Redfin announced today that it just received a $1.25 million dollar cash infusion from Madrona Venture Group today.
In case you haven’t heard of them before, Redfin is a real estate agency with a website that has an interactive aerial search function.
It started out trying to hook up buyers with independant agents, but then moved to having their own in-house agents. Over time, it became almost hostile to other real estate agents and burned some bridges in the process. They now have one broker and one real estate agent to handle incoming leads from their website.
Founded by techies, they realized they had a nice search function, but were feeling around for ways to make money with it. Obviously, neither approach pulled in the dough that they wanted. They turned to finding a big name to bring on board, and then to getting some venture capital to keep the business up and running.
The problem is, do they have a sound business model?
At this point, they’re just another small real estate firm with an average sales record.
According to NWMLS records for 2005, last year Redfin had 24 home sales. Based on an average 6% commission (or 3% to the sales office), that is approximately $270,000 income for the year. It may have even been less, as they’ve been known to discount their listing fees. According to their website, they have 4 managers. They also have two real estate agents licensed by the State of Washington, for a total of 6 people. I’m assuming they also have additional staff, but just going on their listed 6 employees, at $270K a year, that’s about $45K a year income per person. That’s not counting overhead such as office rental, computers and such. That probably brings it down closer to $35K a year income per person. Wow. And now they’re talking about moving down into California. WHY? If they’re not making any money here in Seattle, why expand? If it won’t work here, who go down there?
How on earth did they talk Madrona Venture Group out of a million bucks? If their income was what I’ve surmised, then I’m guessing most of that $1.25 million is going to pay the new CEO’s salary.
Glenn Kelman, co-founder of Plumtree Software, has been hired as the chief executive officer, and Brian Marsh, a senior manager from Amazon’s community group, is the chief technology officer. Redfin founder David Eraker will continue to lead the company in business development and product strategy.
Glenn mentions in the Seattle Times 1/9/06 “when looking for a home, he used Redfin.com.” He may have seen the listing there, however, records indicate it was listed and sold with Windermere, not Redfin. I won’t mention the sales price (though it IS a matter of public record), but I will say that it sold for almost $30,000.00 more than asking price. You can draw your own conclusions about all this. But if Windermere was the listing and the sales agent, exactly how did Redfin make any money on this sale? I think the answer was, they didn’t. As this illustrates, just having a fancy website does not guarantee one will make money from it.
On an interesting side note, a press release from the company dated 1/9/06 states that “After more than a year as Seattle’s most popular site for residential real estate…..” I thought that this statement didn’t ring true, so I thought I’d try to check. Though I don’t have access to a specific number of hits, I can make some inferences using some web tools. For instance, using the Link Pop check on MarketLeap.com, Winderemere comes in at 133,076, Coldwell Banker Bain at 5747, www.SeattleDreamHomes.com at 4769, and Redfin at only 1770.
Using their Search Engine Saturation function, I found Windermere to be at 14,640, www.SeattleDreamHomes.com to be at 2,684, Coldwell Banker Bain to be at 1,378 and Redfin trailing at 393.
One can use the Alexa rating, but that it very limited in scope as it only tracks those that have the toolbar. They look at all of the traffic numbers and then put all the websites that are out there in order. So if you are #1 that would mean you had more traffic than any other site out there per the numbers Alexa collected (again limited data).
Here are a couple of examples:
Redfin has a ranking of 49,636
Windermere has a ranking of 3,343
So, this would mean Windermere is more than 10 times more popular than Redfin.
These numbers are really easy to manipulate as it tracks such a small amount of websurfers that one person could spend an hours on their site clicking on a bunch of pages and push themselves to a pretty high number. Worse you can use a bots to visit your site and boost the numbers. But, with that said, it is a way to get a very general idea of the traffic a site might be getting.
So is Redfin the “most popular site for residential real estate”? Hardly. Hyperbole and puffery is not new in the world of real estate!
Here’s a great interview with the new CEO of Redfin by John Cook. Be sure to click on the audio interview! John Cook’s Venture Blog
Updated Redfin News 5/31-6/2
The Future of Real Estate Marketing