Why Redfin Will Be The Nation’s Biggest Brokerage

A recent article on Inman said Redfin may not be the nation’s biggest brokerage (yet). But it operates what’s by far the most popular real estate brokerage or franchise website. Why do so many consumers start with Redfin? CEO Glenn Kelman explains

Redfin

I remember not too long ago, when Trulia and Zillow were raising huge buckets of venture capital money, Redfin was struggling with cash flow. To the VC community, all Redfin was at that time was a discount broker with cool search capability. And discount brokers do not last. Boy were they wrong.

Redfin flat out gets it. Not only are they the absolute leader in technology and accuracy of real estate data for consumers, but they are taking the lead in the desperately needed area of transparency. While Trulia and Zillow (soon to be Zulia) serve agents as their customers, Redfin serves consumers. Why do consumers start with Redfin? Because it makes them the smartest home buyers and sellers.

Now, if that was the end of the story, Redfin would simply be a better version of Trulia and Zillow. But Redfin is not a marketing platform, it is brokerage. And in an industry where everyone is desperately trying to maintain the status quo, Redfin is doing something unheard of: passing the savings, that technology affords in real estate, onto the consumer. Their business model, which includes reduced seller’s agent’s commissions and treating their agents as employees (rather than contractors), is a glimpse of what the real estate industry will become. Today, Redfin is the irrational oddball. In the future, when most other brokerages are operating in a similar fashion, the industry will wonder why it ever operated any other way.

But Redfin’s transformation of an industry in desperate need of it is not yet complete. Offering discounted seller’s agent’s commissions and buyer rebates is a start, but it is not where the industry ultimately needs to go.

For the transformation to be complete, Redfin still has some work to do. First, it should establish a consumer’s bill of rights which eliminates all the dirty little secret behaviors in the real estate industry such as pocket listings, dual agency, minimum service requirements and controlled business arrangements. Even if Redfin itself does not condone these practices, a bill of rights can serve as an opportunity to educate consumers, who will see Redfin as being on their side.

Second, they need to further preserve home seller’s equity, not just from reduced seller’s agent’s commissions, but also from reduced buyer’s agent’s commissions. In the past, buyer steering, although highly unethical, was a real problem, which meant offering anything less than customary commission to the buyer’s agent risked a serve reduction in home buyer traffic. But today, Redfin has the ability to combat this using their own platform, to bypass the agents, and educate the buyers directly about this deceptive practice.

Finally, Redfin should become the industry leader in advocating a shift from seller pays for buyer’s agent to buyer pays for buyer’s agent. Sub agency legal relationships serve neither party particularly well. Ultimately, buyers will be better served by shopping around for, and paying for, their own agent to represent them. Only in the real estate industry is it considered a crazy idea for the person receiving the service to actually pay for it.

I like Redfin. I wish them luck. But, there is a $60 billion industry out there that is hoping they fail. After all, success for Redfin means that $60 billion number will go down (just like everything else technology benefits). But if it sticks to its guns, there is no doubt in my mind that someday Redfin will be the nation’s biggest brokerage. Fight on.

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

A Realtor™ Would Never Do That

I have this crazy notion that I am going to sell my home and pay a fair, fixed-price commission to both my listing agent AND the buyer’s agent. No 6%, no 5%, just a nice cold hard chunk of cash, independent of the selling price of my home. That would be quite a trick.

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Now, there are a lot of flat-fee/discount brokers in the real estate industry. They have been around forever. Why they do not have more market penetration, I have no idea. So, they can save me money on the fee paid to my listing agent. But, all these discount listing agents have one thing in common: they all suggest/recommend that I pay the buyer’s agent the full amount (i.e., 3%). The problem with that, of course, is a mathematical one. For me to save serious money on realtor fees when I sell my home, I have to realize savings from both the seller’s agent AND the buyer’s agent. Otherwise, my savings are almost inconsequential. So, what would be so terrible about offering a flat fee to the buyer’s agent?

Talk to any listing agent and they will tell you the problem with offering less than customary commission to the buyer’s agent is that they will steer their buyer away from your home and show them homes that are more profitable for themselves. But what if my home is the ideal home for their buyer? I thought to myself, “A Realtor™ would never do that.” Now a real estate agent might, but not a Realtor™. What is the difference? A Realtor™, as they are so quick to point out, abides by the National Association of Realtors (NAR) Code of Ethics. And what does their code of ethics say about showing my home with its less than customary commission?  Well, let’s read it together:

The duty obligates a real estate broker to act at all times in the best interest of his principal, to the exclusion of all other interests, including the broker’s own self interest.

I feel like it is that moment in the movie A Few Good Men where Tom Cruise’s character asks Jack Nicholson’s character, “Why the two orders? If the men were given the order that Santiago wasn’t to be touched, and your orders are always followed, why was it necessary to transfer him off the base?”

If Realtors™ abide by a code of ethics which prohibits them from steering buyers away from my home, and Realtors™ always abide by their Code of Ethics, why is it necessary to offer full price commission to attract them to my home? Why the two orders?

These discount listing agents must be mistaken. A Realtor™ would never do that. I can rest easy now knowing that every Realtor™ representing a buyer in my neighborhood will show my home with same alacrity as every other home.

But just in case, to learn how ReaListing makes unethical buyer’s agents a thing of the past, click here

 

 

 

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

If Billion Dollar Defense Contractors Can Learn To Do It, So Can Realtors

For most of the past 50 years, if one of the large defense contractors won a big contract, the chances are it was a Cost-Plus contract. In a Cost-Plus contact, the supplier negotiates a fee, say 7%, and receives all of their costs plus 7% on top of that amount as their profit. In such a situation it is virtually impossible for the contractor to lose money. They are guaranteed to get all of their expenses back plus money on top of that to boot.  Seems like a pretty sweet deal for the contractors, and it was.

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Taxpayer groups complained that Cost-Plus contracts were subject to abuse by the contractor, which of course they were. With a Cost-Plus contract, the worse you perform, the more money you make. Inefficient companies that spent unnecessarily on expenses were rewarded with greater profit, because they received 7% of the inflated expenses.

The contractor’s argument has always been that in long-term, technologically challenging programs, there are just too many unknowns for the company to quote a firm-fixed price. In a firm-fixed price contract the contractor receives the fixed price and no more. If they are wasteful in development and go over that amount, it comes out of the contractor’s pocket, not the taxpayers.

Today, most large defense contracts are firm-fixed price. Why have these companies started accepting firm-fixed price contracts? That is what they have been offered. They want Cost-Plus contracts, but if the only kind available are firm-fixed price, that is what they will take. Their only other choice is to go out of business. And how have these companies responded? By sharpening their pencils, becoming exceptionally good at quoting new business and even better at reining in expenses. The taxpayers save money and the suppliers become more efficient, which benefits everyone. So, what does this have to do with realtors?

Traditional Realtor compensation, which is based on a percentage of the home’s sale price, is akin to the Cost-Plus contract. Just as contractors make more the more they spend, so too do real estate agents who sell more expensive homes. And just as taxpayer groups complained about the defense contractors, sellers complain about the unfairness of the agent’s compensation.

The question now becomes, would real estate agents accept a fixed price contract for selling a home, independent of the home’s sale price? Well, they would if that was all that was available to them. And how would they respond to a flat-fee listing? Probably the same way as the defense contractors: by becoming more efficient real estate agents, which benefits everyone. Can they do it? If billion dollar defense contractors can do it, certainly real estate agents can do it.

To learn how ReaListing helps motivated sellers find flat-fee real estate agents, click here.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.