6 ms·

Redfin Turns Profitable, Real Estate Industry Shudders

51 points by OperaLover 17y ago

tybris 17y 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.
- Shooter 17y 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 17y ago
    I learned that the good agents DO serve a purpose. What is that purpose?
    - randallsquared 17y ago
      Two good purposes that they might serve are providing search results you may like that you didn't actually search for (obviously this can be automated to some degree, since Pandora and Netflix try to do it), and reducing transaction costs by vouching for one side or both.
    - Shooter 17y ago
      A GOOD real estate agent performs various professional tasks requiring expertise that save you time and money, protect your interests, and keep you out of trouble, at a cost that is less than doing it yourself. Kind of like a GOOD lawyer (I noticed your JD) or a good accountant. You can do it yourself...just like you can fix your own car or plumbing, but the results may not always be what you intended. It may SEEM like a super simple task until you're knee deep in shit and then you start to appreciate why there are professionals with training who stay up-to-date and have E&O insurance for the field, etc. Specialization is a good thing. The bar to get a real estate license is lower than getting most other professional licenses, though, so there are many more BAD agents than bad plumbers/accountants/mechanics. I think most real estate agents suck. Just like I think most lawyers suck. It doesn't mean that either shouldn't exist, though. I've got to go to bed...I'll come back later.
      - mikeryan 17y ago
        I don't disagree that there's some value to having an agent. But as someone looking to buy in the Bay Area, the amount realtor's (particularly buyer's realtors) get paid relative to the work they put in, is all out of whack. Finding houses is easy, that's what MLS listings do. So that leaves the hidden "gotchas" in the actual sale process, For a buyers agent to get 3% of an $800,000 home is ridiculous. I'd rather pay a lawyer $500/hr to do the 10-20 hours of work closing a deal.
        wglb 17y ago
        I have done by-owner transactions twice--it was lots of fun. The lawyer time in each case was not more than two or at most three hours. If it is more than that, there is something unexpected.
sielskr 17y 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.
- jacquesm 17y ago
  Realtors in the US/Canada make far too much money on the transactions.
  - Derrek 17y ago
    I agree
  - edw519 17y 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.
    - jacquesm 17y ago
      In the Netherlands it's limited by law to 1.85% or so.
      - shiranaihito 17y ago
        You Win :) That's just a really sensible solution to this "problem".
        grignr 17y ago
phatboyslim 17y 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 17y 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 17y 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.
sgoraya 17y 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.
- silencio 17y 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.
  - sgoraya 17y ago
inaka 17y 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 17y ago
We bought through RedFin about a year ago. The $$$ refund makes it all worth it.
greyboy 17y ago
The major downside to Redfin is their service area. I hope they can expand by the time I need them.
Shooter 17y 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.
- Shooter 17y 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...

51 points by OperaLover 17y 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.

Shooter 17y 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 17y ago
  I learned that the good agents DO serve a purpose. What is that purpose?
  - randallsquared 17y ago
    Two good purposes that they might serve are providing search results you may like that you didn't actually search for (obviously this can be automated to some degree, since Pandora and Netflix try to do it), and reducing transaction costs by vouching for one side or both.
  - Shooter 17y ago
    A GOOD real estate agent performs various professional tasks requiring expertise that save you time and money, protect your interests, and keep you out of trouble, at a cost that is less than doing it yourself. Kind of like a GOOD lawyer (I noticed your JD) or a good accountant. You can do it yourself...just like you can fix your own car or plumbing, but the results may not always be what you intended. It may SEEM like a super simple task until you're knee deep in shit and then you start to appreciate why there are professionals with training who stay up-to-date and have E&O insurance for the field, etc. Specialization is a good thing. The bar to get a real estate license is lower than getting most other professional licenses, though, so there are many more BAD agents than bad plumbers/accountants/mechanics. I think most real estate agents suck. Just like I think most lawyers suck. It doesn't mean that either shouldn't exist, though. I've got to go to bed...I'll come back later.
    - mikeryan 17y ago
      I don't disagree that there's some value to having an agent. But as someone looking to buy in the Bay Area, the amount realtor's (particularly buyer's realtors) get paid relative to the work they put in, is all out of whack. Finding houses is easy, that's what MLS listings do. So that leaves the hidden "gotchas" in the actual sale process, For a buyers agent to get 3% of an $800,000 home is ridiculous. I'd rather pay a lawyer $500/hr to do the 10-20 hours of work closing a deal.
      - wglb 17y ago
        I have done by-owner transactions twice--it was lots of fun. The lawyer time in each case was not more than two or at most three hours. If it is more than that, there is something unexpected.

sielskr 17y 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.

jacquesm 17y ago
Realtors in the US/Canada make far too much money on the transactions.
- Derrek 17y ago
  I agree
- edw519 17y 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.
  - jacquesm 17y ago
    In the Netherlands it's limited by law to 1.85% or so.
    - shiranaihito 17y ago
      You Win :) That's just a really sensible solution to this "problem".
      - grignr 17y ago

phatboyslim 17y 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 17y 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 17y 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.

sgoraya 17y 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.

silencio 17y 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.
- sgoraya 17y ago

inaka 17y 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 17y ago

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

greyboy 17y ago

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

Shooter 17y 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.

Shooter 17y 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...