Fri 9 Feb 2007
Thank you Mr. Kelman
Posted by Marlow Harris under Real Estate
It was a slow news day and I was almost tempted to write about Anna Nicole Smith, but between your interviews with Kris Berg, Annette Haddad and Tina Wood and your other comments and interviews here and there, we’ve got material for days.
Being Redfin’s natural antagonist is often a difficult job but I’ve never been one to shirk responsibility, and I’m not about to start now.
Matt Goyer, a Redfin employee and blogger defends Redfin’s position of not having 8000 transactions for Redfin yet. According to the MLS figures for the Pacific Northwest, they’ve had 235 transactions in the State of Washington in 2006 (the LA Times cites 242). The average sales price between the single-family homes and the condo’s was about $475K, so you can do the math.
Every Redfin employee I’ve met has been smart, nice and utterly professional. However, none of them appear to have had great experience as real estate agents. Several have even blogged about their lack of success in real estate sales (which is why I guess they went to Redfin to begin with.) Several agents had just received their licenses in the past year, with no real estate sales experience prior to their Redfin jobs. Nothing wrong with that, but it’s interesting….
One of the problems I have with Redfin is their continual commoditization of the bad-boy stance, their claim of being the outsider, the renegade ready to fight against The Man, ready to defend their clients against the Real Estate Industrial Complex, when in reality the business is made up of hundreds of thousands of individuals. There’s no cartel. There are thousands of little real estate offices all across the U.S., with 100’s of MLS’s, each with their own rules. Redfin has co-opted the power of dissent by appropriating the language and symbolism of non-conformist youth and tech/geek culture. By inserting themselves into the real estate equation, they place themselves in the role of counter-culture hero and the consumer into the role of rebel against the Real Estate Machine.
It’s an exciting visual, but it’s also a fabrication concocted as a brand just as much as Microsoft, Starbucks or McDonalds is.
Kelman seems like a nice guy, and I bet he’s a blast at parties, but in his enthusiasm for his business model and his role as the Rebel CEO, he omits the truth about his business model, which is that it is non-profitable. It just costs too much to help buyers buy and sellers to sell homes. His interviews, taken as a whole, imply (and sometimes just come right out and say) that traditional full-service agents overcharge for their services.
It costs MORE than $2000.00 (their listing fee) to sell a house. Even if the house sells in 1 day, there are overhead costs, office space, administrative support, infrastructure, both real and virtual, website development and support, basic signage, keyboxes, advertising, etc…. It may have taken a particular real estate agency years to develop a brand. It took years to develop an MLS and it takes constant maintenance to keep it up-and-running. These are all real costs for the agency. If the seller doesn’t want to participate in paying for these costs, then they should definitely go to the venture-capital-subsidized Redfin, at least until they run out of money. After that, they could probably go to another discount (no brand name) broker or try FSBO.
Brian Brady had an excellent article Is Your Broker Profitable?- Traditional Brokerage laying out, at least for him, the costs to do business. This is probably closer to the truth than what Redfin is espousing, refunding 66% of the commission to the buyer (unless you work for Microsoft, then the buyer gets a whopping 75% back.)
When a standard Errors & Omissions Insurance policy has a $5000.00 deductible, it doesn’t make sense to collect less than that in a real estate transaction.
Redfin fuels the birth of the rebel consumer and the rise of the techno geek as it attempts to co-opt and capitalize on “alternative culture” v.s. the established real estate business. Kelman’s stance as a rebel who takes pride in this revolutionary, “out of the box” thinking — while hoping to extract hefty profits at some point in the future — rings hollow and untrue.
It’s branding, product placement, posturing and public relations.
Traditional real estate is PC. Redfin is Apple.
Kris Berg called this the Flinstones v.s. The Jetsons. Redfin, by pandering and selling to Rebel Consumer who demonstrates his nonconformity by his purchasing habits, ensure themselves a clientele by feeding this kind of buyer/seller’s need to be seen as an outsider smashing convention, and Redfin is there helping to feed this delusion funded by a dwindling $8M in venture capital.
16 Responses to “ Thank you Mr. Kelman ”
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February 9th, 2007 at 11:27 am
Excellent article! The problem with being the rebellious outsider is
that so much information is passed on inside grapevines–and Redfin clients lose out on this fruit. Not all price reductions are listed in the MLS–and certainly not the personal motivations of sellers.
Sometimes this information is worth far more than any commission
rebate. I would always choose to work with an informed agent over one who offers a rebate.
February 9th, 2007 at 1:45 pm
Thank you for your insight!
February 9th, 2007 at 1:52 pm
I was curious about the ONE Redfin agent assigned to handle all of San Diego County and did a little digging yesterday. He is still showing as a Board of Realtors member with Coldwell Banker yesterday but also as an MLS Only member with Redfin, so this move happened pretty quickly. An agent since 2001, he has represented only 5 sellers and 15 buyers in closed transactions in that time. The first being in 2002, that equates to an average of approximately 5 transactions per year. I think most of us will agree that this does not constitute enormous experience or success. He may be the most capable agent in the world, but your point is a good one.
February 9th, 2007 at 7:37 pm
This makes me wonder….is there another side to their business model that we’re not yet seeing?
February 9th, 2007 at 10:37 pm
Jillayne: Though I have heard no mention of it, it would not be surprising to hear that Redfin has inhouse lending and other complementary services. Those would be the silent profit centers.
February 11th, 2007 at 9:29 am
Marlow,
Redfin is coming to Los Angeles and beyond … the Los Angeles Times had a write up on them this passed week.
I categorize them in the same pot as the local discount Brokers, we’ve all done business with them and it always turns out that we do the lions share of the transaction. Generally in short order the client that hires such service finds out just what they have gotten themselves into and they want out of the contract fast.
I think its only a matter of time before the public becomes aware of the level of service and business model this company follows.
In my market area the only agents that go to discount brokers and IMO who would go to redfin are agents that have not had much success in the field of real estate.
I really appreciate your points on this topic and I’ll be watching close for any updates.
In fact I’ve been wanting to write on this very subject in my own blog and really there is so much one can saw about it … ahhh … where to start!
(FYI, I’m a fellow AA Website owner and have seen your posts on the forum there)
February 11th, 2007 at 3:46 pm
Hi Roberta,
Redfin already has a mortgage lending division. They were advertising for mortgage lending employees months ago and their mortgage affiliated business arrangement is up and running. Although I’m fairly certain it would not be the profit center for the whole company. The premise is the same: Transparency to the consumer. There is no place to hide extra profits for a mortgage broker. All fees if you’re a mortgage broker, have to be disclosed on the Good Faith Estimate and corresponding HUD 1 Settlement Statement.
Hi Darla,
We would then see how the invisible hand of the market deals with Redfin. If a company doesn’t treat customers well, the company will not be able to grow.
February 15th, 2007 at 6:15 am
I looked at RedFin’s site and it seems to me that the only agents you see are very young. I was an okay agent when I was younger, but now after 18 years and over 700 plus home sales, I have the skills to make and save my clients money. The site says their agents are experienced with 25+ home sales (that is not per year, that is career).
I approached their site (the only shop they’ve got) and I hated it. It would not let me change out of the “San Francisco” area. I tried–wouldn’t work for me. I then did a home search on my local zip code in Detroit, still put me back into San Francisco. I’m pretty computer savvy and it frustrated me real quick.
February 15th, 2007 at 5:19 pm
Marlow, I’m curious as to why the west coast crowd doesn’t write about Barry Diller’s realestate.com. It would seem that even though redfin backer Paul Allen has a lot of lot of money, IAC has serious dollars at their disposal. http://www.charlestononlinehomes.com/blogs/howard_arnoff/archive/2007/02/13/realestate-com-expands.aspx
February 18th, 2007 at 2:51 pm
In San Francisco, the Redfin’s main competition would be Zip Realty. The agents receive itty-bitty bonuses for each transaction, and the buyers/sellers do lots of the legwork themselves.
The average length of experience for a Zip agent is 2 years. After that the good ones move on to become full commissioned Realtors or drop out of the business.
We like to say that Zip Realty is fine for those who want to be a guinea pig for a newbie agent. They receive barely any training and are stymied by questions like “What are by-laws?” (Answer according to one Zip agent: “Uh, I guess it means ‘by the law. . .’)
In slower markets, Zip sellers suffer from lack of showings because traditional buyers’ agents would rather show a house listed by someone with more expertise. In a hotter market, Zip buyers suffer from a lack of guidance in handling multiple offers.
That being said, Zip has hung on, mostly by adapting its business model over time from salaried to bonus-only agents and taking away their perks like company cars.
As for the rebel buyer or selelr who wants to supposedly ‘think out of the box?’ I think I’ll pass on those kinds of clients– they are more often’lookers’ instead of buyers, and have a quality of arrogance I find difficult to stomach.
There– my two cents. Cool site, BTW. Liked your tips on how to bid in a competitive situation– important info for us here in San Francisco right now!
February 19th, 2007 at 11:13 am
The outsider image worked for Marlon Brando, James Dean and many others. It creates an attractive mystique, at lease to Americans. Plus, who doesn’t root for the underdog? Maybe it can work for real estate. Time will tell.
If Redfin is not profitable it would not make little sense to expand—I think that may be disinformation, useful in the art of war.
February 20th, 2007 at 7:16 am
Cece: Zip Realty is bleeding money, management and agents– and will likely need CPR soon. Even savvy investors such as Paul Allen occasionally misplace their funds.
February 22nd, 2007 at 5:05 pm
So, 235 sales in the first full year of service, at an average of $475,000 per sale, or over $111 million in sales?
Is this good or bad?
In Boston, the top 10 firms throughout the entire city had sales of between $100 million and $215 million (spread out pretty evenly, in between).
I guess the question raised is (or, has been), how can they pay their programmers if they’ve only collected $900,000 in commissions during the year, and are paying their real estate agents $70,000 annually.
Well, the short answer to that is two-fold: 1) did any of us make any money our first year in real estate or in any new business venture? (I would assume, no); and, 2) that’s why they’ve got venture cap money, to keep them from eating macaroni and cheese 24/7.
February 22nd, 2007 at 5:19 pm
Well, actually it’s almost their 4th year in business. They brought Kelman in a year ago, changed their business plan and let go their founder last year.