Post Updated 5/20/15:
P.S. Glenn, more than a year has gone by. I’ve busted my you-know-what trying to build a better Redfin-style mousetrap. And a couple of months ago, I said to myself: Wait a sec. I don’t think that sort of mousetrap is EVER going to work. I think technology and modern business practices have rendered that old type of mousetrap obsolete. The world is just waiting for somebody to invent something different entirely. Real estate isn’t immune to evolution. It just takes real change and a new way of doing things before it evolves.
So yesterday, I announced my imminent withdrawal from the NWMLS. A move made possible, in part Glenn, by Redfin’s devotion to solid data quality. Via FSBO platforms, I will be able to list homes for sale on Redfin – exactly where most buyers are looking in Seattle – without having to list on the NWMLS. And thus without having to pay a cooperating broker commission in the first place. But unlike Redfin and every other real estate firm – whether traditional or alternative – I won’t be on the NWMLS.
So this is where we part company – for now! I suspect Redfin still has room to evolve…
The original letter to Glenn dated February 18, 2014:
Dear Glenn Kelman:
I’ve been following Redfin since its launch in 2006. The year prior I started my own law practice focused on residential real estate. I soon realized that I could provide the legal services needed by a home buyer or seller for a fee significantly less than 3%.
Moreover, by 2005 it was apparent that the internet would bring fundamental changes to the real estate industry, both in terms of client services and client acquisition. Redfin soon capitalized on those changes by developing a model that delivered real estate services in a more efficient manner. This, of course, allowed Redfin to charge a significantly lower fee than what is earned by agents still working within the traditional 20th Century model. In other words, Redfin did a fantastic job of establishing a new, more efficient model that led to substantially lower costs to consumers. So I was a big Redfin fan right out of the gate.
Admittedly, the Redfin model has evolved over the years. Today, it has a lot of similarities with the traditional model. For example, Redfin’s approach to home tours has changed significantly since its launch, and now there are essentially no restrictions on tours. But notwithstanding this general trend back towards the traditional model, Redfin has remained committed to the notion that the real estate industry can do a better job of providing the necessary client services for a substantially lower fee. I still believe in Redfin and the efficiency-based Redfin model.
Lately I’ve come to Redfin’s defense. Many people believe that Redfin will continue to devolve towards the traditional model, and eventually it will charge the same ol’ 3% commission. In several conversations over the last year or two, I’ve noted that market efficiency and lower costs lie at the very heart of the Redfin model. Absent that aspect of the model, Redfin would lose its very identity. That, I am sure, won’t happen. I’m confident that Redfin will continue to lead the way towards a more efficient real estate industry.
Indeed, I will follow Redfin’s lead with my own real estate firm, Quill Realty. Like Redfin, I will capture the 21st Century efficiencies created by the internet and pass the savings through to the consumer. Quill charges a 2% fee. For buyers, Quill rebates to the client at closing the balance of the buyer agent commission paid by the seller.
That said, I think there is still room for significant improvement. Real estate agents practice law, which is another artifact of the traditional real estate model as it evolved in the last century. It is my understanding that this practice really took off during World War II. Home buyers flooded the Seattle-area market thanks to the many new jobs building the Arsenal of Democracy at Boeing and elsewhere. There simply weren’t enough lawyers in the area to handle all of the transactions. Agents filled the void. And since then, most consumers have relied on their agents for the legal services required to buy or sell a home.
Redfin never addressed this aspect of the traditional model. Instead, Redfin embraced it. Today, Redfin clients get the same legal services that almost all home purchasers and sellers get, services provided by a real estate agent. Rarely is a lawyer involved.
But agents aren’t lawyers. While agents have some minimal legal training, they are only authorized to complete blanks in pre-printed forms previously drafted by an attorney. Furthermore, agents simply cannot provide the comprehensive legal counsel that benefits any prudent home buyer or seller. For example, how many home buyers get a meaningful review of the preliminary title report? Each transaction represents a substantial, if not the largest, expenditure and long term investment in the life of the consumer. I believe that consumers are best served when necessary and appropriate legal services are provided by lawyers.
And that belief lies at the heart of the Quill model. Every Quill client will have an attorney to represent them throughout the transaction. The lawyer will answer every client question about the risks associated with the transaction and the significance of the contractual terms. The lawyer will review and approve all legal services provided by the agent, such as preparation of an offer (no offer will be extended until the lawyer has signed off). The lawyer will review the title report and provide the client with meaningful analysis. The lawyer will insure that the terms of the deed are appropriate and the client does not assume any additional potential liability. In other words, the lawyer will provide what any prudent consumer needs when buying or selling real property worth hundreds of thousands of dollars: legal counsel.
So thank you Glenn Kelman, and thank you Redfin, for your outstanding work. Keep it up! Stay true!! And continue to take pride in “advancing the ball” towards a better future for the real estate industry. But FYI, you’re no longer alone. You now have a competitor with an even better value proposition, so watch out…. 😉
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