Technology

Redfin and the seeds of war

Author
Brian Boero
No.
866
Date
04/30/14

Note: Glenn Kelman, Redfin’s CEO, reached out to me to respond to this. I have included his comments at the bottom of this post. Of course Redfin is not a paper broker in mission. Indeed, by paying agents a salary, they have a ton of skin in brokerage game. But they have passed through the controversial “paper broker loophole” in some cases, and that is worth noting as this issue – one that cuts to the core of so much industry tension of late – heats up. 

— BB.

Today, Inman News is reporting that Redfin will start brokering homes in Las Vegas.

Like actually help human beings sell and buy them. You know, the old fashioned stuff.

Cool. Good for them. There are plenty of things I like about Redfin.

What’s interesting, though, is that Redfin has displayed Las Vegas listings on their website and mobile apps since 2010. These listings have come directly from the local MLS.

How could this possibly happen if Redfin wasn’t helping people buy and sell homes in Las Vegas with their much-touted consumer-first service?

Well, Redfin has operated as what I call a “Paper Broker.” Paper brokers pay to get licensed in a state, find someone willing to be a legal broker of record, build nice websites and apps to capture consumers, then sell those leads to the local pros who actually do that home buying and selling thing.

Let’s be clear: this isn’t disruptive. It’s accretive. The real estate value chain is extended here, not cut. A layer of cost is added, not removed. Think about this: Redfin’s site and apps are fantastic, but if Redfin didn’t exist, would buyers not be able to find homes for sale on the Internet?

Of course they could. It’s a layer. A lead-gen play. A cost paid, ultimately, by the consumer to which Redfin so earnestly proclaims its allegiance.

I note this because in most cases the companies operating as paper brokers won’t really admit that they aren’t in the business of real estate. But in this Inman piece, Redfin seems to. Here’s the quote:

The Seattle-based firm now has agents in 23 markets. In a handful of others — like Tucson, Arizona – it provides only referrals to partner agents working for other brokers and does not have its own agents or brokerage operations, Redfin spokeswoman Amy Musser told Inman News.

You might argue that Zillow, Trulia and realtor.com sit in the same place. They don’t. Z and T spent millions of dollars and multiple years convincing brokers and agents to send them their listings voluntarily. Realtor.com has spent nearly two decades getting permissions from MLSs and bleeding REALTOR blue in order to get its listings.

Paper brokers get a license, tap into the MLS and drink from the cup of data direct from the source, whether or not the practicing brokers in an MLS are OK with it.

I have written about this issue before. Some brokers are concerned but worry about any sort of response for fear that the federal government will view such a response as anti-competitive. Others dismiss the issue as immaterial.

In any case, I believe this issue to be explosive, divisive and pregnant with the possibility of a war with much collateral damage.

Glenn Kelman’s response:

As you probably already know, we represent customers with our own real estate agents in Seattle, Portland, San Francisco, Oakland, San Jose, Sacramento, Los Angeles, Orange County, San Diego, the Inland Empire, Phoenix, Las Vegas, Denver, Austin, Dallas, Houston, Chicago, Minneapolis, Boston, Rhode Island, New York, Philadelphia, Baltimore, Washington DC, Charlotte, Raleigh-Durham, Atlanta, Palm Beach, Ft. Lauderdale and Miami.

More than 1,000 Redfin real estate agents stage and show properties, writing offers and negotiating sales. We have represented clients in nearly $15 billion of home sales. We have saved consumers hundreds of millions in fees. Approximately 95% of our 2014 revenues have come from transactions in which Redfin employees represented the buyer or seller.

We will always prefer to offer service from our own agents, but even when we don’t, we insist on delivering the consumer value. To start with, we give half our referral fee to the client. We use a significant portion of the remaining money to screen our partner agents through one-on-one interviews and surveys of past customers, so we can be sure to connect Redfin visitors with the best partner agents.

We give our partner agents additional bonuses for delivering better service. Simply put, the referral business is not optimized as a business at all, but as a way to help consumers save money and still get good service in neighborhoods and at times where a Redfin agent is unavailable.

It is very, very hard to build a nationwide brokerage, with salaried employees offering local service in thousands of neighborhoods. But I’ve never heard anyone question that this is what we’re doing.

To say that we should have hired a Las Vegas team sooner is fair; the job posting has been open for a long time. To say that this is part of a plan to be “a paper broker,” and that you believe this amounts to something that is “explosive, divisive and pregnant with the possibility of a war with much collateral damage” — well, that seems over the top to us.

[Disclosure: Move, Inc. is a 1000watt client.]