Redfin just got another $70M to open up new markets and to further their attempt to break the real estate business and to change it into their vision of how the game should be played. Changing the current model of the sales agent as servant and facilitator in a service business and trying instead to change agents into order takers and to make a house a commodity, seems to be their end game, and by slowly rebating and refunding the venture capital back to buyers and sellers, they continue devaluing their service and chasing their discount fees lower and lower.
Their buyer refunds and discount listing fees are “loss-leaders”, but there’s no other way to make up those lost profits, as that’s the only product they’re selling. If the scenario plays out the way they hope, they will have broke the current system of real estate sales and force everyone to severely discount their fees until there’s no profit for anyone.
Like the gas station wars of yore, they lower their prices and continue to under-cut their competition in order to destroy them.
But as they are finding out, it’s hard to make a profit when refunding half of it right off the top. There is no “extra” to refund…. after paying their sales staff their salaries, cell phone bills and health benefits and paying their upper management millions of dollars, they have to go after more and more cash infusions to keep the business afloat. If that was not the case, they would have already gone public. And now that their total funding is over $165M, no one will be able to buy them out. Why would anyone buy an unprofitable company for that much money, one with no hope of ever turning a profit in their present incarnation.
While they may issue press releases about their “profitability”, just because the didn’t lose money in one particular quarter does not mean their profitable, not with that $165M+ equity financing on their books.
If converting agents to employees or paying them a salary made financial sense, then brokerages would rush to convert all of their commission-based sales people into employees.
If it were possible to make money hiring agents and paying them a salary, then Foxton’s would still be in business.
If it made financial sense for real estate firms to have agents become employees, then Zip Realty wouldn’t have had to lay off all of their workers.
The argument made is that Redfin has agent employees, and they are “profitable”.
Do not believe Redfin’s press releases.
They may have, on occasion, made more money in a month than they spent, but they are still far from profitable.
Redfin is still $30M in the hole and the money they are refunding to their buyers is the money that they received from venture capitalists. The only hope they have to pay that back is to find a gullible buyer.
If this kind of business model made financial sense, there would be more imitators.
Seattle real estate lost a wonderful person and an incredible resource when Windermere broker and home staging expert Jan Sewell died in September.
Jan was a vibrant and creative source in our field, and she is incredibly missed.
Jan was our “Wolf’, like the character Harvey Keitel played in “Pulp Fiction”, who was brought in to clean up and take care of the details after a murder. Jan was often brought in, in the same way, to clean up, pick up the pieces, keep everyone calm and be a problem solver. Like “The Wolf”, Jan cost a lot of money, but it was always dough well-spent.
Almost everyone has a story about how Jan went in and cleaned up one of their listings, turning a sow’s ear into a sparkly silk purse. If it was just once or twice, it wouldn’t be remarkable, but it was house after house, month after month, year after year, where we would watch her sell an “unsellable” home.
Observing her talents was a test tube experiment happening before our eyes, and measuring the results were quantifiable in a way we could all understand.
One day there’d be a nasty, rat-infested, outdated, functionally obsolete crapper. Maybe it had been sitting on the market for months. Enter Jan and her crew and they could do a transformation with illusion, furniture, art and a couple of cans of paint.
Her creativity and inspiration would transform a hovel into a home and we’d seen it time after time. From teeny-tiny little crackerboxes to stately homes in Madison Park, she weaved a spell with spackle and duct tape, creating a vision of a life well-lived.
Just a few months before she died, Redfin’s CEO, Glenn Kelman bought one of her “creations”, a transformed 1904 home that was bought and flipped by a builder. The builder paid $1M, then called in Jan Sewell to design, decorate and weave her magic, and it worked! The Redfin exec bought the home for $1,780,000. Real estate sales at Redfin must be going like gangbusters. Or maybe it’s just money magic with investors and their venture capital. Don’t know, but good thing he got that Redfin rebate.
You can see “Before” and “After” photos of Jan Sewell’s magic and be amazed. Though the contractor did quite a bit of work, it was all designed by Ms. Sewell.
(According to Redfin and KC tax records, the same Redfin exec recently sold a townhouse for $610,000 that he had bought in June 2007 for $745,000. Maybe he should have called in Jan Sewell to stage it and he wouldn’t have taken that $135,000 hit!)
Last month, we received a note from Jan Sewell’s partner that even though Jan is gone, Jan Sewell Design will still live on. From the note:
Jan Sewell was an icon in Seattle’s staging community. Since her passing many of you have asked what the future holds for her company. Over the past few years Jan was able to turn the responsibilities of her staging business over to her design team, allowing her to devote herself fully to real estate. Although we miss Jan dearly, the team is still intact and we are moving forward, as she wanted. Jan Sewell Design has earned a reputation for excellence and a distinctive design style. We are proud to carry on this legacy.
This evening is a special sale of some of the fabulous art work Jan collected throughout her life, and this private sale will take place at the Art Stable, designed by Tom Kundig of Olson Kundig Architects. This should be an exciting, but melancholy art sale and memorial to a talented designer.
Several years ago I had a housing complex of 12 homes for sale in a development that were listed for over a year before I took over the listing. I asked Jan Sewell to partner with me, and we got every single one of those listings sold, through her design magic. I’m still looking for some “Before” pix, but you can see “After” photos here.