Redfin’s First Year
Jon Ribary on 02 27, 2007
In a follow up to Dustin’s post, I started to examine Redfin’s numbers in a bit more detail.
Redfin released a report today (it was yesterday, but I am on vacation… I guess you can say Maui Time 
) that opens saying, “Finds .904% Negotiating Advantage, 1.952% Average Commission Refund, 95% Customer Satisfaction; The Most Common Type of Redfin Buyer is a First-Timer”. After reading this, I started to crunch my own figures and trying to figure out if I understand this report correctly.
Here are the items I am confused about:
#1 They found .90% of their customers experienced a negotiating advantage?
They state their customers paid 99.329% while customers of other brokerages paid 100.233% or an average savings over other brokerages of $4,474 per deal. That is a fairly bold statement to make. Knowing the process and the competition for the best price for your seller, I am confused about the fundamentals of this statement.
Was this statement made saying Redfin’s name commands sellers attention and therefore sellers say ‘yes’ to a lower price
OR
was this statement made saying their most common buyers being a “First Timer” are putting in offers on homes without multiple offers.
If the later is true, in order for this statement to have any meaning, you would really need to break down their numbers a bit more. I would be curious to see how many multiple offers they have won, the age of the listings they are receiving this “Negotiating Advantage” and how many offers a buyer submitted before they had an accepted offer.
If this is not true and Redfin is claiming they found the secret sauce… CONGRATS… I WANT IN!
#2 200 customers in Washington state bought homes through Redfin between February 6, 2006 and February 5, 2007
The AVERAGE savings for these customers was $14,134 (it is actually $9,660 + they claim they negotiate a better price for an additional savings of $4,474). That means as a company on AVGERAGE they are receiving 1/3 of the average commission of $14,418 or $4,758.00 per deal.
Multiply this income times 200 clients and on average in 2006, they grossed roughly $951,582. As of May 2006 they had 25 employees. For this math, lets not take in to account other business expenses (lease, hosting, office supplies, etc) and only take in to account payroll. If you assume the average household income in 2000 at 45k, that would assume payroll would be somewhere around $1,125,000. As a business owner, I understand as well as the next person it takes money to make money. I also understand they are growing and additional cities are coming online.
With a very strong financial backing… who all understand business and the future of Real Estate much more than I do… I know their latest round of financiers took this all in to account. It will be interesting to see what the future holds.
About the Author: Jon Ribary
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17 Responses to “Redfin’s First Year”
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Jon,
wonderful analysis. I don’t buy their stats either. i believe most of their clients are newbies.
M
Hey Jon,
Nice post.
Where did we claim that 90% of our customers got a negotiating advantage?
Our full revenues include a significant California contribution but there is no denying we are losing money.
Enjoy Maui!
Regards,
Glenn
Mark-
There is a product for every buyer. If thier product niche is ‘newbies’ and ‘techies’ they have a pretty large population. I don’t know if I would their stats are unbelievable as much as I would ask for additional info.
One point I should have pointed out more in my post was the heavy weight investors and the fact Seattle’s own king of the Monopoly board (Vulcan) is enough for me to believe knows what they are doing.
Glen-
Before Amazon, who would have thought loosing money isn’t the new key to success
Did I say 90… I mean .9… I made the change on the post. If you could find 90% advantage, maybe you would start charging more
Thanx Jon:
Since I am in Washington County Oregon (west of Portland – Intel Country), and Redfin hasn’t infiltrated yet, we Realtors LOOK @ numbers ALL differently. You can skew them anyway you want to make yourselves the KING! (LOL!). There is enough business to go around. Some will choose Redfin, some will not. I’ve always felt this is a “relationship” business……does Redfin?
Jim Frey-
Great point. Something I believe we all loose track on is just like what Expedia did to travel, maybe Redfin will be the same to real estate. Some people will still want the interaction and personal touch of a circle R realtor.
I know for a fact if I was buying a home, say here in Maui, where I know nothing about locations, I would need a realtor to tell me what seperates the different areas… and therefore justification for full commission… but if I know the house I want to buy and it is more or less paperwork… then 3% is in fact a steep price to pay.
Jon
Hi Jon,
I thought I’d give Redfin a shot, and one aspect that really bothered me is they would call the sellers (or seller’s agent) to verbally offer a price that was anything less than asking price. They do this to make sure that the seller will accept it before they go through the effort of actually writing and presenting an offer. If the seller says no, they will never present the actual offer. While I understand the monetary necessity of this as a super-discount broker, its hard for the buyer to stay in the game.
The following is a true story. I offer full price for a house. It is a FSBO and the sellers don’t want to pay the 1% commission (which works out to about 5K for this house) that Redfin essentially charges. Sellers reject offer verbally and Redfin does not present written offer. Next day, another couple negotiates price down by 5K…….
In retrospect, it would have been better to call an agent and try to get someone to write one up for you for a nominal fee…..
On the plus side, the folks at Redfin work very hard and they are really friendly.
Jon:
EXACTOMUNDO!
(Did I hear someone say – “This isn’t rocket science”!) LOL!
My only experience with RedFin so far has been through a co-worker that used them to sell his townhome and subsequently buy a condo.
On the townhome sale (March 2006) they sold in 10 days – and comparable units have to this date sold within 2% of their selling price.
Likewise, the condo he bought using RedFin as a buyer agent sold after 2 days on the market – also within 2% of all comparable sales from April 2006 to date.
In his area appreciation has been flat since March 2006, and in that kind of market, RedFin performed quite well.
He used the rebate for new carpet.
there is no doubt that redfin rebate is good. buyers gets some money for down payment or some fixes.
since most of the inventory is online, the advantage traditional agents had is slipping away. I think, more and more buyers may choose Redfin model.
I’ve talked to many buyers and there concern is that many traditional agents are not truthful. when the press is full of news on price decline, they still argue that it’s a good time. wonder, when is not a good time. redfin doesn’t do that.
M
[...] My first impression was, ..wow! That’s definitely interesting. However, never having been a person to just take someone’s word blindly, I did my own number crunching. I originally posted these findings over on Rain City Guide earlier today. More discussions on this are on 360Digest, Bloodhoundblog, Freakonomics, and another one on Rain City Guide. [...]
Here’s a new blog about the 2200 Westlake complex. Pretty funny insight into the problems there:
2200life.blogspot.com
OOps:
http://2200life.blogspot.com
To win a multiple offer, sometimes it takes presenting in person, many times well after 8pm in the evening, having your client waiting in your car, or a close by restaurant for that convenient last minute signature. All this so we can screw up the stats by negotiating a sales price more than the list price because the that price escalated because of competing offers. Will a Redfin agent do this for their client? If not, what are the odds the Redfin client will prevail in an multiple offer scenario? At times it takes every ounce of experience and negotiating skill to acquire a property for a client for OVER a list price. But damn, that makes us look bad in the “stats” department.
Greg, that’s an interesting question. In my co-workers case, the RedFin agent was completely on the ball – the offer was in on the first day, and accepted on the second. My impression is the RedFin agents are less experienced in general, but work hard to make up for it. (that’s a potential liability too I admit).
Bill, I uderstand what you’re saying. I”m poking at the number that Redfin cliams thier clients pay 99.329% and other MLS agents 100.233. Unless they’ve been directly involved in a multiple offer deal, people dont’ know or appreciate the effort agents go through to assist their clients in a bidding war. As the conventional agent is commissioned they’re more likely to be out until 11:00 pm to do what it takes. Redfin are salaried with bonus. Based on incentive, how hard do you think in the end they’ll work for the client?
Bill, I have literally dozens of stories that I can relate personally and through other agents on how a Redifn client missed an opportunity. I heard one Tuesday, where a Redfin agent would not write a purchase offer last Sunday eve. Seller had 2 offers and elected not to wait until Monday, with full disclosure by the listing agent to the Seller that it the Redfin offer that wuld be in on Monday. The Seller made the choice not to wait, which is his right. You can say your friend had a good experience, I’ll be able to cite dozens of negative experiences. Then you can dig up negative experiences other friends had with other agents, and it goes on.
We’re poised for active spring market and we’re already seeing the increase in multiple offers in specific areas and price ranges. Many high emotionally appealing homes will escalalte in price. Here are some questions: Will the Redfin agent show the home or even SEE the home that is being offered on? How much research will be done to assist the client with an offer that makes sense? Will the agent accompany the Buyer to an inspection, (most likely will have to be a preinspection on a multiple offer). Will they do what it takes including personally presenting the offer to the Seller, and then sitting outside their house for over an hour while the Seller sorts thier offers out? By and large the best and most experience agents prevail in these situations. Buyers who are represented by new, lazy or limited service agents rarely win.
A LOWER PRICE is not the best measure of negotiatling skill. In a contract. We negotiatie price, inclusions and exclusions, contingencies, dates and other issues. As I stated before, sometimes it takes every onuce of skill to acquire a home for a buyer OVER the listed price.
[...] Rain City Guide Redfin’s First Year [...]