Redfin vs. traditional broker

[EconProf]

I’d like to bring this forum topic back to it’s original question–is the Redfin model superior to, and about to displace, the traditional model of choosing a broker to sell one’s house?
This suspicion is prompted by the observation that, while house prices since the trough in about 2008 have doubled or tripled, the 6%, or perhaps now 5% cost to the seller has ballooned their compensation. Meanwhile technology has enabled buyers and sellers to access far more market information that was previously exclusive to brokers. Along comes a market disrupter, Redfin, that promises to radically cut selling costs. In addition, Redfin promises to vastly increase the home sellers exposure to potential buyers via virtual tours that artfully showcase the property with the new visual technology for potential buyers. COVID-19 and sellers’ reluctance to allow unlimited strangers to traipse through their house at inconvenient times or host awkward open houses further favors the Redfin approach.
SDrealtor and Jim the Realtor have correctly pointed out that having an knowledgeable and experienced realtor list your home and guide you through the selling process is valuable. But that roughly 2% of your selling price is a lot of dollars given today’s house prices. And Redfin’s virtual tours showcase the house in minutes to a market increasingly comfortable with new ways of doing business.
New technology, and now COVID-19 have disrupted so many industries and ways of doing things. I dropped the Union Tribune and WSJ after decades of subscribing because I now get my news free or at little cost on-line. Magazines are mostly gone. I’m guessing half of movie theaters are doomed. Malls are dying…the list goes on.
So the question remains: Will Redfin, and maybe similar companies (Zillow?) change forever the process of buying and selling real estate?

[Coronita]

.
I don’t think redfin’s discount is really that special. I can think of a few Chinese agents in my circle of friends that offer comparable discounts. Then again, it was certainly an interesting experience.

[sdrealtor]

EP
To get back to your points its not RDFN but rather the whole industry.

6% at least in this market and to my knowledge most has not been the rule for about 15 years. I wish people would stop using that as it hasnt existed for a very long time as the standard. Most total commissions fall between 4 and 5% which has been supported by higher prices as you surmise.

The technology they have we all have access to. They have a wonderful sticky consumer facing app but other than that have no technology we all dont have ready access to.

Technology provided buyers and sellers far more information that was previously available only to brokers but it was Zillow more than anyone who was responsible for that and it too happened well over a decade ago.

The description you posted of what they offer sounds like it was written by some RDFN marketing guy. Its a sales pitch not reality.

Virtual tours have helped increase exposure but it happened a decade ago and is being refined by independent tech companies. Why would the developer of a great technology license it solely to a single market participant with under 10% market share at a enterprise price when they can sell it to the entire market at higher prices?

What virtual tours help most with is ruling out buyers the home would not work for. In the end there is no substitute for walking in and around a home. Viewing a home in person creates visceral reactions, you feel the home when you are there. You can see how the home was cared for, you can feel whether there is a breeze or not out back, how the sun hits your yard, the activity or noise in the neighborhood and so much more. For this reason buying online will never be a perfect substitute for seeing a home in person.

Comparisons to travel, newspapers, autos, movies, books and stocks fall short because those are all essentially homogenous goods. Everyone who buys one of those gets the same thing. In your language they are perfect subsitutes for each other. Homes are all unique. Everyone is different. Two homes with the same floorplan in the same community across the street from each other can be dramatically different. Your experience with a newspaper or movie lasts a couple hours. A book a couple days and a car a few years. A house can be your home for decades. They just arent the same and the purchase decision is far more complex with the legal aspects of real estate ownership and lending.

RDFN has created an assembly line doing what everyone else does but in an inferior manner with hopes of achieving economies of scale on their side. The experience always comes down to the individual agent (as Svelte pointed out above in his negative experiences) whether it is with them or someone else.

ZG is another story. They actually changed the process giving consumers access to information but they are not primarily in the business of buying/selling real estate. That has changed slightly and could in the future but presently their business is building an audience with information that allows them to sell advertising to realtors and lenders.

The process has and will continue evolving but it is not RDFN leading that change. The business of selling real estate is also nowhere near as profitable as the general public perceives it to be and participants are paid on a contingency basis. Consumers are not willing to pay upfront for our time which could lower total costs. The only true way to lower costs would be single agency which means buying directly from the seller or the listing agent. Having expereince with the morality of people in general when selling their homes and realtors specifically this would be fraught with risk for buyers and would not be a better system IMO

[sdrealtor]

[quote=svelte]We shall see if Redfin is profitable in 5 years.

I didn’t even know about the iBuyer concept – looks like it has about 3% of the market share of the 18 biggest markets:

https://www.prnewswire.com/news-releases/ibuyers-rapidly-snap-up-market-share-across-southern-metros-redfin-finds-300972952.html

Seriously, if I were buying and selling a home I wouldn’t really care if Redfin was profitable right now – I’d just look at how I could get the most money.

As for the quality of the agents, I can’t really vouch because I’ve only dealt with two and they were both great. I could tell you horror stories about traditional realtors I’ve dealt with. For example, when I was selling a house about 15 years ago, my first realtor approached me with a deal to sell my house for $100K over the asking price if I would return that $100K to the buyer after the transaction. I fired him. Another one told me he submitted my bid on a home in northern California to the seller’s agent. When I didn’t get a response from the seller, I contacted him directly. Apparently the offer was never presented to him. We were able to work out a deal.[/quote]

Yes we are all different whether we are employed by RDFN or independent contractors as most of us are.

Redfin exists by marketing themselves as lower cost when they are not.

All the industry analyst reports I read assign zero value to their iBuyer business.

I agree that in end it should be about getting the best result but RDFN has far from any monopoly or advantage in that regard. I could offer a better expereince for far less then them if I chose to and sometimes do. Also it isnt always about getting the most money. Sometimes the terms of the sale are equally or more important then getting a few thousand dollars more. Sometimes getting the right house is more important then a small rebate at closing. One thing I have learned is that there is NOTHING more expensive then buying the wrong home.

Thank you for helping to bring real estate discussion back to Piggington. It is such a seemingly simple thing on the surface but those of us who have lived it for decades understand it is far more complex then you could imagine.

[svelte]

[quote=EconProf]
So the question remains: Will Redfin, and maybe similar companies (Zillow?) change forever the process of buying and selling real estate?[/quote]

In my opinion, there is room for both and neither will die.

First time buyers in particular need to be guided through the buying process. Redfin can do it, but some may want an even closer personal touch that a traditional realtor can do.

I just guided a relative through the first time buying process and they were extremely confused even though they had a traditional realtor (RE/Max). They’d call me each evening and tell me what the realtor said, and either the realtor was way off or they mis-translated what they thought they heard…I still had to give a LOT of guidance even though they had a traditional realtor.

The internet is giving folks an entirely new option for buying. Even in cars sales – look at the Tesla model where there are no dealerships, though you can go to a company storefront to test drive.

The ratio of traditional vs net-based will continue to change with net-based deals becoming more prevalent, especially with those who are younger.

[sdrealtor]

[quote=Coronita][quote=sdrealtor][quote=svelte][quote=sdrealtor][quote=svelte]All I own are mutual funds…I’m not into the legalized gambling of individual stocks. 🙂

I think Redfin will be a stronger and stronger player going forward. Time will tell which of us is right.[/quote]

I’ll take that bet but advise you against it as I only take bets I know I already won like this one way back when. [/quote]

Ok but let’s define the parameters. When I showed you data with their sales up and their stock price up, you batted those down as not applicable because they didn’t fit your criteria of a successful company for some reason.

What criteria can we use? Their number of homes sold per year higher in 5 years than today? I think that’s a fair estimation of “stronger”.[/quote]

I only use one criteria. Profitability. Buying market share is easy when you are playing with VC/IPO money but it only last so long. To be viable as a going concern you need to be profitable. Eventually you have to make money. I think we’d all agree on that

Like seriously. They have a $4B market cap, never made a penny and probably won’t. Some joker in Carlsbad is more profitable then they are or will ever be[/quote]

Wait, so basically the Compass business model is like the business model of CarOrder.com and MoviePass where you sell (give?) a loss leader product away in exchange for the right to name you as a customer with the hopes that your business will reach critical mass and have a huge pool of customers that you can sell much more lucrative business or services to, like Google ads.[/quote]

Not quite, Compass came to the industry loaded up with VC money and a promise to change the industry. They recruited an incredibly strong pool of agents initially with promises of wealth through stock options that agents watched their clients profit from. Realtors are an easy target for the sharpest salespeople on the planet. To their credit they have assembled a very impressive collection of great agents and have quickly built a very strong brand.

Compass has a very high internal cost structure with hundreds of Coronita’s creating software. They are trying to position themselves to be valued as a tech company rather than a real estate brokerage which is worth far less. The sales pitch to the agents is they are going to change the industry. The reality IMO is they have been building a company from day 1 they can sell through public equity markets or leveraged buy out. The minute the founders and initial investors can cash out with FU money they will be sipping cocktails on a beach. They will leave the change the industry part to the greater fool that buys them.

[sdrealtor]

[quote=svelte][quote=EconProf]
So the question remains: Will Redfin, and maybe similar companies (Zillow?) change forever the process of buying and selling real estate?[/quote]

In my opinion, there is room for both and neither will die.

First time buyers in particular need to be guided through the buying process. Redfin can do it, but some may want an even closer personal touch that a traditional realtor can do.

I just guided a relative through the first time buying process and they were extremely confused even though they had a traditional realtor (RE/Max). They’d call me each evening and tell me what the realtor said, and either the realtor was way off or they mis-translated what they thought they heard…I still had to give a LOT of guidance even though they had a traditional realtor.

The internet is giving folks an entirely new option for buying. Even in cars sales – look at the Tesla model where there are no dealerships, though you can go to a company storefront to test drive.

The ratio of traditional vs net-based will continue to change with net-based deals becoming more prevalent, especially with those who are younger.[/quote]

Yup, we are all different and expereince matters. Character matters even more. This is a very fragmented industry.

The name of the brokerage (ReMax in your case) is irrelevant. You are dealing with an indivisual agent in every case whether its RDFN or a traditional agent. Your real estate experience is entirely dependent upon that indvidual not who they work under.

Again we arent selling homogenous goods like Teslas which BTW I own one and love. Every home is different. Every buying experience is different.

[scaredyclassic]

[quote=EconProf]I’d like to bring this forum topic back to it’s original question–is the Redfin model superior to, and about to displace, the traditional model of choosing a broker to sell one’s house?
This suspicion is prompted by the observation that, while house prices since the trough in about 2008 have doubled or tripled, the 6%, or perhaps now 5% cost to the seller has ballooned their compensation. Meanwhile technology has enabled buyers and sellers to access far more market information that was previously exclusive to brokers. Along comes a market disrupter, Redfin, that promises to radically cut selling costs. In addition, Redfin promises to vastly increase the home sellers exposure to potential buyers via virtual tours that artfully showcase the property with the new visual technology for potential buyers. COVID-19 and sellers’ reluctance to allow unlimited strangers to traipse through their house at inconvenient times or host awkward open houses further favors the Redfin approach.
SDrealtor and Jim the Realtor have correctly pointed out that having an knowledgeable and experienced realtor list your home and guide you through the selling process is valuable. But that roughly 2% of your selling price is a lot of dollars given today’s house prices. And Redfin’s virtual tours showcase the house in minutes to a market increasingly comfortable with new ways of doing business.
New technology, and now COVID-19 have disrupted so many industries and ways of doing things. I dropped the Union Tribune and WSJ after decades of subscribing because I now get my news free or at little cost on-line. Magazines are mostly gone. I’m guessing half of movie theaters are doomed. Malls are dying…the list goes on.
So the question remains: Will Redfin, and maybe similar companies (Zillow?) change forever the process of buying and selling real estate?[/quote]

Information is worth paying for, if its the product of thought. I subscribe to a wide range of many magazines and its worth it

[sdrealtor]

More than anything it’s nice to be talking about real estate again. I owe you all a couple updates. Ran the data yesterday but need to post it

[EconProf]

[quote=sdrealtor]EP
To get back to your points its not RDFN but rather the whole industry.

6% at least in this market and to my knowledge most has not been the rule for about 15 years. I wish people would stop using that as it hasnt existed for a very long time as the standard. Most total commissions fall between 4 and 5% which has been supported by higher prices as you surmise.

The technology they have we all have access to. They have a wonderful sticky consumer facing app but other than that have no technology we all dont have ready access to.

Technology provided buyers and sellers far more information that was previously available only to brokers but it was Zillow more than anyone who was responsible for that and it too happened well over a decade ago.

The description you posted of what they offer sounds like it was written by some RDFN marketing guy. Its a sales pitch not reality.

Virtual tours have helped increase exposure but it happened a decade ago and is being refined by independent tech companies. Why would the developer of a great technology license it solely to a single market participant with under 10% market share at a enterprise price when they can sell it to the entire market at higher prices?

What virtual tours help most with is ruling out buyers the home would not work for. In the end there is no substitute for walking in and around a home. Viewing a home in person creates visceral reactions, you feel the home when you are there. You can see how the home was cared for, you can feel whether there is a breeze or not out back, how the sun hits your yard, the activity or noise in the neighborhood and so much more. For this reason buying online will never be a perfect substitute for seeing a home in person.

Comparisons to travel, newspapers, autos, movies, books and stocks fall short because those are all essentially homogenous goods. Everyone who buys one of those gets the same thing. In your language they are perfect subsitutes for each other. Homes are all unique. Everyone is different. Two homes with the same floorplan in the same community across the street from each other can be dramatically different. Your experience with a newspaper or movie lasts a couple hours. A book a couple days and a car a few years. A house can be your home for decades. They just arent the same and the purchase decision is far more complex with the legal aspects of real estate ownership and lending.

RDFN has created an assembly line doing what everyone else does but in an inferior manner with hopes of achieving economies of scale on their side. The experience always comes down to the individual agent (as Svelte pointed out above in his negative experiences) whether it is with them or someone else.

ZG is another story. They actually changed the process giving consumers access to information but they are not primarily in the business of buying/selling real estate. That has changed slightly and could in the future but presently their business is building an audience with information that allows them to sell advertising to realtors and lenders.

The process has and will continue evolving but it is not RDFN leading that change. The business of selling real estate is also nowhere near as profitable as the general public perceives it to be and participants are paid on a contingency basis. Consumers are not willing to pay upfront for our time which could lower total costs. The only true way to lower costs would be single agency which means buying directly from the seller or the listing agent. Having expereince with the morality of people in general when selling their homes and realtors specifically this would be fraught with risk for buyers and would not be a better system IMO[/quote]

6% long gone and 4-5% standard? News to me. Shows how far out of date I am. Question: Does a high value house in this hot market with low inventory of available properties make that negotiated commission lower? Seems to me it ought to. How does the seller contemplating selling negotiate that?
Regarding your pros and cons of remote visual tours vs. on site inspections, of course the latter is superior. But the time factor is relevant. A buyer can see dozens of possibilities remotely, then decide on one or a few to see in person. Isn’t that how it usually works?

[sdrealtor]

Very high value homes are often discounted more but the truth is the owners of them want money spent on high profile but ineffective marketing mediums like Dream Homes magazine. Its an ego thing to see your home in it. They also take longer to sell, sometimes years and quite often dont sell. Many agents operating in the high end markets do 2 to 4 transactions a year after spending months and months with clients not getting paid anything. Its the nature of that market.

As for remote visual tours being used to screen many homes the answer is yes. Its been that way for over a decade and none of that is new. Personally I think great quality stills are more effective then video and most tours are just slide shows of stills anyway.

So much perceived differentiation out there is marketing spin. The nuts and bolts of this business have changed little. Answer your phone, communicate effectively and work collaboratively. None of this is rocket science. The real differentiation is character and what your agent does when no one is watching. Just like in life.

[EconProf]

[quote=sdrealtor]Very high value homes are often discounted more but the truth is the owners of them want money spent on high profile but ineffective marketing mediums like Dream Homes magazine. Its an ego thing to see your home in it. They also take longer to sell, sometimes years and quite often dont sell. Many agents operating in the high end markets do 2 to 4 transactions a year after spending months and months with clients not getting paid anything. Its the nature of that market.

As for remote visual tours being used to screen many homes the answer is yes. Its been that way for over a decade and none of that is new. Personally I think great quality stills are more effective then video and most tours are just slide shows of stills anyway.

So much perceived differentiation out there is marketing spin. The nuts and bolts of this business have changed little. Answer your phone, communicate effectively and work collaboratively. None of this is rocket science. The real differentiation is character and what your agent does when no one is watching. Just like in life.[/quote]

Thanks for the detailed answer. Yes, we all know about super high-end homes that are unique and spend a lot of time on the market and end up finally selling far lower than the original price.
My question was more about whether a lower commission rate is easier to negotiate on say a million dollar house vs.a half-million dollar one. They are roughly the same amount of work for the seller’s broker, so shouldn’t a lower rate apply?
And wouldn’t another factor apply–whether or not its in a newer neighborhood where there are lots of similar comps available to determine an appropriate price? A fairly priced house in today’s low-inventory market should be easy to sell, making brokers compete for the listing.

[scaredyclassic]

interesting question.

in my mind, pricing legal work, i’d want more money for a higher stakes case, even if the work were identical.

I’d also want more money if the client was difficult to work with.

not sure if house selling is different.

I’m wondering what the pitfalls are to representing one’s self in a sale.

[svelte]

[quote=scaredyclassic]
I’m wondering what the pitfalls are to representing one’s self in a sale.[/quote]

My Dad has done that. Worked out fine.

However, he did not recommend it. After several buying and selling transactions, he said it would be better to BUY from a FSBO and sell through a real estate company.

Here’s why:
When you buy from a FSBO, you know they’ve had less traffic because realtors shun FSBO homes…therefore, you can negotiate the price lower with the seller.

When you sell using FSBO, the shoe is on the other foot: you get less traffic because realtors shun FSBO and potential buyers know it and offer you less. Therefore, what ends up in your pocket is not much different than if you listed with someone but you end up with about the same amount of money.

That was his theory. Sounds reasonable to me, though it is opposite what my intuition would think.

[scaredyclassic]

i always assume my intuition is wrong. and assuming I’m an idiot with incorrect intuition usually works out to be correct.

[Author]

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