I think I’m just going to change the name of this blog to “Redfin Watch”….. Here I was, enjoying my lovely summer vacation, when I read the news of Redfin snagging another $12M in funding. I ran the latest numbers on Redfin, comparing them with Buy Side and a few other companies around the Puget Sound area and found 218 sales of SFR’s with an average sales price of $547K and 68 condos at an average sales price of $343K. I also found 194 listings sold.
Based on those figures, if we go on an average commission of solds of 3% and they’re keeping 1% of that, commissions received on solds would total $1,192,460 for SFR’s and $230,520 for condos. They’re charging $3K for each listing, so that would bring in another $582K, for a total of about $2M in commissions.
On the other hand, they have 34 sales agents listed in the Seattle area. I’m not sure what they’re paying them, but it’s got to be at least $40K a year, so that would be labor costs of $1.3M. Maybe a dozen tech people at a very conservative $50K a year. That’s another $600K. And let’s just say they pay their managers $300K a year….. Now we’re way over the $2M they’ve made so far…… I’m just not seeing how this is a viable business concern, but CEO Kelman doesn’t seem fazed. “So far, the business has been growing really well,” Kelman told Inman News. “All this concern about whether or not the model can make a profit hasn’t really been based on anything we’ve seen.” He also went on to say “It takes about six months for a new market to become profitable for Redfin”, but I’d be very interested to see which market is now profitable for him, in that the company brings in more money than it makes.
In John Cook’s post, he writes “Since its launch 17 months ago, more than 500 homes — valued at more than $350 million — have been bought and sold through Redfin.” So using those figures, if they’re keeping about 1%, they’ve made $3.5M, but that’s over the last 17 months, where my $2M figure is just from 1/1/07 until today. Cook pegs total Redfin employees at 75, which at a conservative average of $50K per employee (less for administrative, lots more for management), brings the yearly labor tab at $3,750,000, not counting other overhead and tech costs.
I thought we were going to have to wait until next weeks Naked Truth or the big Inman Connect conference in San Francisco to hear their news, but I guess the timing of the announcement allows him to now discuss his expansion into D.C. at greater length rather than performance of the markets they’re already in, such as Seattle, San Francisco and L.A.
I was surprised the champion of transparency didn’t discuss the sale of his own home and purchase of a smaller townhome in Seattle at greater length, like Rich Barton of Zillow did when he sold his house earlier this year. Not that it’s necessarily the public’s business, but using your own real estate company to sell your own house is interesting to readers and investors and certainly worth blogging about.
Redfin’s performance in the Seattle market has been excellent compared to Buyside’s entry (total sales for 2007 in Seattle: 0), and I expect that Seattle will continue to outperform any of the other markets, at least for a while. Redfin’s big news in Seattle because they’re based here and we have a high tech culture and focus. However, with no John Cook, venture blog or other champion of limited service realty in these additional cities of expansion, Kelman will have to find a new dancing partner to keep the beat and up the buzz he’s attained here.
Kelman is one of the speakers at the Real Estate Connect conference at the end of this month, as are Rich Barton and Craig Newmark and I look forward to meeting them and to hearing more about market trends in the real estate industry. If you’re coming to San Francisco, I’ll be speaking on the panel “Finding Your Voice” at Bloggers Connect. They say that personality is key to successful blogging, so we’ll be discussing methods to infuse color into a blog, even if Redfin hasn’t come to your city yet
Ardell DellaLoggia, Associate Broker, Sound Realty
Philip Ferrato, Editor, Curbed SF
Drew Meyers, Community Relations Specialist, Zillow.com