Redfin Circles Back to an Old Biz Model…

Redfin‘s been through so many business models over the years, I can completely understand why some folks would think that Redfin is entering a new area by working with real estate agents, but I can’t help remind folks that this is a business model that they’ve tried in the past… and it failed miserably the first time.

In only the 2nd time Redfin was mentioned on RCG, Anna was upset (to put it mildly), that Redfin had gone from being a company that did only referral business to agents (accepting a 20% cut), to including a flat-fee option for FSBO’s to get their listings in the MLS.  (Jun ’05)

A few months later, RCG agreed to give Redfin a 2nd chance after they had dropped all references to the flat-fee option for sellers from their website. (Oct ’05)

However, the Redfin evolution when Glenn Kelman took the helm of Redfin in Sept ’05.   From this article Galen published in Jan ’06, Glenn Kelman is being quoted talking about Redfin’s referral busines to agents saying:

“How do we make money now? People sign up for a real estate agent… The real estate agent and Redfin share the fruits of that.”


I SOOO wish I had a screenshot of Anna’s profile she had on the Redfin site back in early ’05 because the content on the page would be shockingly similar to the current agent profiles.     I can’t remember exactly what the profiles looked like, but I’m almost positive they listed the agent’s recent transactions and had consumer reviews (I vaguely even remember a star system for the agents).

I honestly wish no ill will on the Redfin folks and wish them the best in their latest endeavor.   It’s just that the blogger in me can’t believe so many folks are letting them get away with saying they are doing something new.   About the only thing I see new with this program is that they are charging a 30% referral fee instead of the 20% they used to charge to agents back when Anna took part in ’05.

50 thoughts on “Redfin Circles Back to an Old Biz Model…

  1. The economy has companies looking for new ways to make money, even if they are not new, maybe tried, but not true. Redfin maybe using the men’s necktie theory, give it five years and its back in stlye baby!

  2. I never expected Redfin to turn (whether it’s forward or backward makes no difference to me) to an agent-centric model. Agent A pays Redfin for tossing a client back and forth is so very “old school”. Cuts the bargaining power of the consumer, and bites them in the ass in the end.

    Clearly a step back from being consumer-centric and empowering the buyers of homes. I’ll have to see how they explain to the buyer, that the buyer could have kept that 30% for themselves, instead of paying it to Redfin to sell their name to an agent.

  3. Not surprised at all. This allows Redfin to reach markets where they don’t/can’t operate their own office. It’s not the same service as their own office, but still has its appeal.

  4. Courtney: definitely an interesting twist if nothing else… I didn’t explain their program in this post in detail, but the way I understand it, they do give back half of their 30% cut of the referral fee.

  5. Still, Dustin, if the agent’s willing to give 30% to Redfin, why wouldn’t the consumer just deal direct with an agent and negotiate the whole 30% instead of 15%?

    Makes no sense from the consumer standpoint. But you know how I feel about referral fees…they need to go the way of the do-do bird for the most part. A few exceptions, but not many. Nothing “new” about my position on that, either 🙂

  6. Ardell: I hear you loud and clear… and, yet, as far as I know referral fees are the only way brokers can benefit when they recommend a client to someone else.

    How would you like to see Redfin compensated when they pass a home buyer/seller to an agent at another broker? Or is this just never in the consumer’s best interest?

  7. This is a very interesting development. I think it looks like a very natural way to expand Redfin.

    Redfin says they will provide (and collect) detailed information on agents and this service looks very consumer centric for enabling consumers to connect with the best agent that suits their needs.

    While the refund is less than their current model, it’s the improved quality of service Redfin is looking to provide to consumer that is good. By weeding out ineffective agents, and developing good business relationships with excellent agents, that is pro-consumer. Too bad the Agent Partners still have to pay to belong to their local brokerages on top of sharing 30%.

    I would say that large brokerages should wake up to this and start thinking how they can make sure that they have excellent agents rather than large numbers of mediocre agents, and promote this kind of transparency.

    I am going to the Bloodhound Unchained event this afternoon at Zillow and Glenn Kelman will be there. I am sure that this Redfin expansion in service will be talked about. I’ll comment back on what I find out. I think Rhonda will be there as well.

  8. Glenn addressed this at the Bloodhound preview event today. He is clearly unsettled with the gyrations the business model has taken. They are having conversion problems and are trying to deduce why consumers aren’t moving from their search interface to an agent relationship.

    I think the 30% referral is too expensive for the bulk of good agents Redfin would like to refer business to.

  9. Ron, Thanks for the update… I can’t say I’m too surprised that they’re having a rough time converting, although it is interesting that Glenn would publicly acknowledge it.

  10. The Event was great and the last portion was the discussion between Glenn Kelman (of Redfin) and Greg Swan (of Bloodhound blog ) and moderated by Brian Brady (also Bloodhound blog).

    It was very interesting to listen in on what Glenn had to say about how important customer service is to their new model (it’s an important part of their current one too). Watching the discussion between both Greg and Glenn was fun, they both have compeling personalities and are passionate about what they are doing in real estate and how they do it.

    Redfin is NOT doing passive referrals. They will only partner up with their referral agents who have passed their customer service standards, and will continue with high customer service as shown by the feedback from their clients. If the agents’ customer service slips, then they will no longer be a Redfin referral partner. Customer service performance matters.

    As the discussion wound down it was interesting to hear the idealistic part of Glenn shed light on why he wants to change how real estate is done, and how important customer service is to him. I was impressed with what he had to say.

  11. Yes, the ongoing low conversion rate was a surprise to everyone at Redfin. Greg talked a lot about how Redfins’ business model (a very logical approach) lacks appeal to the majority of homebuyers who find that buying a home is an emotional process.

    Greg mentioned several times during the discussion that Redfin appeals to about 10% of the population (MBTI – Myers-Briggs test, basically “geeks”) and that Redfin lacks the “touch” appeal of traditional agents.

    This means that 90% of the population needs more than what Redfin offers.

    While making more and more data available is appealing to homebuyers, and attracts many who use the search features, Glenn said that 78% of the visitors who begin searches leave after a month. Glenn also said that 90% decide to work with another (traditional) agent.

    So now Redfin is making an effort to broaden thier appeal to more than “geeks”. A funny side note is that Rich Barton (Zillow CEO) noted towards the end of the discussion that he was Redfins target consumer!

  12. Redfin will never succeed, in the way they hope, for a couple of simple reasons.

    First, a business cannot ever rise above the limitations of its business model and/or leadership. Every discount model I’ve ever evaluated gains limited traction only in seller’s markets, when homes are easy to sell. Once the cycle turns to a buyer market, the discount models fail, as consumers make decisions based on who is best qualified to get the job done, not who will work the cheapest.

    A long term real estate business plan must be one which can take market share away from competitors during down times, not up times. This is true in any industry, not just real estate. Discounters are designed to lose market share during tough times, and thus will always flounder, as Redfin so aptly demonstrates.

    Second, the mission of Redfin, if we are really honest, is not to provide the very best possible service to buyers and sellers. Instead, it’s an ego based mission to prove that traditional Realtors are irrelevent. Instead of really examining the home selling and purchasing process and realizing how that process needs to work for the majority of consumers, they sell a product that comes up short, by all measures, and which is desired only by consumers who are focused on the wrong priorities (saving money) in the home purchase/selling process.

    It’s interesting to observe Redfin become more and more that which it wishes to destroy. My favorite “change” was when they realized a while back that buyers need to be driven around and shown houses. As my kids would say, “duh”.


  13. Hi Steve,

    Maybe the current climate will sink Redfin, and maybe it won’t. Your comment has good logic.

    But listening to Glenn explain his “why” behind Redfin and the direction of his ideals for Redfin made me think ….”Go Glenn!”

  14. Firstly, let me thank Rhonda for her participation in BHBU, and all the RCG ladies for their participation today in the Group Blogging Roundtable at REBarCamp. It was a delight to meet Deborah and Courtney.

    Ardell was her usual dynamic self and an asset to the session; I’m certain that I’ll moderate an “Ardell Unplugged” session, one day, and thousands will be there.

    “Still, Dustin, if the agent’s willing to give 30% to Redfin, why wouldn’t the consumer just deal direct with an agent and negotiate the whole 30% instead of 15%?”

    Could consumers value the 15% “cost” to have Redfin pre-screen agents and maintain consumer satisfaction ratings, Ardell? I’m not convinced that it’s all about price.

    Steve Crossland keeps referring to Redfin as a discounter yet Glenn Kelman stated in our discussion that Redfin has never negotiated a commission (which, by NAR’s repeated reminders, ARE negotiable).

    Having stated that, I believe that Steve’s observations about Redfin’s model begs them to raise their fees. Redfin builds value to “its” consumer audience through it’s data-rich website. Glenn should survey more to see just how important his “fee advantage” is to his customers.

  15. New Redfin model in a nut shell = “We cannot convert a sufficient percentage of our own leads into closed sales, so we will now start selling our leads to any agent willing to pay a 30% referral fee”.

    It’s not a referral model, its a lead selling model.
    What is a referal anyway?

    I think of a referal as an introduction from someone I know and trust to someone who can help me. If I know you well, and my best painter just moved away and I need a new one, and you tell me Painter Dave is the best around and you’ve used him for 20 years, then I’m going with Painter Dave.

    By the way, your reputation is on the line too, and I expect you to not be recommending Bozos. For those who agree with this definition of a “referral”, does this fit with Redfin’s new model?

    If I’m a Redfin web surfer, browsing houses, and now I’m ready to buy one in a market Redfin now serves, what makes Redfin uniquely qualified to connect me with the very best agent available? Answer me that?

    Nothing at all. They add absolutely no value to the home search or selling process for the client. Companies that don’t create value don’t survive.

    I’m not bashing Redfin, just observing, from my own personal thought process, that they simply won’t ever be able to defy the economic realities of what it takes to build a company that serves the needs of a broad base of consumers.

    By the way, KW is now the 3rd largest real estate company, having moved up from 4th during this downturn, is profitable and has zero debt. How’s that for a business model?

  16. Steve,

    I’d have to disagree with this statement: “They (Redfin) add absolutely no value to the home search…process”. Most buyers would not agree, and do feel that (in our area) Redfin’s site and add immense value to the “home search…process”. Whether or not using these sites to get an agent to represent them, after they use it as part of the “home search…process” is the issue, not whether or not they add value in that regard. As a “free” resource, there is no question that people “use” Redfin in the home search process.

  17. Hi Ardell,

    I guess my opinion is based on how I see buyers actually select the homes they eventually buy. Yes, our buyers have access to all the MLS listings, IDX searches, etc., but the home they buy is rarely discovered there online by them. Instead, it’s usually a home we show them that we’ve picked and added to the showing list based on our interview with them, whether they have kids, knowing what’s most important to them, etc.

    So, at least for the kind of buyers we help, the successful home purchase is a result of a consultative sales process. And the buyer’s access to all the listings, information and data online has, in the end, little or nothing to do with the successful purchase of their home.

    Therefore, since I think the proper way to buy a home is through a consultative sales process involving a Realtor who knows the inventory and neighborhoods, and I believe that providing too much data and information to buyers does not assist in that process, I cannot see how what Redfin does adds value to a buyer’s objective of finding the right home. Sorry.

    Maybe it works different in geek laden, tech heavy markets, but Austin is pretty tech heavy and even our tech saavy buyers ultimately end up finding the right home by getting out and looking, not surfing listings from a computer.

    Finally, if the Redfin was indeed better for the consumer, Redfin would be taking market share from established companies and attracting talented agents who see opportunity, not reinventing themselves every 6 months or so.


  18. Steve,

    Not sure where to start to answer your most recent comment. It sounds like a commercial. I’ll decide whether or not to delete it as pure self promotion, as it doesn’t seem to address the topic at hand, which is the referral portion of the Redfin plan…oh, it’s not my post LOL! I don’t delete on other people’s posts 🙂

    Your comment #19 seemed to be about people using the website and being referred to agents outside of Redfin. But your latest comment went sideways into w00t KW and Big Steve.

    What does your comment #21 have to do with a 30% referral fee? If I were Dustin, I’d pop it out as self-promotion.

  19. > It sounds like a commercial.

    No, not doing any self promotion. Just writing from a personal perspective. Others may have different personal experiences. I’m sorry, I didn’t realize I was coming across as “Big Steve”, promoting KW, or anything else. Just using real examples (facts) to support what I was arguing.

    > What does your comment #21 have to do with a 30% referral fee? If I were Dustin, I’d pop it out as self-promotion.

    I think I covered it all already. Sorry if I’ve intruded or come across as offensive. Not my intention.

    Take Care.

  20. lead generation business model {seesmic_video:{“url_thumbnail”:{“value”:””}”title”:{“value”:”lead generation business model “}”videoUri”:{“value”:””}}}

  21. fired {seesmic_video:{“url_thumbnail”:{“value”:””}”title”:{“value”:”fired “}”videoUri”:{“value”:””}}}

Leave a Reply