In a surprising move, online real estate brokerage Redfin is entering into partnerships with real estate agents from more than a dozen other brokerages in areas that Redfin’s in-house agents can’t reach. Redfin appears to have changed its tune from its founding when the firm wasn’t really getting along with real estate agents. In fact, Redfin seemed to be founded with the mission that consumers could avoid fees associated with hiring and using a real estate broker.
With the real estate market contracting and credit tightening, Redfin has been forced to reconsider its business model. It seems that these partnerships with real estate agents was necessary for Redfin to expand throughout the country without having to hire more agents. Redfin was previously limited to showing listings in the metropolitan areas of Seattle, San Francisco Bay Area, Los Angeles, San Diego, Boston, Washington, and Chicago and will now be adding a presence in counties in Northern California, Illinois and Washington. Redfin laid off 20 percent of its staff in October of 2008 and reported slower revenue growth last year than in years before.
The firm is also hoping to make the real estate market more transparent by posting consumer reviews of in-house and partner real estate agents on its website. For every transaction completed by a partner agent, Redfin will earn a 30 percent referral fee (of the agent’s commission), but half of that fee is given back to the consumer. The returned fee to the customer averages around $1000 to $2000.
Redfin issued this response:
Redfin wasn’t forced to change business models because of the downturn.
Our partner program was a labor of love, beginning in summer 2008. And
we still plan to expand our direct service. Our goal is to create an
open market for real estate agents, similar to Amazon Marketplaces,
where Redfin’s own service, like Amazon’s, is often the primary choice.Redfin’s mission has always been to use technology to deliver better
service, more information, at lower cost. We believe as strongly as ever
that the industry needs to reform, but this belief does not preclude the
company from working with progressive agents who agree to support our
mission: by using our technology for greater efficiency, agreeing to
deliver only the service requested, refunding thousands in fees,
publishing every customer review, respecting consumer privacy, and
rejecting industry rules tying a customer to an agent.
Here’s a look at a sample review of a in-house Redfin real estate agent (not a partner agent):
Redfin’s model is still the future of real estate. The days of agents ‘earning’ huge fees for driving buyers around and leveraging an information deficiency are numbered.
No offense, but I don’t think you have any idea what you are talking about.
Would you mind clarifying?
What’s so confusing? His statement is dead simple and spot on.
Let me guess, you or a close family member is an agent and you are scared $hitless of Redfin?
Hey Leena,
Just to make sure it is clear, the agent you featured is a Redfin agent, he is not an example of an agent they are partnering with. I have worked with him personally (on the other side of a transaction) and he was very profession and knew his stuff.
As for home reviews and buyer agents (from many companies) adding photos to listings (especially photoless bank owned properties), just look at http://www.FranklyMLS.com with 60,000 added photos.
As for Scott, if it think it is such easy money, why don’t you give it a shot? Did you know Redfin increased their prices by 50% recently?
I also used to rebate… but then I got good.
Frank
Broker FranklyRealty.com
Owner FranklyMLS.com
Redfin is a brilliant concept and like another commenter said, its the future of real estate. I only wish that this recent deal would have opened up the Oregon market so that I could use Redfin in the future.
The only naysayers you’ll likely find are agents and their families that are afraid of their big pay checks going away.
Jeff,
What you fail to realize is that their “brilliant concept” does not make money. It is hard to run a business that way. If the concept was making money, they would not abandon it and expand with a new model.
Now they are moving into the lead generation business – which can be run profitably.
btw, I think the world of redfin. (and I am not a realtor or scared $hitless)
@Jeff, I think you’re missing something.
“With the real estate market contracting and credit tightening, Redfin has been forced to reconsider its business model. ”
The article, and none of the data I could find shows that their concept wasn’t/couldn’t make money in an average or above market. Tough times/tough measures.
I meant that @Daveg
yea..I didnt miss that. If you raised tens of millions of dollars and then switched business models – what would you put in your press release?
Markets are cyclical. If you do not have a model that can make it through the tough times – you will go out of business in the tough times.
Glenn Kelman is an exceptionally bright guy – he saw the writing on the wall and made a move before it was too late…and unfortunately for them, proved their original model was not a winner.
I used to be a salesman, its a tough racket *sip, sip*
redfin needs to license their software to regional MLS and chill. they have the best UI, by far.
The same technology that has made this model possible is also allowing low-cost(fee) competitors into the listing side of the market, bringing down commission %. With market forces lowering sales volume, prices, and total commissions, will there really be enough revenue per transaction left to support this model. They won’t make it up with referral fee’s.
Hopefully next step is supporting short sales, which in this economic climate are probably 50% of the sales anyway.
Redfin is a user friendly website that uses rebates and new agents to fund it’s business model. It has no soul. Let’s just take every industry and dummy it down to the lowest income possible. The Internet is king and we don’t need people to do any meanful work. When everyone is making slave wages, the Masters of the Interent will be happy….for they know how to market, care for others and help meet the needs of a client. They learned it on UTube.
super-best comment by far in so many ways.
Just Curious. Why would Real Estate Agents, that according to Kelman are “slimeball free”, be willing to give up 30 percent of their commission to partner with a company that is not making it without the help of Agents from traditional brokerages?
Could the answer be found in the following definition of co-dependency.
“A set of maladaptive, compulsive behaviors learned to survive in an emotionally painful and stressful environment”.
You should take a year and try to make a living as a realtor. See what your “so called” huge fees in fact really are. For a $350k house, the realtor makes in the vicinity of $1500. And if you think “driving around” is what they do, try valuation, negotiation, evaluation of the homes that fit the buyers’ needs, wants, and guess what – pocketbook! And how many jobs are there where you provide a service, sometimes for more than a year, and don’t get paid one cent until after a deal closes? And during that time, the realtor is spending their money, not their company’s, to market, educate, perform analysis, comps, mortgage markets, valuation, research,…etc. etc. etc. Sure, there are some crappy realtors, just as there are crappy people in every profession. But the top realtors are there because they devote 24/7 to their clients, for they are not customers until their is a financial transaction. And by the way – you get what you pay for.
Interesting concept. The traditional realtor model definitely needs a shake-up….the % that they’ve earned historically is a joke for most home sales.
One of the things that I almost never hear talked about is the most important role of the buyer’s agent, which is that of a counselor who helps people NOT buy the wrong house – that’s far more important than just showing houses, and it involves committing to passing up sale after sale, if necessary, in order to get the client into the best home. People rarely need help figuring ou which houses they like, but often they need a lot of help figuring out which houses they shouldn’t like due to issues that will affect livability and especially resale value. When agents really lower their fees I don’t see how it pans out time and effort-wise – that may be hard for people to understand who just see a big number, but there’s so much effort involved in doing it right that I can’t see people who are making 30% or 50% less putting in what it takes to get the same result. Not to mention that what you stand to lose by evaluating home value incorrectly or writing a contract condition poorly easily far outweighs the rebate.
Thanks for writing this post. But how are we being forced to reconsider our business model?
We still offer direct service in the areas we always have, with the same commission refund of 50%.
We were founded with the idea that an online real estate broker could be more efficient, but not that you could avoid a broker. The company has been, from day one,a real estate broker.
In areas where we have never offered service, we are now connecting people with partner agents instead of our own agents, but only after consumers can see the reviews of partner agents, and with the commission refund that you say we are abandoning.
Of course you want to be skeptical of any new business initiative from a company following a layoff, but it is just hard to see expansion as a repudiation of our business model.
Regards, Glenn
Glenn Kelman
Redfin CEO
Glenn,
Of course you have no choice but to defend your position, in spite of the failure to generate income according to your original business plan.
As we enter the new reality of buying and selling real estate, the value of a traditional agent has actually increased. Navigating the complexities of short sales, foreclosures, and evaluating individual homes and neighborhoods calls for the expertise of a trained real estate professional, not a facilitator whose only purpose is to fill in the blanks of a contract to satisfy the bargain hunter’s goal of paying the least amount possible for a commodity.
The internet has enabled us to gather information and often make purchases at prices not available at the local retailer. Attempting to apply similar principles to real estate was an interesting theory. Now that markets have cooled and significant challenges are the norm, to buy or sell prudently, “order takers”, as provided by limited service/discount brokers, are simply not equipped to provide the level of expertise consumers deserve.
Expertise often carries a higher price tag. The current real estate climate emphasizes the benefits and necessity of that expertise being applied to the majority of transactions. The public has a choice, as always, and many will experiment with the concept of saving money. Who wouldn’t consider it (if it works)?
Redfin is experiencing the reality that those who have experimented have now found that there is real value to working with an experienced agent that truly represents their interests. Redfin’s only chance for survival is to attempt to insert themselves in that income stream.
tough times make an experienced Realtor that much more valuable. IMO only a newbie agent would work for a Redfin or Zip, and once they cut their teeth would leave for greener pastures. then again, there are very smart people who work in public service for a lot less than they’d make in the private sector, but for the most part i would not trust the single largest financial transaction of my life to a rookie or someone who can’t make it in the “real world”. OJ hired a dream team despite the fact that he could have gotten a free State offered public service lawyer. gee, I wonder why?
those who don’t value the service of experienced Realtors have either never bought/sold a home, or they live in a cookie cutter community where every home is exactly the same, or they hired a bad agent, mostly likely a HS friend or cousin who they didn’t bother to interview first
but the bottom line is that you can buy and sell stocks for $7 a trade online on your own, or you can pay hefty fees to top firms and pros. you really do get what you pay for IF you actually take the time to interview a few agents, which almost no Buyer ever does, but every Seller… the ones paying the commission… always does unless they use the one they’ve used in the past who they DID feel earned the commission and deserves it again.
I happen to stumble upon this site and this conversation is very intriguing. I have been in the real estate industry for 15 years primarily multi-family and condominium development. I have also run a couple brokerage companies as well. I am impressed with the Redfin model. I don’t believe they are changing there model however refining it so they can continue to deliver quality service to it’s client with out making a huge capital investment into market areas where they don’t have a huge presence. They have spent a great deal of money to attract customers to their website why not capitalize on the opportunity and create a referral system. The bottom line is the customer, are they happy! I have a simple philosophy “…the customer is always right, even when they are wrong…” Partnerships done correctly can create great opportunity for all involved. Traditional brokerage companies are hurting and they are looking for a way to increase revenue. All companies are refining and improve their business plans. The customers and clients
are the ultimate judge.
Isaac W. Kyle
iwkyle@icitycondo.com
Redfin has failed, continues to fail and will go under.
Deadpooled before end of 2009, perhaps even before summer of 2009.
@Irene Just as its changing the way we choose a lawyer, dentist or restaurant, the internet is slowly changing the way people choose their Realtors. Perspective buyers deserve information and options, companies like Redfin Trulia (plug ahead) and Neighborcity are doing just that.
As an agent in San Francisco, I love the Redfin website but have found the contact who handles the transaction on the Redfin side to be completely clueless. In a city with the complexities of rent control, condo conversion, Tenancy-in-Common, rules that change monthly, you need an experienced agent. Real estate transactions are 85% counseling, 15% transaction. Redfin’s model doesn’t account for the emotion of the buyers and sellers and therefore absolutely must change it’s business model and change fast.