Redfin vs. Establishment

Redfin creates Red Faces

With Redfin I think they create red faces in the market, mostly from competitors, not their very own clients. With all the debating taking place (see last few comments) about variations of service levels and discussion about saving $20,000 in commissions but losing $100,000 in price for an agent’s (implying Redfin or similar models) lack of negotiation skill —an argument I disagree with—maybe the only way for consumers to feel like they are being well served is to set their own benchmarks for the people they entrust to help sell and buy homes. Realtors have exceptional value, but as an industry have allowed foolish internal cultural policy to dim the light. Instead of setting benchmarks for delivery of value that consumers get, industry insiders have to spend copious amounts of time trying to tell each other why a model will fail. If you want meaningful debate, invite consumers on a panel telling why one model worked for them vs. another. APB to Brad Inman…. try that.

No industry benchmarks

The real issue, in my opinion, is that consumers are given no tangible and bonafide benchmarks for placing value received for commission they pay. Why should consumers pay an identical commission like the “negotiable

28 thoughts on “Redfin vs. Establishment

  1. All Redfin has really done is to take what has already been a low cost and fee-for-service models and turned them around to make it look not like a low commission company but as a service provider that gives a huge rebate. By making the numbers visible to the public, rather than just throwing out low percentage numbers that most people don’t take the time to calculate, they end up looking good. Don’t forget, Redfin offers a higher commission option to sellers if you want the more “traditional” approach to your home sale.

    The other thing they’ve sorted out is to put the option for people that want to do some of their real estate sale online to do so. This is going to likely change the way a LOT of companies do business in the future. It was already coming anyway with the push toward electronic signatures – the only thing that derailed it was the dot-bomb period of 2001-2002 when a lot of start-ups that were pushing this technology along imploded. A good friend of mine worked for one of these firms so I had a little inside info before I got out of the technology world. The other thing holding us back from this right now is government. Once we get a “standard” and government approved format of electronic signature a lot of what agents do will become a lot easier to do over the Internet versus the hard copy versions we do now.

    How Redfin gets around the NWMLS copyrighted forms is to put the offer terms in a different method on their site and then that info is transferred to a NWMLS form by a Redfin employee. Wow. I do that already via email or on the phone with clients. It’s nothing new really. But don’t get me wrong – I like Redfin (sort of). They’re making a lot of agents learn how to business better and that’s a long time in coming.

    As an agent I am acutely aware that I have to show value every day in the actions I take on behalf of my clients or they won’t come back and use me again or refer me to people they know. I’ve also learned that rising above “the average” agent is pretty easy if you’re willing to pay attention and to run your business like a business and not a social function or part-time gig while waiting for something better to come along.

    We’ll see if Redfin makes it in the long run. My guess is that the start up nature of Redfin isn’t so altruistic in terms of saving the public money. HouseValues was started by a former agent who saw the big buck opportunity of making more money off the backs of other agents than in doing that kind of work himself. The guys starting that company took it public and likely made a mint doing it – I’m sure Glenn has similar aspirations. And good for him, it’s the American Way, isn’t it?

  2. Redfin is great for certain situations, not all. What people like is the transparency. They like the option if they know exactly what they want and can figure that out without any assistance, to get paid for their efforts. Some “sweat equity” if you will.

    Does it make sense for someone moving here from out of State who doesn’t know the area…maybe not. Does it make sense for a first time buyer who needs to make sure they are looking for the right things at the house before they make an offer? Maybe not.

    But to buy the unit next door to them that just became available…sure. They know the place. They’ve seen it before. It’s in the same building. They just want 1% worth of assistance on that.

    It’s an option that fits some, not all, situations. If every Company would stop charging this client for that client or this client for their marketing etc…and provide a fair fee for the service needed by this client today…that would be great…wouldn’t it.

    No one size fits all fee…especially for buyers…especially for buyers. Sellers negotiate every day…time for buyers to have equal right to do so. That’s all. Not complicated.

  3. Corporations can’t be altruistic, a business needs profit to survive and grow.

    In 1990, Sutton Real Estate opened in Mill Creek, just north of Seattle. Their business proposition was a 1% listing fee and a full selling agent side commission. When Sutton came on the market, some Realtors and agents were angry and hostile when speaking about Sutton’s business model, but mostly agents were afraid of having to justify their higher listing-side commission when in competition with a Sutton agent for the listing.

    Well now it’s 2006, traditional agents all around the Mill Creek area are alive and well, and Sutton RE is still around, too. They still only have one office, but they did grow: they opened up an affiliated mortgage company, which likely expanded the owner’s profit margin.

    One big difference between Sutton RE and Redfin is that Redfin has venture capital funding.

    My predition: Redfin will grow in more than just one direction because they have identified their target consumer and have hit on a value proposition that attaches to emotion.

    Consumers desire the transparency Refin offers.

  4. It is difficult to negotiate well if you have not examined the property. (You may miss the unzillowables)Thus, it is POSSIBLE to lose money using REdfin, in the sense that a skilled “traditonal” negotiator could have saved you more than the 2% Redfin rebate. It is by no means an automatic savings with RF.

  5. An old boss of mine’s favorite two quotes which he repeated all the time were,” A customer will care as much about getting their money’s worth as they do about the price, if you just let them.” and, ” You don’t get paid for what you do, you get paid for what you know.”
    Meaning it is our job to educate or clients right from the start. There are a certain percent of the population that is always going to be attracted by discount stores, and Reba Haas is right on the mark that a healthy competition is good for agents. If you look at the statisics on repeat customers with the low cost and fee-for-service agencies versus full service brokers, I’ll be willing to bet that there is a huge disperity. The battle over the lure of low price has been wageing ever since free enterprise began. What you need to do is make sure that your competion is making you look good.
    So then the question really becomes, ” How will you compare?” What is your benchmark. What do you stand for? What is your business model?
    (By the way, that old boss was Les Schwab, the smartest business man I’ve ever known)

  6. Thanks, Martin, I appreciate the remark.
    Ardell, you make it sound like “traditional” agents don’t ever modify their fee in certain situations and you are labeling a lot of folks without really knowing the situation. You’re speculating and acting as though it is fact perhaps based on anecdotal information you’ve gleaned from your own experiences. There are plenty of instances where traditional agents might be flexible on fees. I have these kinds of conversations with clients all the time and I assume you do as well. If an agent doesn’t and is smug about taking their “full fee” then they aren’t a good business person and they’re thinking more about themselves than their clients and the business proposition in front of them.

  7. Reba,

    I agree as to sellers. If you are saying it is commonplace in buyer scenarios, that’s great. I do think Seattle is far and above on many things. I do think companies like Redfin make that so…more and more.

  8. Joe,

    I have polled some consumers on this over the last year. You are correct and most will choose an agent who offers advices regarding the home prior to offer. But they say, many won’t. They will not offer opinions as to what the home is worth and whether or not it is a good option given what is on the market or may come on the market.

    Given the choice of paying three times the amount for someone who will only open doors and say “do you want to buy this one” and saving two thirds…they choose saving two thirds.

    Many, even most, prefer having an agent that helps them make tough choices, but lacking the availability of such an agent…they would choose Redfin.

  9. I’m convinced that the 1% listing fee model has helped both the agent and the client. It has pushed the agent beyond the boundary of mediocrity and it has helped the client both define and receive better service. This 1% model actually helps the best agents explain to their clients why their service is worth the extra commission, thereby differentiating themselves from the mass of other realtors.

    Remember, differentiate or die in this industry! This model provides inspiration to the less-than-best agents to become better agents. This model also enables companies that dare to become something more than traditional to gain a larger market share by offering both models, since both models are valid and needed.

  10. It appears as though the real horror that traditional agents are experiencing is because Redfin has made the buyer’s agent side commission percentages and dollar numbers readily available for the homebuyer to see.

    For a confident, competent agent, Redfin is just another competitor. For the opposite, Redfin is like the Wizard of Oz.

  11. Jillayne, that is why I say Redfin is successful whether they succeed as a business model or not. They succeeded in moving the industry to a new level of transparency where the buyer is more keenly aware of what they are paying for the services of their Buyer’s Agent.

    In an industry that is all about consumer disclosure, full disclosure of ALL commissions to ALL parties involved in the transaction, is clearly long overdue. Redfin has pushed that envelope. Whether they succeed or not, if that envelope remains open, they will have been a success in my eyes.

  12. Tim,

    Some big companies DO offer service guarantees. Our company offers both a Buyer Services Guarantee and a Sellers Services Guarantee.

    For Sellers:

    For Buyers:

    While this is not a perfect no-questions-asked, no-strings-attached guarantee, neither is Redfin’s. With Redfin, you are asked to give up several important legal rights when using their services, incuding your right to a jury trail. They offer a seemingly “100% Guarantee” until you read the fine print from the Redfin site:


  13. Hi Marlow-

    Good information. Hope the comment within the post didn’t confuse people. I have noticed via marketing materials that some agents have put their money where their mouth is. Some indicate a specific monetary rebate if a client is not satisfied. The idea of a large company Broker following the footsteps of one of their agents in participating within that same framework appears weak. I don’t know of any Brokers that would match their agents guarantee. There may be some, but I am unaware. Nor have I seen an amended commission disbursement form sent to our office with a rebate going back to a consumer for a customer service satisfaction guarantee.

    I think service guarantees are week without specific benchmarks in place. For example, back when Lynlee (spouse) was working at Phoenix Mortgage & Escrow (very early 90’s), they placed a specific dollar amount on their guarantee, no questions asked. It places tremendous pressure on the LO’s and staff to provide meaningful positive outcomes.

    If large companies actually gave back a portion of the commission to unsatisfied clients I think a few things would happen. First, you would have brokers and agents quickly resolving issues—client centered vs. in-fighting between brokers. Secondly, brokers would be much more quick to let problem agents go rather than having them continue to operate in anonymity. Third,it would produce huge strides in building and mending the fragile image within the real estate community.

    Offices can certainly work through difficult issues with an unhappy client who is on the surface satisfied with fixing the problem, but after the fact, still feeling that they didn’t get a good return on their investment dollar. Obviously, when you put money on the line, it changes everything. In today’s environment most agents work within an underlying theme of…if my clients are not satisfied, I’m still getting paid—unless of course the consumer elects to work with someone else prior to a sale going forward. The problem is when a P & S is signed around, the consumer may feel locked in and just bear working with the situation until closing.

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