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Has Redfin jumped the shark?
Posted by Marlow Harris under Real Estate
[32] Comments
Redfin sent out a press release today stating that their buyers on average paid 99.329 percent of the listing price while buyers with other brokerages paid 100.233 percent of the listing price for homes.
While it may be true that Redfin buyers in King County paid 99% of the list price for a home from 2/6/06 to 2/5/07, an average buyer in in the same county in 2006 paid only 81.61% of the list price for a home.
I have tried to replicate Redfin’s conclusions using their criteria and I could not.
However, I did find a NWMLS statistical report for 2006 and they indicate that King County single-family-home median list price was $520,797 and King County SFR sales price was $425,000. These were all reported sales, by all agents and members of the MLS.
You can view the report here. Relevant statistics are on page 27.
Homes in King County sold by ALL agents in 2006 were sold for 81.61% of the sales price.
I think it is a mistake to take Redfin’s “White Paper” at face value and not do further research. As we all know, statistics can be manipulated to prove any point you want.
Redfin makes their claims difficult to prove by saying that they’re not allowed to republish NWMLS data, however a quick call today to the NWMLS today confirmed that we ARE allowed to mention, discuss, use and link to NWMLS reports and statistics.
So in case you missed it, here’s that link again.
Page 27.
Median List Price: $520,797
Median Sold Price: $425,000
Buyers paid an average of 81.61% for all single family homes in King County for the year 2006.
If Redfin customers are paying 99.329% of the list price for a home, in roughly the same 12-month period (Jan-Dec v.s. Feb to Feb), then they may be paying a great deal more than they need to for a house.
32 Responses to “ Has Redfin jumped the shark? ”
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[...] 360Digest » Has Redfin jumped the shark? Technorati Tags: Glenn Kelman, Industry News, Real Estate, Real Estate 2.0, real estate buyers, Real Estate News, Redfin, Redfin.com [...]
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[...] Marlow Harris, Has Redfin jumped the shark? [...]
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[...] Leave it to Marlow… February 26, 2007 …to come up with the most provocative (and interesting!) commentary on Redfin’s press release from today… [...]
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Redfin’s Latest……
Redfin issued a press release yesterday and I’m sure anyone reads the Seattle Times saw the big front page article in the Real Estate section. Honestly, when I read the article the first thing I thought of was: “I wonder……
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[...] 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. [...]
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[...] Redfin just released its yearly statistics to show that Redfin agents, on average, get their buyers a better deal. The data showed the “average” Redfin buyer paid 99.233% of the list price while buyers using other brokerages paid 100.233% of the list price. Redfin proudly wears the feather in its cap. But wait. At first blush, an average paid “over list price” for an entire year seems highly suspect. Marlow Harris checked it out and duh–not so. [...]
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[...] (3-1-07- This just in- Marlow Harris and commenter Allen Benson (with griphicaldata.com) have discovered that Redfin actually doesn’t fare so well compared to other agents in the area. Allen shows that Redfin actually ranks #351 out of 951 offices for list price/sales price for their buyers. As Allen points out, that means that 1/3 of all companies in the area had better prices negotiated for the buyers than Redfin- Ouch!) [...]
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[...] Marlow Harris (Accused Real Estate Flunky) Has Redfin jumped the shark? [...]
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[...] at other brokerages sparked a riot yesterday: here, here, here, here, here, here, here, here, here, here and here. We also showed up in Freakonomics (holy cow!). There has been a healthy discussion [...]
Marlow, it’s probably just another one of those statements which they’ll change their minds on tomorrow.
Hi Marlow,
The NWMLS report that you reference is not an apples-to-apples comparison. It includes all NWMLS listings types: Residential, Condominium, Vacant Land, Farm & Ranch, Multi-Family, Commercial/Indrl., Manufactured Homes, Business Opportunity, Rental, Timeshare, and Letter of Auth (LOA).
Redfin primarily works in the Residential and Condo space and we felt the best way to compare our performance to that of the rest of the industry was to only look at Residential and Condo sales. If you source the data as we detailed in Appendix of our report you will get the same results that we did.
Since you are also an NWMLS member I am happy to share our data and analytics with you.
Cheers,
Rob
Thank you Rob.
Yes, I would like those analytics and data.
The chart I reference indicates Single Family homes only, not Condo’s, Vacant Land, Farm & Ranch, Multi-Family, Commercial/Indrl., Manufactured Homes, Business Opportunity, Rental, Timeshare, and Letter of Auth (LOA
Please see page 27. That indicates Single Family Home sales for 2007, county-wide.
Thanks again.
Lets see – you are a poorly educated real estate. Redfin is run by computer scientists… Who do you think is screwing up the calculations?
Anon, Marlow writes in complete sentences (you did not) and she knows the industry very well. Computer scientists are very good at crunching numbers, but sometimes they crunch the wrong numbers.
Marlow: Tophats off to you!
Did Redfin’s crunchers think they could avoid watchful reporters such as you?
Perhaps the Seattle Times should hire you as a consultant.
Not having access to the NWMLS I can only guess at the reason for this difference in numbers, but one thing does jump out at me. The average sale to asking percentage should not be equal to the median sale price divided by the median asking price times one hundred. At least it is statistically highly unlikely.
the average percentage needs to look at the sale price for each home that was sold and what price it was asking when it was sold. The median asking price will contain a lot of homes that are left unsold due to high prices, which will through your average sale price to asking price way off.
I am not trying to promote Redfin as they do seem to stick their foot in their mouth fairly often and have made no friends in the real estate community, however the numbers that I see in the NWMLS report does leave me a little sceptical about the NWMLS’s numbers.
Usually I have seen that real estate organizations seem to create their statistics in a way that makes the real estate markets seem slightly better than they may be. After all it is a marketing attempt and the better people feel the markets are the more likely they will buy and sell now instead of waiting to see if the bottom drops out in a few months. However, stating an 81.6% sale price to asking price ratio would send most home sellers into a fit that would have them holding their homes until “the market gets better”, except the ones that have no choice.
I guess if you believe that if you are to beleive the NWMLS percentage every Realtor® in your area must be throwing away homes. I know that up in the Toronto, Ontario, area we are starting to see some home selling for 93% but the average is still between 97% and 98%. I cannot imagine selling a home for 81% of the asking price, it would have to have been so over priced to start with that only the listing agent would show it and only by enticing a buyer with promises that they can get it for the homes true value, which would not sit well with any review board looking into breaches of fiduciary duties.
Would the average agent in your area really take on listings at $100,000 over its market value and do sellers in your area actually sell for 81.6% of their asking price? I would think that if that started happening there would be a lot of law suits for and claims on errors and omissions insurance, especially since setting the listing price is a big indicator of whether an agent is competent or not.
I have a feeling that the actual proper average percentage is a lot higher than the 81.6% stated in the report. However, without the information it is hard to prove. Redfin is probably correct that they cannot publish the information in that the information they would be publishing is not part of a “NWMLS report or statistic” and publishing the information required to make the appropriate calculations would mean opening up the MLS® system to the public, and isn’t there a lawsuit going on over protecting Realtors® rights to keep their MLS systems private? [facetious question
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Marlow, I am not sure you believe your own argument. We all know that a 19% discount to listing price is not the norm for any brokerage; for every $500,000 home sold at list price, another would have to sell at nearly $200,000 below list price.
It may be that the NWMLS delta is the result of comparing two data sets: one data set would be homes listed between January 1, 2006 and December 31, 2006; the other data set would be homes that closed between January 1, 2006 and December 31, 2006.
So it may be that homes that were listed on December 31, 2006 listed at a higher price than those that closed on January 1, 2006, with the 19% difference simply reflecting appreciation. It may be that the NWMLS median list price includes homes that never sold because they were overpriced.
The truth is, we don’t know how the NWMLS calculated this 19% difference. The NWMLS did not publish its methodology. Rather than speculating any further, we’ll do our best to find out, and we’ll let you know when we do.
We do know how we calculated our numbers. We evaluated only pairs of data: the list price of a property that closed, and the final price of that property. And we evaluated every single condominium and single-family home that closed in King County between February 6, 2006 and February 5, 2007. Surely we all agree that this is the most precise way to assess whether a brokerage tends to negotiate above or below list price on a particular property for its buyers.
For these reasons, I am not sure if you are actually standing behind the NWMLS numbers you cite as an accurate reflection of agents’ negotiating ability. But we are standing behind ours.
If your goal is to validate or invalidate our findings, you can simply review the data for each transaction. We provided instructions for replicating the data set from the NWMLS, so you do not have to trust us. At your request, we’ve also sent you the raw data for every closed transaction between February 6, 2006 and February 5, 2007, so you don’t have to go to any trouble.
But attacking our integrity creates an obligation. If your findings are different than ours, we are sure you will publish our mistake. If your findings are the same as ours, we hope that you will publish that result as well. We operate under the same obligation: if we can find out how the NWMLS calculated its 19% difference, we will explain the discrepancy.
But let’s not fling mud at each other just to obscure the truth. In real estate, all records are public, and the facts can readily be established.
Hi Marlow- Great coverage and great blog by the way. Here’s another perspective on Redfin and the industry.
http://cosmoseattle.blogspot.com/2007/02/web-20-machine-is-using-us_26.html
These guy really are great with their PR.
My take on this… Quantifying a broker’s/agent’s negotiating skill is difficult to do because it is so heavily affected by the client. In Redfin’s case (and TerritoryRE’s) our clients tend to fit a certain prototype and from my experience they negotiate much more aggressively than the “average” client. On top of that, Redfin presumably did the majority of their deals in the latter part of the year when the market was in its downward spiral this could have biased the results in their favor.
Are the statistics enough to really prove they are better negotiators? I doubt it. Is it good enough to convey that impression to the press and the general public? Probably.
Either way after you throw in the rebate there’s no way their clients didn’t get a better deal.
For comparisons sake on transactions where the buyer has been represented by a TerritoryRE Guide the average ratio between List Price and Selling Price is 93%. Average for our market is 96%. Add an average rebate of 1.8% and we are looking at a difference in purchase price of almost 5% vs working with the average agent.
Glenn,
Yes, thank you for the data. As I stated in my post and as the raw data reflects, Redfin buyers in King County paid 99% of the list price for a home from 2/6/06 to 2/5/07. That is not in dispute.
What I do question is your interpretation of this data.
Personally, I believe in the integrity of the NWMLS numbers, and I have noted your correct assumptions (Redfin buyers in King County paid 99% of list price).
But the chart showing median list price v.s. median sales price for 2006, is also correct. You can draw whatever assumptions you wish from that, but I (and the NWMLS) stand by those statistics and that chart.
Marlow,
It really doesn’t matter what the median list price to median sale price ratio is. They are two independent numbers that do not relate to each other. This is because there are a lot of homes that do not sell because they are listed too high. They may also expire and then get listed again at a price that will not sell despite agents and sellers knowing about the downward price trend that seems to still be effecting the USA housing markets (or that is what I am led to believe from general media, which is hard to trust with some of the @#$% that they publish).
The only statistic that matters when looking at sale price percentages is the average sale price to listing price for the same homes that sold.
I can list 1000 townhouses for $1,000,000 and not one of them will sell, but the median listing price is going to increase a whole lot more than the median sale price. As it is Median prices are a waste of time in most cases because it only tells you what the middle priced home was there could be 1000 homes listed at $200,000 1 home listed at $500,000 and another 1000 homes listed at $1,000,000 or more and the median price would still be $500,000 even though it was the only home listed between $200,000 and $1,000,000.
So what does a median price get you? Nothing, unless you have other statistics to compare it to and the ability to see past the numbers and see what the numbers really represent.
I hate to say it, but this posting seems more like a poorly thought out attack on Redfin. Not that I could care less about the company, but if you are going to attack someone please make sure that your argument has some validity. When you argue apples with Oranges you can do nothing except lower your own image especially when your apples are looking a little over ripe. either that or you were really short on topics to write about in which case silence would probably have been better.
As someone who lives inside the real estate numbers I thought I would add my 2 cents to this post.
I have reviewed Redfin’s numbers and their numbers match their statement. (Don’t get excited yet, Glen)
Here is my opinion on the numbers that Redfin presented.
Redfin is comparing 126 residential sales to the 27,000 + residential sales that occurred in the same time frame (this is a very small sampling). If you look at all the offices that had a sale during the time frame that Redfin is using you will find that 951 offices had a selling side transaction. If you ordered those 951 offices by list price /sale price ratio you would see that Redfin falls in at 351 from the top. That means that approximately 1/3 of all companies that sold properties during that time frame had a better list price to sale price ratio for their buyers then Redfin did.
As far as the NWMLS numbers that Marlow quoted she is 100% correct it what she stated. I do believe there is a missing number in the report that the NWMLS puts out which would give a closer representation of list price to sale price ratio. That would be the medial list price of the homes that sold. By comparing the Median list price of sold homes to the median sale price you would get the actual list price to sale price ratio.
Allen,
Thank you for taking the time to crunch the numbers. I know you’ve spent many years analyzing MLS data, and your input is appreciated.
G’day,
And thanks for the information…
Its great to read about the differing markets as we surf the www.
Also, a quick way to do deals from the comfort of my lounge room.
Good to see the banter back and forth too…
Marlow, I knew someone up there in Seattle would take a deeper look into this.
The numbers are what they are. I certainly appreciate Allen’s take on this. The only question I have is…Why didn’t Redfin put out a press release stating that they were the 351st most effective buyer brokers in the Seattle area?
I posted a comment on Rain City Guide and followed it up with a full write-up on my blog.
The basic point I try to make is Redfin represented a miniscule percentage of the number of transactions. …the number is statistically irrelevant (in my opinion) to draw the bold conclusions that they so happily published.
I was recently asked if I was moving to Seattle if I would use Redfin. I would not. Its a personal choice and every can make their own decisions. My decision would not be based so much in whether I am getting a home for 99 or 101 percent of list price. In the Austin Real Estate market I have seen some homes appreciate 40 percent while others have appreciated 5 percent over the same amount of time. The difference in future value far outweighs the savings of a few percent initially. I would look for an agent that could help me understand the different forces affecting the market and affecting different neighborhoods I was interested in. Taking the long view I would rather pay a few extra percent for a knowledgeable agent that could help me maximize my long term gain in the market.
Great job checking facts Marlow, and Allen- hats off to you for adding valuable information on the discussion.
So Redfin does better than 2/3 of real estate agencies for list price/sale price and provides a 2% refund to their clients… Ouch in deed, but not for Redfin. The winds of change are blowing.
James, regarding your comment on whether the data is statistically significant, please see: http://blog.redfin.com/redfin/2007/02/redfin_starts_a_riot.html
According to our calculations it is.
This is a fantastic discussion (thanks Marlow and others for the number crunching!)
Was Redfin’s “advantage†analysis and subsequent PR statement positioned to make them look as successful as possible? Undoubtedly. Is this unusual? Not really. Was it inaccurate? I think the authors above are answering that question.
To follow up on Paul’s comments, however, the questions we should be asking next are:
- how is it that Redfin beat 2/3 of the local competition in their first year out? and
- what does the real savings look like once the lower commissions are factored in?
As long as Propertyshark.com doesnt jump the shark I think we are all ok.