
Redfin Turns Profitable, Real Estate Industry Shudders - OperaLover
http://www.techcrunch.com/2009/07/10/redfin-turns-profitable-real-estate-industry-shudders/
======
inaka
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.

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

~~~
edw519
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
In the Netherlands it's limited by law to 1.85% or so.

~~~
shiranaihito
You Win :)

That's just a really sensible solution to this "problem".

~~~
sharksandwich
Really? The gov setting the rate is the most sensible solution? It may have
worked out well in this case, but that's an awfully slippery slope. I couldn't
agree more that the commissions themselves are absurdly high, I just tend to
think the gov's role should be to foster a competitive environment that would
allow the market to arrive at a fair rate rather than picking it themselves

~~~
shiranaihito
Well, how do you foster an environment where the market would arrive at fair
rate?

Without any control, it seems like the rates will get quite high.

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sgoraya
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
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.

~~~
Shooter
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.

~~~
silencio
Thanks for the interesting response.

Most of the changes were not really about wording, more about the timeline on
which certain contingencies were supposed to be met and which boxes should
have been checked, which were just mostly blanks on printed forms. The biggest
one though and the one that bothered me was a wording change to a contingency
involving financing that everyone that had seen the document except for the
broker had told me was just not something I could do as-written. I wanted it
changed. If he had been upfront about his reluctance to change it because he
was trying to cover his ass, that would have been great. If he had just let me
change it like I did eventually because I wasn't going to sign anything
otherwise, that would have been great. It's really the 'condescending ass'
part and that we took (in all, over) 4 hours arguing over a single line that
really annoyed me because it was not necessary...or at least, he couldn't
explain why he didn't want it changed at all.

Anyway, I'm in southern california. I've found plenty of loopnet-ish sites,
but none that are like redfin for commercial property or businesses...

~~~
Shooter
Ah..understood. He was in the wrong.

One of the issues with having a commercial or business broker acting like
Redfin is that there are different laws about compensation for commercial real
estate than there are for residential real estate. (Commercial agents and
brokers have more rights regarding how long, how much, and under what
circumstances they are to be paid, for example. This is, for the most part, to
protect brokers since these deals are much more complicated and they can
potentially invest months of their time and hundreds of thousands of dollars
marketing a property or doing due diligence, only to have the deal fall
through at the last minute.) In any case, there is more legislation you would
have to get around to do a commercial Redfin. I know of a few companies that
have tried, but they all went out of business because of expenses or legal
issues.

BTW, most consumers don't realize it, but there are roughly a dozen states
that have made it illegal for brokers to offer rebates to consumers AT ALL,
whether residential or commercial. Sometimes it isn't the real estate
companies themselves that are stifling competition and innovation.

~~~
silencio
Heh, thanks again. I had no idea that was actually the case with regard to
legislation... a commercial Redfin was just one of my random ideas where I was
wondering why nobody was doing anything given the kind of interest there might
be in such a service. Now I know the possibly unfortunate answer :(

------
Afton
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
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.

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tybris
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
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
_I learned that the good agents DO serve a purpose._

What is that purpose?

~~~
Shooter
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
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.

~~~
anamax
> I'd rather pay a lawyer $500/hr to do the 10-20 hours of work closing a
> deal.

Where does buying a house require 10 hours of paperwork? (It seems endless
while you're doing it, but it's way less than 10 hours and almost all of the
paperwork is canned.)

Do you really think that a lawyer has 10 hours of expertise that's relevant to
buying the typical house? (How many houses have you bought?)

~~~
mikeryan
I have bought none, if its less then 10 hours my point is even better made ;-)

~~~
encoderer
I'm not a fan of realtors either, but in addition to the fact that the best
properties never hit MLS (as I mentioned above) the part where a buyers agent
earns their keep is everything before closing. And for that, a lawyer cannot
help you.

I've bought two houses, one in my original hometown, and another for a cross-
country move in a city I'd never lived in.

In both cases I viewed dozens of homes before putting in any offers. Because I
had a realtor, it was as simple as finding a home I wanted to see and emailing
him about it. We'd group a few together and he'd take us through them. In
cases where there was a lockbox, he'd call the sellers agent and get the code.
Others, when it was still occupied, he'd call the sellers agent and let them
know there would be a showing.

I only remember a couple times when the sellers agent was there.

Now, try doing it on your own.

No sellers agent is going to give you a lockbox code. If its occupied, no
owner is going to let some couple walk thru their home unescorted.

You're going to have to call the sellers agents and make appointments. They're
not really working for you so they're not going to be nearly as responsive as
_your_ agent is. With your agent he'll setup an appt with you, a few hour
block, to drive around and see the homes. On your own, you're not going to
have these clustered appointments. Even if you get some scheduled back-to-
back, you're at the mercy of the sellers agents keeping themselves on time.

This would've been hard enough in hometown the first time around. My second
time, when I moved 1000 miles away, it would've been a positive nightmare. Our
agent then blocked off whole days on a few separate occasions where we flew
into town to see as many homes as possible in a weekend.

I think you get my point. Buying a home is hectic. There are so many variables
to keep track of. Even more so when you're also coordinating a cross-country
move.

The buyers agent was like combining all the best qualities of a tour guide, a
personal assistant and a paralegal. They abstracted a lot of complexity. They
were an expert we could rely on for advice and guidance. They knew things
about neighborhoods I had no clue about despite living in the city most my
life at that point.

Now, 3% is a bit high, though it's not the near-criminal-ripoff you make it
out to be.

And to condemn the whole practice based largely on the fact that you are
choosing to buy into one of the most expensive and inflated markets in the
country seems a little over the top to me. Even in California the median sale
is half the $800k you mentioned.

~~~
mikeryan
My experience is unique to me, I can't speak for this being status quo, but
I'll answer your points. My wife and I have been looking for the last year and
a half or so, the first 8 months with a realtor, the last without. We're
looking primarily in SF in the 800K range but at some houses in the East Bay
and Marin. Note that in this area this is not the large end of the spectrum
800K will get you a nice condo and if you are lucky maybe a single family
home. This isn't like some areas where you're looking for a premium property
at that price.

We're also doing this in a buyers market - which gives us a lot of leverage
and we also know the area. My wife has lived here for 8 years, I've lived here
my whole life, so we don't benefit from getting a locals input from an agent
as we would moving to a town where we are not familiar, this would be a
benefit to many.

In the first months, working with a realtor, we never saw a house not listed
on MLS, (which we used via Redfin).

Second we we're always able to call a sellers agent and get a showing. If you
tell them you are not currently working with an agent we found we got a very
responsive agent who see's the opportunity to get both sides of the
commission. Again its a buyers market so this may be easier now then in the
past.

If you found the worth in using an agent by all means use one, its your
prerogative. But the point is that the amount of work required of an agent
doesn't really change with the price of the house. A commission basis for a
buyer's agent is a piss poor model, and I'm at the end where its ridiculous.

~~~
anamax
> In the first months, working with a realtor, we never saw a house not listed
> on MLS

I'm living in a house that wasn't on MLS when our "buyers realtor" showed it
to us. (We were looking at another house and asked the realtor to get us in
this one.)Unfortunately, we weren't able to stop it from being listed, so we
had competition when we bought it, but .... Yes, this is highly unusual, but
since we're trading anecdotes.

> Second we we're always able to call a sellers agent and get a showing.

If the seller involves a realtor, the commission is due in almost all cases,
so buyers don't get to make the "realtor or not" choice.

------
Shooter
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
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...

~~~
Shooter
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.

~~~
Shooter
1\. I'm MOSTLY pissed at real estate agents and the industry in general.

Don't get me started. There are simply far too many lazy, ignorant, greedy
idiot agents. There are some amazing professionals who are evolving, but they
are vastly outnumbered by the others. It completely sucks when you can
actually help a consumer, but you have to start by convincing them that you're
not the stereotypical idiot agent which is all they've ever encountered. It
sucks to make the legitimate arguments I made in point 2, only to have some
piss-poor schmuck of an agent fall down on the job and prove you wrong. If you
get a bad agent, and you're on your toes, then you probably could have done
everything yourself and saved money. Except that the industry is structured in
such a way that you'll usually pay out the money you would have spent on an
agent anyway. The moral of the story is that you should spend the effort to
research the process enough so that you can find a good agent AND protect
yourself if things go wrong. But pay a fair price for the agent.

And if you're ever cheated or mistreated by a real estate professional, you
should report them to their state board so that they get driven out of the
industry. Don't just gripe and paint all other agents with the same brush.
Reward the agents who are doing things correctly, and punish those who are
not. Reward those companies that are doing things the way you think they
should be done, and ignore those that are not. The industry will eventually
evolve because of consumer action, not just technology.

------
phatboyslim
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?

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

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

