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The school of Redfin revisited

Redfin was profitable last month.

This well-documented fact may be an anomaly, the brief shining moment of a real estate Camelot in which tragic geeks have their day. Who knows for sure?

It doesn’t matter anyway.

I’m focused on this:

A company that rebates half its buy-side GCI, charges a modest flat fee to list, gives salaries and benefits to its agents, and maintains high-priced development and management teams actually made a go of it one month.

 

This is quite remarkable when you consider that most brokerages keep all their buy-side revenue between themselves and their agents, collect $30,000 in GCI off a half-million dollar listing, pay no salaries or benefits to their sales force, outsource their technology to lackluster vendors, work with very little management muscle and still struggle to achieve profitability.

What’s Redfin doing right that so many in real estate are getting wrong?

There’s a long list, but here are three biggies:

1.     Talent. Maybe you didn’t like Glenn Kelman when he said real estate was “the most screwed up business in America” on 60 Minutes, but he is a serious CEO. The company is loaded with serious talent: Programmers, product managers and marketers flush with the skills today’s brokerage really needs.

So many real estate companies are weighed down with people manifestly unequipped to do the job that needs to be done in 2009. It’s sad and paralyzing, for even if the CEO groks something like social media there’s often no go-to guy or gal to drive execution.

And the idea of paying somebody top-shelf – let’s say a serious interactive marketing executive – is anathema. Too expensive.

But it’s not too expensive. What’s too expensive are the office locations that should have been closed five years ago; those office managers called from the ranks of agent mediocrity to their reward of a steady paycheck; the advertising, online or offline, that just doesn’t work.

There are lots of good people out there these days. Brokers should hire them.

2.     Transparency. I wrote a blog post a few months back calling for real estate to stop trumpeting transparency. I think it was a little off the mark. What I really wanted was the end of transparency happy talk from people who have no understanding of what it really means, and no capacity for practicing it.

Transparency, done sincerely and systematically, can be magical, particularly in an industry as opaque as ours. It’s a powerful differentiator. As Glenn Kelman has noted, demand shot up when Redfin put agent reviews online. Real agent reviews, not polished testimonials.

But here’s the thing about transparency: It only works if you don’t suck.

Redfin enforces standards with their agents. They pay them bonuses based on customer satisfaction. They may not be top producers, but they are capable people with experience held accountable for their performance against a brand promise.

So transparency works for Redfin.

For many brokerages transparency would be suicide: The contents of their closets would not survive the light of day.

More brokerages should embrace transparency, but only after the hard work is done.

The work of creating something meaningful.

3.     Technology. This seems obvious. Or does it? Redfin.com is pretty ugly – no pretty pictures of homes or home page Flash, right?

Wrong.

Redfin.com is usable, which is almost always better than pretty in real estate. Things that work build trust.

Redfin.com also contains darn near every bit of information a consumer needs in order to make an informed decision – or at least get far enough to qualify themselves before contacting an agent. It is a complete website from a consumer perspective.

Because it’s usable and complete, people talk about it. And word of mouth is golden – cheap and powerful every time.

Think about it: Have you ever heard a consumer say “You have got to use __________.com; the home page is gorgeous!”

 

Brokers who create a usable and complete website will be repaid on their  investment.

All three of these things are related and in some respects dependent.

They also have tons of other positive effects.

For example, because the company had a CEO willing to say hard things, and is capable of saying them well, they got gobs of media exposure, which helped make it possible to forgo spending on advertising entirely — money many others brokerages (even a company like Zip Realty, another “online” broker, has ads blinking across the web) are often forced to spend at the expense of the things I mentioned above.

This goes on and on.

Redfin is not the only real estate company pushing the envelope on brokerage practices. We’re working with many who are making their own bold moves.

But Redfin is the furthest along at this point. Go to school on them. It’s free. And there’s a lot to learn.

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19 Responses to “The school of Redfin revisited”

  1. Jeff Allen says:

    Love this:

    “There are lots of good people out there these days. Brokers should hire them.”

    I’ve always felt this industry needed to rethink the talent pool and what price it should be willing to pay to get the best of it. I’m enrolled in an MBA program and have not once met a fellow student involved in any shape or form with real estate. The high-paying jobs just aren’t there in real estate unless you create them for yourself (or work for Redfin, it appears).

  2. Brian Boero says:

    @Matt

    ZipRealty, a “discount” broker, did 4,171 transactions in the first quarter of 2009 alone. They ranked #9 in sides on the 2009 Real Trends 500.

    They’re not profitable, but this is not a characteristic exclusive to them.

    I do not know Redfin’s transaction volume. But the company stated its run rate is now at about $15 million. Not huge, but far from insignificant.

    I remember a session at the Inman Real Estate Connect event in the winter of 1999 in which a very green Juan Mini, co-founder of the then-new ZipRealty, was asked with pointed sarcasm about their transaction volume. His answer was less than ten.

    Some people in the audience laughed.

  3. Ira Serkes says:

    “Think about it: Have you ever heard a consumer say “You have got to use __________.com; the home page is gorgeous!””

    Not quite what you asked, but I just received this email for the web sites we set up for the owner of of Buena Vista Way – 2564BuenaVista.com

    “Hi – We live in the neighborhood and have watched the development of this lovely house. Your website presentation is wonderful. My wife is curious to know if there is a convenient way to download the photos from the site or some other source. If there is, please let us know.”

    Digressing a bit – I’ve always felt that fancy/flash driven web sites don’t usually convey information.

    I looked for directions to a “luxury” hotel in the Phoenix area… got to their web site, and it was unviewable on my iPhone – so all the useful information (i.e. address, phone number) was completely inaccessible. #FAIL

    This was also a hotel who wanted to charge me bellhop service … as I checked in at the registration desk. They compounded their lack of attention by giving me the same room and key as a good friend of mine. I opened the door, we looked at each other, and both had a big laugh. When I called the front desk to ask them to make it up to her (it could have been a very embarrassing situation for her).. they didn’t.

    So.. just because you brand yourself as “luxury” doesn’t mean you know how to take care of your clients.

    A bit off topic, but not by much.

    Ira

  4. Matt Goyer - Redfin says:

    Hi Matt,

    Redfin did approximately 1300 transactions in 2008.

    If you’d like to dig deeper check out our 2008 wrap up here. Also every month for each established market we publish a wrap up of how the month went. For example here is the May wrap up for the Seattle market (we’re a little behind on getting June’s update out). Also for each agent we publish the details of all the deals they work on whether they closed or not.

    Matt Goyer – Redfin

  5. Peter Toner says:

    I find it very interesting that Glenn has been pretty quite on one particular subject since they announced this back in April on their corporate blog:

    “The biggest change is on the back-end, where we switched to a new type of data feed from the listing services. It’s called a Virtual Office Website (VOW) feed.”

    Their implementation is pretty slick, initially offering up an IDX search which quickly changes to a VOW when a consumer signs up for more information when they agree to MLS Terms of Use: “You are entering into a lawful consumer-broker relationship with Redfin as may be defined by state law.”

    I suspect that this could be a major contributory factor in their recent performance and I wonder why it’s not getting mentioned – too controversial perhaps?

    Earlier in the year I discussed the major differences between IDX and VOW feeds and why more agents and brokers need to get up to speed:

    http://webrealestatetools.com/real-estate-updates/real-estate-search-mls-rules

  6. Jeffrey Dougass says:

    Brian,

    It is nice to hear that a real estate company is actually making a profit in today’s market. Certainly that speaks to a model being done right in these changing times.

    While some traditional brokerages are charging Clients transaction fees above and beyond commissions and directing business to affiliated escrow, title, and home warranty companies – Redin is an alternative – another way to come at the industry.

    As you state in your post it really is about talent and the Broker’s commitment to spend money where it needs to be spent to benefit the consumers.

    With that said I believe that Redfin and other’s like them have pushed necessary information far beyond the gatekeepers of the traditional brokerages and multiple listing systems. The cats out of the bag!

    I have been watching Redfin for some time and think they are getting some things right, and missing on other points.

    I am really surprised they won’t represent a Buyer on a short sale. While these sales are very difficult and many times don’t close, I think all of us in the industry should do everything to get these through the system so the market can heal – REO’s are an easier sale – but should I tell my buyer to leave out a substantial inventory. I let my Clients make that choice.

    While they rebate 50% of a buyer’s agent commission on their agents, the partner agents rebate 15%.

    They have some pretty broad statements on their website including:

    First the assumption that the traditional listing and agent commission is 3% or 6% in total.

    Second that Redfin agents negociate better and save their Clients more money, I would like to see some facts in my local market. See short sale comment.

    Third that Redfin agents are partners, not salesman.

    These are pretty big statements to be making in a transparent marketplace.

    Many years ago the business of being a stockbroker went through changes are anyone could trade for a small fee. The industry was in chaos and many predicted the end of a trusted financial advisor.

    Now many people have realized that having an expert to advise them make smart financial decisions is worth more than going it on your own – or making important decision based only on data.

    Real estate is a complicated beast with most only doing a real estate transaction 2 or 3 times in their lives.

    There should be a variety of real estate models to fit what the consumer is looking for – some want a rebate, some want experience, and other’s want to work with that “top producer” and Number 1 company.

    Thank you Redfin for thinking outside the box and making us all rethink how we provide for our prospects and Clients.

    And thank you Brian and Mark for your great blog and always pushing the envelope.

  7. Matt Gentile says:

    Brian,

    You don’t have to spin data to me. Regardless of how you tell the tale, it adds up to a very small percentage of closed sides when looking at the market as a whole. I know because I’ve already heard from Coolio and Redman, it’s not all about sides and Redfin who isn’t a discount broke. My point is there are many great alternative models out there and congratulations to all of them for their innovation in the space, but let’s look a little deeper with regard to the size of the pond we are all swimming in.

  8. Adam Bailey says:

    Does anyone read the fine print at these discount broker website. Most if not all have a minimum commission they will work for on a deal. Refin’s is $5500! Redfin also charges for other services so if the buyer or seller doesn’t complete a transaction they still collect revenue. With today’s low selling prices Refin might actually make more per transaction then a Traditional Full Service Broker especially if the inventory they are selling is sub 300k. Most deals are these days! Is this a form of bait and switch? Buy a house get a check but oh yeha you have to spend over 300k to get anything?

  9. M Realty says:

    Great real estate websites drive a lot of traffic. Usability is completely key, if someone feels like they are searching for a home and using your site as a tool then they are happy. If someone feels like your website is what is preventing them from happily browsing homes, then business is lost.

    -Tyler

  10. Jesse Bilsten says:

    Adam Bailey, that’s how almost all other business is done. You pay for “services”. Real Estate is one of the few that you actually get quite a bit for free and let’s be honest, services that you get for free aren’t as great as ones you generally pay for.

    For instance, a free website is definitely not going to perform on the same level as a paid one. Consumers also will associate “free” with certain services and have a bad connotation with those services. If you’re providing services for free like “Real Estate advertising” or “listings” people will most likely think they are discounted when in reality they are not.

    Redfin may be a discount website but I’ll bet the public view is of a higher quality service than a much nicer Brokerage that may not charger for certain services and only charges for the commission in the end.

    The problem lies in the consumer’s perception. They perceive the end cost and only associate it with the transaction and nothing else. None of the leg work that goes into the deal is ever associated with the money so the consumer actually feels ripped off 9 times out of 10.

    Something to think about when we discuss the new models being introduced into the RE game.

  11. Jeffrey Dougass says:

    So Brian, I took your advice and spend some time on Redfin’s website to learn a bit more about them in our San Diego market.

    First I learned there are two Redfin agents for San Diego, although one covers San Diego and Orange County and the other covers San Diego, Orange County, and Los Angeles. One has 46 transactions listed last year while the other has 61. That is a lot of territory!

    My hats off to these agents how I hope are driving an economical car – that is a huge amount of business for any one agent to do. I don’t know how any one agent can this much business and not cut some corners.

    Checking out the feedback or review portion of one of the agents there were 87 reviews over the past three years. 17 were no response, 31 with no public comments shown, and the rest had reviews.

    The majority of the comments were very positive, I think the consumer with the “money back” attitude is going to justify there decision with the experience.

    “Overall with the money we will be receiving back from Redfin, it was definitely a positive experience, just quite a bit more work and time than using a personal agent.”

    Another comment regarding Refin and there agents ability to negociate the transaction….

    “When something in my price range comes up it goes fast and it takes speed and aggression. I don’t feel like I can move quickly with redfin and I don’t feel like there is much motivation for the agents to be aggressive.”

    Finally….

    ” must say the touring process was terrible. In this market, having to wait days to schedule a tour to see some bank owned homes that can get snatched up quickly was definitely a pain. I was to the point of scheduling tours ahead of time and changing the homes to be seen before the weekend. Really you just need more staff on hand to do the tours so that people are able to see homes same day. Your field agents are not really doing more than opening doors for you, so it doesnt seem necessary to have experienced real estate people to do this.”

  12. Kori Covrigaru says:

    I like how every blog post discussing Redfin generates tons of comments. They must be doing something right.

    I believe they have the very best real estate search portal in the country. Whenever we need to look up listing data, we go straight to Redfin.com.

    I’m not knowledgeable enough in the brokerage system to say whether or not they will succeed as a brokerage, profit, or be big enough to make back the investment. I do know that if they can find a way to profit from traffic on their site, and if they can continue to grow using MLS data feeds, they have something big on their hands.

  13. Tyler Wood says:

    I agree Brian, lots to learn from Redfin as traditional agents – from a talent, transparency, and technology perspective. I think they do it right on many levels.

    I actually have a draft blog post I’ve been sitting on for 6 months titled “What We Need To Learn From Redfin”. Thanks for putting it out there.

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