and they get half, so their takehome is around 1.5. This actually varies wildly by brokerage. The massive ones, such as Remax, often don't make their money on real estate commissions, but on ancillary products that are required for the transaction: title insurance, inspections, mortgages, etc, and because of that, offer as much as 95/5 splits with their agents. My dads brokerage, in contrast, provides their agents with a decent number of services for managing escrows and the like, and have a 75/25 split.
tptacek 10y ago
This is also something Paul Hawken touches on in "Growing a Business", along with a suggestion (IIRC) not to pay sales staff a commission: https://www.amazon.com/Growing-Business-Paul-Hawken/dp/0671671642 https://www.amazon.com/Growing-Business-Paul-Hawken/dp/06716...
dforrestwilson1 10y ago
Here's a dirty secret: You don't need a real estate agent, particularly a buy-side agent. Look at the housing markets in the UK and Australia. Buy-side agents have never existed there, and are a particularly odd quirk of the U.S. market. When you close the deal you typically have a banker there, and ideally a lawyer. So what does the agent actually do? Drive you around to houses you have already previewed online? Being a real estate agent is no different than being an investment banker or a consultant. Realtors are deal-driven and therefore, not a true advocate for clients. If a client pays more for a house than they should, then the buy-side and sell-side agents make more commission. If a house sells quickly then it is less hassle for the sell-side agent. So to be fair, there is something of a balancing dynamic to the market, and there are surely good and skilled agents out there, but don't count your real estate agent in your corner. Their interests are not necessarily aligned with yours.
- imglorp 10y ago
  And there's more. Whereas most professionals work on a flat rate by the job or by the hour, real estate agents work on a percentage, which is especially shady because it takes about the same work regardless of the value of the property. So it works out to be more of a "piece of the action" like extorting, or gate keeping, than a service. There's other barriers to non-agents playing as well. For example, registering on the MLS has to be done by an agent. There are services that list for you, but they're agents. Bloody hell, it's just a database entry. I'm not saying the agents don't perform a valuable service--it's nice to have sometimes--but the system should be more open and the pay scheme more fair.
  - rayiner 10y ago
    There is nothing wrong with being compensated proportionally to the value of a deal. A real-estate agent who sells a $10 million property more quickly has created more value for her customer than one who sells a $1 million property more quickly.
    - akiselev 10y ago
      Yeah except the same real estate agent will try to push you to sell that property for $9 million, against your interest, if they think that the extra commission on that $1 million is not worth their effort for several extra months or years, often using manipulative tactics. This is a very perverse incentive and should be replaced with regular time based billing, perhaps with bonuses for certain milestones based on the final sale price of the property, especially given the information assymetry between realtors and owners. Until realtors have a legal duty to their clients, like lawyers or doctors, predatory behavior in the industry will remain.
rayiner 10y ago
> Mr. Kelman argues that full-time employees allow him to offer better customer service. Redfin gives its agents salaries, health benefits, 401(k) contributions and, for the most productive ones, Redfin stock, none of which is standard for contractors. Redfin currently employs more than 1,000 agents. . . . Now with his company on a stronger footing, Mr. Kelman says he believes his approach has been vindicated. I love Redfin. But it's sad that the market forces Kelman to justify his business model only on the basis of what doing right by employees does for his own bottom line.
- pessimizer 10y ago
  That's what markets are for. Governments are supposed to insure ethical relationships between their citizens. Markets are there to make sure that those standards are met to the letter and no more, not met where there is little risk of enforcement, and changed wherever this can be likely be accomplished for less expenditure than the savings expected. Markets are meant to optimize things, not humanize them.
  - rayiner 10y ago
    I agree that is one way to look at it, but I'm not sure the dichotomy works in practice.
  - eru 10y ago
    Unless the customers or employees-in-demand or investors demand humanisation!
- true_religion 10y ago
  This justification is advertisement for his company so more people will be willing to work for them.
free2rhyme214 10y ago
This is a misleading title. Redfin isn't a startup, they're a 12 year old company founded in 2004.
- eknight15 10y ago
  This is one of my biggest pet peeves. "Startup" is now synonymous with "Tech company that isn't Google, Apple, Microsoft, or Amazon." PALANTIR IS NO LONGER A STARTUP THANK YOU http://www.businessinsider.com/palantir-employee-stock-buyback-liquidity-event-2016-5 http://www.businessinsider.com/palantir-employee-stock-buyba...
- discardorama 10y ago
  I think a more accurate classification (from the popular journalism viewpoint) would be that a startup is a tech company that hasn't gone public yet.
  - eknight15 10y ago
    I agree, but I worked at a tech company that IPO'd in 2014, and to this day they still get referred to as a startup. E.g. Shopify, Etsy, GrubHub, Care.com, Zendesk, etc.
superuser2 10y ago
I'm confused. Pretty much all startups have their engineers, designers, managers, etc. as W2 employees, no? Having employees isn't the issue, it's having a huge employee count that needs to scale with the scale of the business, rather than operating a huge business from a (relatively) small staff.
therestisgone 10y ago
Hey, you're supposed to incorrectly call it sharing economy. Hmm... somebody sharing a car with you... somebody driving you around... sound like it's the same thing... Offering a service is obviously the same as offering access to a resource... except it's not so why do online newspapers call it sharing economy? Do they want to show off their lack of competence that much?
1024core 10y ago
As a first-time homebuyer in the Bay Area, would the HN hivemind recommend Redfin, or using a traditional agent? I was at an open house a couple of weeks ago, and decided to ask the (seller's) agent about her experience. She was young, and said that she had 'bought' only 1 house so far. It was listed at $1.6M, and her client got it for $1.84M. And it was the only bid..... I was like huh? You encouraged him to bid more, and he ended up paying 15% over? That's not something to be proud of. So I'm a bit leery of agents now.
- tarr11 10y ago
  You are on your own. Buyers agents are worthless.
bkjelden 10y ago
As an aside: I had a really positive experience buying with Redfin in the Denver metro. Their agents were as helpful as any I've ever worked with, they have good online tools, and we got roughly $5k back from the buyer's 3% commission when we closed. I would recommend them to anyone looking to buy a house in a metro that they service.
jtchang 10y ago
Does anyone else find it odd that houses have agents that take huge fees/commissions but other financial products can simply be bought and sold in a way easier manner?
protozillastunt 10y ago
You have the file concerning the property, with all the information about it, including a photo gallery. Location (GPS lat/lon) and ask price are certainly important filter fields. You may want to hire an hourly-rate admin clerk to prepare all the information and file it into a long list of web-based databases. Next, you may want to hire a person to show potential buyers around. So, an hourly-rate "showaroundist". So, that means that you are dealing with two hourly-rate persons doing some work for you to market your property. If you are incapable of organizing this, in that case, you are probably incapable of organizing anything at all, and in that case I wonder how you managed to get the money to buy the property that you are selling now in the first place? In other words, someone who agrees to pay a percentage value of his property to a real-estate agent, is simply someone who will not be capable of making enough money to own a property in the first place.
thejerz 10y ago
What is the average W2 salary of a Redfin agent? The NYT left this out.
- TheCoelacanth 10y ago
  It did say this: > Average annual compensation for Redfin agents is over $80,000, with agents in exceptionally expensive markets like the San Francisco Bay Area earning more, the company said. Though it isn't clear if that is just salary or if there is something else included in "compensation".

90 points by hvo 10y ago

I thought most realtors earned commission? Does the company keep the commission here then instead? It's an interesting idea, I think I would trust one of their theoretical agents more since they aren't directly incentivized to get me to buy a more expensive property.

codemac 10y ago
They say in the article around half their yearly pay is in the form of bonuses from completed sales. I'm sure it looks a lot like commission.
- niels_olson 10y ago
  The difference being that would focus more on number of sales if their market doesn't have many high value properties.
- adamqureshi 10y ago
  Redfin agents receive bonuses for completed transactions that typically account for more than half of their annual compensation. Its a commission even when you don't call it that. See what happens to a sales person when she/he don't sell for a month.
  - billmalarky 10y ago
    Right after your quote is pretty relevant info imo: |But a big factor in calculating the bonuses is the agent ratings provided by Redfin customers after they buy or sell a home. Top performers get stock options. |“I’m not going to lie — we’re motivated to sell homes,” Ms. Goetz said. “But it’s always in the context of the client and wanting them to have a good experience.” The model could reward agents who sell less but have higher ratings, since Redfin is concerned with building a brand.
    - adamqureshi 10y ago
      Yeah. I read that too. Uber does the same thing with drivers, When a driver gets a bad rating he gets less calls therefore makes less money. CX is a natural part of the sales process. You only get feedback on the deals you close therefore the more deals you close the more ratings you get. You don't close the deals with bad CX. It is in the best interest of the agent to provide a killer CX. IMO: You can be a nice guy and get great ratings, but if you don't close, you'll be canned quick fast.
imglorp 10y ago
In the US, typically 6% goes to the two realtors, divided 3 and 3. Of that, their office will get roughly half and they get half, so their takehome is around 1.5. I just sold without an agent and discovered that even these are negotiable, when you're talking as a peer with the buyer's agent. I ended up paying 2.5 to the BA and $1300 to an attorney (notably an hourly rate, not a percentage).
- the_watcher 10y ago
  > Of that, their office will get roughly half and they get half, so their takehome is around 1.5. This actually varies wildly by brokerage. The massive ones, such as Remax, often don't make their money on real estate commissions, but on ancillary products that are required for the transaction: title insurance, inspections, mortgages, etc, and because of that, offer as much as 95/5 splits with their agents. My dads brokerage, in contrast, provides their agents with a decent number of services for managing escrows and the like, and have a 75/25 split.

tptacek 10y ago

This is also something Paul Hawken touches on in "Growing a Business", along with a suggestion (IIRC) not to pay sales staff a commission: https://www.amazon.com/Growing-Business-Paul-Hawken/dp/0671671642 https://www.amazon.com/Growing-Business-Paul-Hawken/dp/06716...

dforrestwilson1 10y ago

Here's a dirty secret: You don't need a real estate agent, particularly a buy-side agent. Look at the housing markets in the UK and Australia. Buy-side agents have never existed there, and are a particularly odd quirk of the U.S. market. When you close the deal you typically have a banker there, and ideally a lawyer. So what does the agent actually do? Drive you around to houses you have already previewed online? Being a real estate agent is no different than being an investment banker or a consultant. Realtors are deal-driven and therefore, not a true advocate for clients. If a client pays more for a house than they should, then the buy-side and sell-side agents make more commission. If a house sells quickly then it is less hassle for the sell-side agent. So to be fair, there is something of a balancing dynamic to the market, and there are surely good and skilled agents out there, but don't count your real estate agent in your corner. Their interests are not necessarily aligned with yours.

imglorp 10y ago
And there's more. Whereas most professionals work on a flat rate by the job or by the hour, real estate agents work on a percentage, which is especially shady because it takes about the same work regardless of the value of the property. So it works out to be more of a "piece of the action" like extorting, or gate keeping, than a service. There's other barriers to non-agents playing as well. For example, registering on the MLS has to be done by an agent. There are services that list for you, but they're agents. Bloody hell, it's just a database entry. I'm not saying the agents don't perform a valuable service--it's nice to have sometimes--but the system should be more open and the pay scheme more fair.
- rayiner 10y ago
  There is nothing wrong with being compensated proportionally to the value of a deal. A real-estate agent who sells a $10 million property more quickly has created more value for her customer than one who sells a $1 million property more quickly.
  - akiselev 10y ago
    Yeah except the same real estate agent will try to push you to sell that property for $9 million, against your interest, if they think that the extra commission on that $1 million is not worth their effort for several extra months or years, often using manipulative tactics. This is a very perverse incentive and should be replaced with regular time based billing, perhaps with bonuses for certain milestones based on the final sale price of the property, especially given the information assymetry between realtors and owners. Until realtors have a legal duty to their clients, like lawyers or doctors, predatory behavior in the industry will remain.

rayiner 10y ago

> Mr. Kelman argues that full-time employees allow him to offer better customer service. Redfin gives its agents salaries, health benefits, 401(k) contributions and, for the most productive ones, Redfin stock, none of which is standard for contractors. Redfin currently employs more than 1,000 agents. . . . Now with his company on a stronger footing, Mr. Kelman says he believes his approach has been vindicated. I love Redfin. But it's sad that the market forces Kelman to justify his business model only on the basis of what doing right by employees does for his own bottom line.

pessimizer 10y ago
That's what markets are for. Governments are supposed to insure ethical relationships between their citizens. Markets are there to make sure that those standards are met to the letter and no more, not met where there is little risk of enforcement, and changed wherever this can be likely be accomplished for less expenditure than the savings expected. Markets are meant to optimize things, not humanize them.
- rayiner 10y ago
  I agree that is one way to look at it, but I'm not sure the dichotomy works in practice.
- eru 10y ago
  Unless the customers or employees-in-demand or investors demand humanisation!
true_religion 10y ago
This justification is advertisement for his company so more people will be willing to work for them.

free2rhyme214 10y ago

This is a misleading title. Redfin isn't a startup, they're a 12 year old company founded in 2004.

eknight15 10y ago
This is one of my biggest pet peeves. "Startup" is now synonymous with "Tech company that isn't Google, Apple, Microsoft, or Amazon." PALANTIR IS NO LONGER A STARTUP THANK YOU http://www.businessinsider.com/palantir-employee-stock-buyback-liquidity-event-2016-5 http://www.businessinsider.com/palantir-employee-stock-buyba...
discardorama 10y ago
I think a more accurate classification (from the popular journalism viewpoint) would be that a startup is a tech company that hasn't gone public yet.
- eknight15 10y ago
  I agree, but I worked at a tech company that IPO'd in 2014, and to this day they still get referred to as a startup. E.g. Shopify, Etsy, GrubHub, Care.com, Zendesk, etc.

superuser2 10y ago

I'm confused. Pretty much all startups have their engineers, designers, managers, etc. as W2 employees, no? Having employees isn't the issue, it's having a huge employee count that needs to scale with the scale of the business, rather than operating a huge business from a (relatively) small staff.

therestisgone 10y ago

Hey, you're supposed to incorrectly call it sharing economy. Hmm... somebody sharing a car with you... somebody driving you around... sound like it's the same thing... Offering a service is obviously the same as offering access to a resource... except it's not so why do online newspapers call it sharing economy? Do they want to show off their lack of competence that much?

1024core 10y ago

As a first-time homebuyer in the Bay Area, would the HN hivemind recommend Redfin, or using a traditional agent? I was at an open house a couple of weeks ago, and decided to ask the (seller's) agent about her experience. She was young, and said that she had 'bought' only 1 house so far. It was listed at $1.6M, and her client got it for $1.84M. And it was the only bid..... I was like huh? You encouraged him to bid more, and he ended up paying 15% over? That's not something to be proud of. So I'm a bit leery of agents now.

tarr11 10y ago
You are on your own. Buyers agents are worthless.

bkjelden 10y ago

As an aside: I had a really positive experience buying with Redfin in the Denver metro. Their agents were as helpful as any I've ever worked with, they have good online tools, and we got roughly $5k back from the buyer's 3% commission when we closed. I would recommend them to anyone looking to buy a house in a metro that they service.

jtchang 10y ago

Does anyone else find it odd that houses have agents that take huge fees/commissions but other financial products can simply be bought and sold in a way easier manner?

protozillastunt 10y ago

You have the file concerning the property, with all the information about it, including a photo gallery. Location (GPS lat/lon) and ask price are certainly important filter fields. You may want to hire an hourly-rate admin clerk to prepare all the information and file it into a long list of web-based databases. Next, you may want to hire a person to show potential buyers around. So, an hourly-rate "showaroundist". So, that means that you are dealing with two hourly-rate persons doing some work for you to market your property. If you are incapable of organizing this, in that case, you are probably incapable of organizing anything at all, and in that case I wonder how you managed to get the money to buy the property that you are selling now in the first place? In other words, someone who agrees to pay a percentage value of his property to a real-estate agent, is simply someone who will not be capable of making enough money to own a property in the first place.

thejerz 10y ago

What is the average W2 salary of a Redfin agent? The NYT left this out.

TheCoelacanth 10y ago
It did say this: > Average annual compensation for Redfin agents is over $80,000, with agents in exceptionally expensive markets like the San Francisco Bay Area earning more, the company said. Though it isn't clear if that is just salary or if there is something else included in "compensation".