Redfin Takes Another Step Backwards

Well, that might be overstating it a bit. But I couldn’t help but notice that Redfin has once again tweaked its model — first in the Boston area, and if it works probably nationally — yet again. Apparently gone are the days of a “team” aproach to providing buyer representation, with field-based agents for the “grunt work” and office-based agents for the more complex tasks. Instead, a buyer gets to work with the same agent from start to finish — just like the traditional model. Goodbye efficiencies… And absent efficiencies, the fee has increased as well: the rebate has been further reduced to a mere 1/3rd of the commission.

What does this mean for alternative models? Well, its instructive at least. Redfin is almost certainly the biggest and most well-funded of the alternative brokerages, and they’ve apparently concluded that consumers want the “personal touch” and are willing to pay for it. Anyone trying to “change the world” should at least recognize that others are having a hard time doing so and should adjust their plans accordingly (whether by reducing the scope of the change, like Redfin, or by radically changing the model to in a way that differs from the path blazed by Redfin). Interesting times, indeed.

About Craig Blackmon

I am an attorney in Seattle with a practice focused on residential real estate. I am also an owner and the designated broker of Quill Realty, a new model real estate firm. Quill provides its clients with both an agent and an attorney, so you can Sign with Confidence. And Quill charges less than a typical agent, so the client saves money as well. Craig on Google+

Comments

  1. I was surprised that they chose to announce this as an “upgrade” to the service.

    “Big news! Redfin Boston is upgrading our service. Now, whenever you sign up to tour a home or meet an agent, the lead agent who negotiates your deal will also be the one who meets you on the first tour, sees the home and comes to the closing table. The commission refund we offer buyers will, as a result, decrease slightly from 50% of the commission to 33% of the commission.”

    It seems to highlight that the “traditional” service way was indeed better, and didn’t have as much “fluff” as people thought it did. Good to test the system and make room for change. But it seems the more they change, the more they get like most everyone else. Since it is not true that no traditional agents ever match that commission rate, that leaves the whole premise of saving anything as questionable at best.

  2. This is the great news. Redfin Boston is upgrading our service. I think you are doing work with your post. I completly agree with you. 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,Thanks for sharing your information.

  3. Very interesting indeed. It seems that when push comes to shove most buyers want strong and consistent representation. In addition they are willing to pay for it. If you explain it properly. The old adage is you get what you pay for.

    • I’m not sure “strong and consistent representation” is the take-away. I think “close relationship” is closer to the truth. After all, why wouldn’t a team of agents be able to provide strong and consistent representation? Whether its one person or five, as long as somebody is available and knowledgable about the matter, the quality of the representation should not differ. But the consumer’s perception will differ significantly. So I think the moral is that, when it comes to a real estate agent, consumers want to have a close relationship with one agent from beginning to end of the process.

      The “willing to pay for it” is also a little suspect. Surely we can all agree that the method of compensation is completely disconnected from the service provided. Given that reality there’s a lot of uncertainty about what people are “willing to pay for.”

  4. From the outside looking in, Real Estate looks easy. It isn’t until you actually start getting clients and closing deals that you realize the difficulty of the job. There is a reason there is a such a high failure rate of RE Agents and it isn’t because they are making inflated commissions for very little work.

    I have no problem with discounters as all markets need new business models. However, you will notice that most discounters try to capture the public misconception that Agents are over paid and don’t do anything or provide any value.

    • I’ll concede that there is a perception that agents are over paid and don’t provide any value. But on the other hand, surely you concede that agents don’t provide the value that they used to. Case in point: pre-internet, you had to work with an agent to determine what was for sale. Post-internet, that value has evaporated entirely. So while the public may undervalue agents, the reality is that they don’t provide the value that they used to. Is that debatable?

      • No debate. Perception is reality in many cases. Much of the consumer perception of Realtors is brought on by the industry more than anything. It is primarily driven by the abysmal low barriers to entry into the profession which ultimately lowers the overall respect the public has for the profession.

        When you can have bored housewives selling real estate on the side, it creates a perception problem that the true professionals have to fight. Unfortunately, the industry as a whole has allowed those agents to define the industry, not agents like Ardell. Until the NAR says enough is enough and admits that 80% of the agents probably shouldn’t be in the business, the perception problem will continue.

        By the way, mortgage lenders have the same issue. The industry has a systematic issue where it is cheaper to just have hordes of psuedo professionals that don’t add a ton of to companies operational costs, so companies just hire them all hoping they find the top 20% that sticks. In the mean time, they get one or two deals before they washout.

        People don’t have a problem paying for agents. However, the value of the service is grossly inflated for a number of reasons. The first is that the commissions reflect the risk the agents take in terms of the potential to provide a service AND NOT GET PAID. In short, consumers who buy are paying for consumers who don’t actually wind up buying. The prospecting costs for new clients are also included in those commissions. If agents were paid based purely on work performed, regardless if there is a closing or not, then commissions would fall dramatically.

        If someone created a system that eliminated the agents need to continually prospect for new business and insured agents were compensated for the actual work performed regardless of a transaction closing, then I think you would see a fall in commissions. For example, Redfin could charge a agent fee of say $500 bucks that is paid with or without a closing. This would 1) seperate those who are serious from those who aren’t and 2) help lower costs because RedFin wouldn’t be absorbing the cost of nonproductive work with failed transactions. They then could continue to offer their old model.

        • A $500 up-front fee? Brokerage compensation based on work performed, not on a successful closing? Where “prospecting” is replaced by traditional advertising/education about the service provided? Gosh, Russ, I think you’re onto something special. ;-)

          • I think your model is unique and the right approach. The one problem I see though that many models have not been able to capture is making money without rain makers. In other words, the beauty of the commission system is that it encourages people to hustle and bring in business. If a system isn’t in place so that employees who do generate substantial business are compensated adequately, the overhead associated with keeping the mediocre employees who do not generate business starts to erode profits.

            For example, when a company has to spend a ton of money to bring in business (Advertising, etc), it cost much much more than when you employ rain makers who bring in that business through referrals at a much lower cost basis. We see this in the mortgage industry where you can literally have 5 LOs bring in several hundred million in loans with a few thousand in marketing costs versus a call center having to spend exponentially more advertising to make the phone ring with substantially more LOs to do the same volume as those 5 super producers.

            I think your model has some potential. I would play up the attorney side of it which puts you on a higher standing that a typical Realtor. I would also target higher income borrowers who understand the value of working with professionals as well.

          • Yes, making rain is the key for any professional practice. We do it the way law firms have been doing so for decades: Senior partners/principals bring in the business, with much of the work performed by associates/paralegals, and in our unique instance agents. Which of course means that agents who work for us get a regular paycheck and don’t have to spend time prospecting.

            Yep, we play up the attorney side every chance we get — I’ve even been accursed of overplaying that card! ;-) And yes, anyone who is buying a house for something north of $700k is absolutely crazy to use a traditional agent. They save tens of thousands of dollars using us. Plus as you point out at that price point and above the client is more likely to appreciate the fact that we are lawyers as well. So that is indeed our target audience.

            Thanks for the feedback and encouragement Russ!

          • “accursed” is a typo — but a great new word and probably accurate in this case!!

          • Craig says: “And yes, anyone who is buying a house for something north of $700k is absolutely crazy to use a traditional agent. They save tens of thousands of dollars using us.”

            That is only “true” if you buy into the concept that traditional agents have one and only one SET fee. Which is not the case. I, as example, have a $20,000 CAP on commission charged. Every agent is free to have their own model to some extent, especially in the range of 1/3rd discount.

            I don’t advertise a $20,000 cap mainly because I don’t think it is good for people to choose their representation based on cost primarily, whether that be the agent or the home inspector. Lender maybe yes, but agent or home inspector, not usually.

            That brings up another question. When you say in your bio “To date, WaLaw has rebated an average of more than $15,000 to each of its buyer clients,…”

            If you rebate a $6,000 commission on a $200,000 sale, and with the other hand charge them $4,000 separately, are you calling that a $6,000 “rebate” or a $2,000 “rebate”?

  5. The more I see these things, the more it seems to come back to the traditional model. A good Realtor is worth their weight in gold – a lazy or uninformed one is a parasite on the transaction, it is as simple as that.

    It is easy to go after the commission, but rarely successful. Real Estate is one of those things – like photography – that looks really simple and easy to do but is very difficult to do well!

    • I agree wholeheartedly. My agents, Marc and Craig of WaLaw, have simply been great, and I trust their advice absolutely, as I know they don’t have an interest in the transaction either way.

      BTW-due to circumstances, I will be on the low end of the rebate. However, having worked with them a long time now, I not only don’t regret my decision to use them, but knowing what I know now, would have used them if their compensation was equal to a “normal” commission and I wouldn’t have saved a penny!

  6. 33%??????????????

    Giddy up!!!!!!!!!!!!!!!!!!!!

    The fact is they MUST inthis environment or close up shop!!

    Too mych overhead..OUCH!

  7. Craig, WaLaw is a great concept; give sophisticated consumers a chance to leverage their knowledge and self-research in exchange for a piece of the pie. Obviously, it doesn’t work for all consumers but there’s a decent segment of the market that knows enough about what they are looking for that this would serve them quite well.

    • Thanks Dave. We appreciate the feedback! Growing a business — one that literally makes a new mold — is hard work and we need all of the encouragement we can get…

  8. I’m also surprised that that are moving in this direction. In my area, most peoples search starts with Redfin because of their powerful website that is easy to setup searches and find out information on. Then they see they get a rebate and are instantly reeled in. Adding this personal touch that allows for the same agent to be used start to finish yet gives them another edge.

  9. Whether it be Redfin or a “team” approach, the “upgrade” noted by Redfin in the announcement is not in the “strong relationship” that Craig proposes when he says:

    “I’m not sure ‘strong and consistent representation’ is the take-away. I think ‘close relationship’ is closer to the truth.”

    The issue is continuity. In a residential real estate transaction, consumers are rarely linear in their thinking or in the manner in which they convey relevant information. They may reveal things “in passing” in week one that become more relevant in week 42. If the person at week 42 is not the same person as in week one, that information “falls through the cracks”. Usually that information is about how they “feel” vs something on a list of “wants”.

    When people buy the wrong what in the wrong where, and many do, it is usually because of this lack of continuity. This is not a business of doing what a client tells you to do, or a list of services that get “checked off” of a master list of services to be performed. Hmmm…change that to there is more of that on the representing a seller side than on the representing a buyer side.

    Example. Met clients. Husband and Wife with two children. Very busy people. Both work and their “free” time is limited. Their time to talk with one another about long term issues is also limited. Daily conversations are limited to the issues at hand like what’s for dinner, homework, get to the next child’s activity, etc…

    On day one through day ten the reasons to move were ALL on the husband’s side. The only reason the wife would move to accommodate the husband’s desire to move, was to move up to a better school. The husband wanted a “newer” house, primarily due to things they could not change in their current home, namely ceiling height of 8′ vs 9′ or 10′. The home they owned was quite nice and large enough. It just had a dark, low ceiling feel, and was not in the best of schools.

    At one point weeks later they picked a house to see and wanted to make an offer on it. I sat them down and said, let’s go back to day one and WHY you would even think about selling the house you have in order to buy this one. This one has the SAME schools. This one does not have anything associated with how it was built, like higher ceilings, than the one you have now. You only like it better because it is spit-spot clean and furnished nicely. You can do THIS with the home you have.

    For $100,000 more, you are not getting ANY of the things you said you wanted on day one. You are simply tired of using all your limited spare time looking for a house. You are trying to “end the madness” by getting it over with. You can do that by going home and buying nothing.

    The end of the process was…they went home, and still live in their perfectly fine house, until they are ready to move up both as to house AND schools. During the process the wife was saying yes to the husband’s desire to buy a newer home with higher ceilings, but kept lowering the price until it was becoming a lateral move. The costs in and out of selling and buying, made no sense to end up with a lateral change out.

    The CONTINUITY of agent in the process is important. If a DIFFERENT agent comes in to “write the offer” when they pick the house they want to buy, they have no clue that this house makes no sense, given the original objectives.

    That is why most any “assembly line” method of agent representation often discounts for lack of continuity, by taking NO responsibility for assistance with product selection. The “discount” is not for “full” service. It is a discount for buyer being solely responsible for choice of the where and the what.

    For people who want the service of being 2nd guessed as to their where and what…the discount is not worth it. If the price of home they are buying is not over the minimum fee after the 1/3rd discount, there IS NO “discount”, and they are still trading away the service of being 2nd guessed. For those in the higher price range, they can usually get the same 1/3rd discount from a traditional agent, so again they are trading off part of the service, with no “discount” fee.

    Russ says: ” In short, consumers who buy are paying for consumers who don’t actually wind up buying.”

    This is true, but necessary, so that agents are free to represent “The Public Trust” by sometimes saying…go home…don’t buy anything, as I did in the example above. The system must allow for the expert advice being, don’t buy at all. The advice can’t always lead to a “sale”, because at the end of the day, sometimes the best advice is you should rent or you should go home and not sell your house at all.

  10. Ardell, two comments, one for each of yours above:

    1) So when you help a client buy a home for something north of $666,667, how do you “reduce” your commission? What happens to the portion of the commission that the seller is legally obligated to pay to the listing broker, and which the listing broker is legally obligated to pay you, beyond your $20k?

    I would also add that you’ll charge $20k for a $700k home, while I’ll charge $4k. Yes, price alone absolutely should not be the sole determining factor in choosing a professional to assist you. But it should be A factor, and when my price is 80% off the price of a “traditional” agent…

    2) I agree 100% that the advice an agent gives should be uncolored by the need to earn a living. Congratulations, you’ve identified one of the great aspects of my model. You will never get anything but the unvarnished truth about what is best for you in terms of whether to buy from WaLaw, because we’re paid by our client regardless of whether they close.

    • 1) I think you forgot this post was about Redfin. LOL!

      2) My CAP as in MAX is $20,000. My charge for $700,000 does not reach “the cap”. So when you say “I would also add that you’ll charge $20k for a $700k home, while I’ll charge $4k.” that is not true. Be careful of untruths. Do you really KNOW what other people’s clients pay for service? The answer to that is no. You can surmise, you can assume, but you cannot “know” with any degree of certainty or based on fact.

      3) My fees are different depending on the service needed. Sometimes as low as yours, but rarely. My point is flat out saying traditional agents always charge X is simply not true, whether you say it or Redfin says it or 60 Minutes says it with a big “6% sign” over someone’s head.

      4) What happens to the “excess offering” by the listing broker is the same for all. It can pay closing costs. It can reduce the price. It can pay for repairs the seller will not agree to (in some cases). The options of how to apply the excess between the offering and the fee negotiated between the agent and the buyer client are pretty much the same. The method must comply with lender constraints…or not…as in a cash transaction.

      5) “But it should be A factor, and when my price is 80% off the price of a “traditional

      • Who knew? Ardell is a discount, rebate broker!! Hooray! ;-)

        Your point about what “typical” brokers charge is a good one. On the other hand, though, you — and others like you, “traditional” brokers who still rebate some portion of the commission — are hardly transparent. You don’t reveal your fee anywhere, right? That makes it difficult for consumers to compare prices amongst providers — again, not the only concern when selecting a broker, but an important one. So you’re right, I don’t and can’t know what you or anyone like you charges, because (a) you won’t tell us until we hire you, and (b) it changes from client to client.

        Finally, your point No. 1 is dead on!! :-) So I’ll give you last word on this “Ardell tangent”.

        • dont you all tire of this?

          I dont!!

          Never pay for ANY Real Estate Services up-front!

          Never pay more then 500 TO LIST!

          Never let the Buyers Agent make more then you when Buying! Its your money! Why give it away!

          hmmmmmmmmmmm..thats enough…for today at least..

          • my comment spends all day in waiting moderation…

            What a sham..

          • Shoot me an email, or the writer of the post you are commenting on, if that happens again Ray. To the best of my knowledge you have not been “tagged” here as “send to moderation”. But if someone tagged you as such on another site that uses the same spam filter that we do, it could trap you “in the penalty box” on all sites that use the same spam filter.

          • And I have no idea what you are talking about, Ray. I haven’t done anything in regards to moderation of comments.

          • I just released two of yours from the “pending” bin, including this one. That should make Ray feel better. I usually don’t look in there unless I’m getting ready to write a post. Not sure why you are both getting “trapped” in there.

          • I understand your second and third “nevers” — they flow from your business model and make sense. But why is it one should “never” pay any fees to a broker up front? While an up front fee is unusual in the whacky world of real estate, where the services provided to a buyer are completely disconnected from the fee paid, its not uncommon in other professions. And if by paying an up front fee you are able to save substantial money in the end, what’s wrong with it? I agree that if you MIGHT buy a house, then it may not make sense to pay an up front fee — and commit yourself to the balance — because it may be for naught. But what if you know you’re going to buy?

            And on the broker’s end, where the broker isn’t paid by commission but instead a flat fee, it simply makes good business sense. What am I missing?

            Oh, wait, you’re Ray Pepper — the guy who has apparently declared jihad on WaLaw realty. Now it makes sense…..

        • That brings up a legal point, oh expert on all things legal. :)

          WE have been told for at least 30 years that we are not allowed to talk openly about price in a place where other brokers can SEE or HEAR that, under anti-trust law. WE, as in traditional brokerages, are told that it is tantamount to “price fixing” to do so. WE are told that we can never discuss commission issues with other brokerages, as that would equate to being in cahoots and lead to “price-fixing”, and be against anti-trust/monopoly law.

          Consequently traditional brokerages have become the pin cushion for those who do talk about commission, all the while we are told we can not.

          • Hey — you jumped off the Ardell tangent!

            This is a thorny legal issue, and one that I have never really understood. I suspect that what you have been told is a gross simplification but I don’t really know. I’ll add it to my list of future posts. But it’ll require some research, which means I probably won’t get to it until the holidays (when business slows and I have time).

          • Well at least you now know why you don’t know what everyone else charges. It is considered to be against the law for you to know that. It is considered to be against the law for us to post commissions where that price list can be copied by other brokers and = “price fixing”.

            NOW…before we leave the “Ardell Tangent” does a REBATE in YOUR printed description in your bio mean NET after your charge…or is it bogus? When you say an average of $15,000 per client was rebated, is that based on fact or fiction?

            Does that “assume” a 3% rate of commission, or calculate based on the actual offering of each house?

            Does that mean you gave back $6,000 and took $4,000, making the benefit overstated by $4,000?

          • If I answer the question, will you leave me alone so I can get my work done? ;-)

            That figure is pure fact. For every transaction, we record the amount of our commission (which, ironically, we must pay B&O taxes on, even though its our client’s and not ours per our fee agreement), deduct our fee, and the balance is the rebate. And yes, it averages more than $15k, with a high of about $57k and a low of $150. That is the actual money back to the client at closing.

  11. Thank you! Yes, I’ll stop bugging you. I’m waiting for loan docs so I can go to a signing…so I have some time to pursue my “Ardell Tangents”. :)

  12. Maybe some one made the point in the tangents, but it has always been my contention that the office staff filling in purchase, and sales agreement really should have at least seen the house in person. My reasoning is that they should be able to speak intelligently about a “contract.”

    Number one would be a negotiation of terms, and conditions. Second would be the inspection report, and who was going to monitor the givem and take, if any. Third, and last, would be that the person with the contract should be the one to follow through with escrow, title, and closing.

    The product, the house, is more than a set of numbers. In closing a transaction every step of the way has to do with a personal involment with the product, the house. It’s a center peice, and the person working the transaction should know the product.

  13. I have questioned there practices. They have several agents on their website in our area. In Oregon we are not allowed to give back any of our commissions to clients. So it seems that their model really does not work here and their advertising of a portion of the commission being rebated to be untrue.

  14. EORE — check their website. If you do you’ll see that in OR the rebate goes to a charity of the client’s choice.

    And while we’re on the subject — what a crock! Even the DOJ recognizes that commission rebates are the most efficient way to introduce downward price pressure on commissions paid to buyer’s agents. The RE industry must have more pull in Oregon than elsewhere — they’re doing a great job of protecting their own interests. At the consumers expense.

    • Absolutely it is introducing downward pressure on Real Estate commissions, so what? Why would any one care except the sales people who are using reduced commissions as a selling point?

      Hey! I’ll write that up for ya for less!!!!

      What a crock. The consumer pays less to get less, so what?

  15. What benefit is there to writing it up for less?

    • To ask the question, David, is to answer it: save money.

      Note that I certainly don’t “write it up”. I draft a contract to protect my client, and I then monitor the transaction to confirm that all contingencies are satisfied or knowingly waived. The phrase “write it up” grossly simplifies the significance of the contract.

      • Craig,

        David is correct that people “pay less to get less” if the “get” is based on the historical “doing” of a traditional agent. I have spent all weekend to be 30% finished helping an owner get their home ready for market. Some agents will simply take a picture of what is, and not view that photo as their “marketing piece” by changing what “is” to what it needs to be to interest buyers in the home.

        What David is missing is that a large % of higher paid agent services have changed to offering less for more. The services that offer less for “less” is hypothetical, and erroneous, if and when all of the “traditional” agents drop down to doing what these “less for less” services do, and many have.

        So if “The Future of Real Estate” is to include the majority of agents doing less regardless of alternative models, then the alternative model is the answer to paying a fair price for the lesser services rendered by most any agent. That likely will be the case. Getting agents to do more…and what agents have historically done, is not going to happen.

        Every year more of those “full service” agents retire and leave the business, leaving behind those who put up a sign and a lockbox and hope for the best via price changes only. That is what “the business” is becoming and what the definition of “full service” is being changed to…and it should be priced accordingly.

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