Why Redfin Will Succeed

Kevin Boer at 3 Oceans Realty poses the question, "If You Were Designing The Real Estate Industry From Scratch, Would It Look More Like Coldwell Banker Or Redfin?"

The consensus so far is that if we started from scratch, the industry would still resemble the 1.3 million contractors that make up the NAR. I made a comment that could be interpreted as harsh against the demographic that Redfin is seeking to court, but I meant what I said- we all know (or are) someone who is glued to a computer and would love to never ever leave. I have a family member (no, not my husband) who is literally addicted to the internet and would never leave his chair if he didn't have to go to the bathroom. Seriously.

Redfin would be great for him because he's scared to death of getting out of the house. He wouldn't care how Web 2.0 the Redfin site is, he would love the idea that he doesn't have to interact with a human. The problem is that before he says "I do" and marries his home, he'll want to personally (ideally without a sales person present) hold its hand and commence to a little heavy petting before committing. This is why video open houses are so important for this tiny demographic. BUT, buyers will never purchase a home sight unseen, because humans inherently rely on tangibility and emotions regarding major purchases regardless of whatever "business model" a Realtor uses. Look, I personally don't like big crowds and sales people make me nervous, but I have to see the house/car/skirt in person before I let a salesperson into my personal business. I understand.

Therefore, I maintain that Redfin is courting the hipster/WoW nerds and I believe (as my husband notes below) that they will survive (and succeed) in their niche because they've quietly found a tiny demo that was not publicly being courted, and the only reason they need a website is for PR, not necessarily sales. RealtorGenius says it better than I can in a comment at 3Oceans:

"Lani is correct that there is a very tiny fragment of the market that wants nothing to do with actually touching the house first. It does tailor to those who would prefer to sit at their computers or hide within four walls from the world. Knowing that, a great bunch of folks tried to open grocery stores online- they’ve all but failed here- horrible deaths. I can think of a few other types of markets that tried to go the online way and they crashed and burned too. I do believe Redfin will capture attention with rebates, but NOT with the idea of doing it all online- that will fail in the long run as well.

So to answer your question: The industry (being what it is) works. Regardless of how you begin, I believe the real estate industry would evolve to exactly where it is today- again and again. Why? Because it’s practical- no one can control real estate."

YOU'VE BEEN REDFINNED!

UPDATED AND EDITED PER REQUEST:

Today, a temporarily (by request) unnamed site coins a new term- "Redfinned." MTV may have Punk'D, but the Real Estate industry has Redfinned. This word is an adjective used to describe the despair a buyer or seller feels when dealing with a non-responsive-call-center-operator (also known as a Redfin or McDiscount agent) who cannot return or make calls. This word is applicable to the feeling of tearing out hair when the salaried Redfin (or McDiscounter) agent does not feel that they make enough money to acknowledge buyers or sellers, rather they would prefer to read blogs, troll the malls or plaster bandit signs around the city.

The disdain for a lack of customer service was bound to be let out of the bag someday- well, here we are, June 13th, 2007- it's finally "someday."

I encourage you to use this new term (or the logo) on your own site in regard to agents (whether at Redfin or otherwise) that lack service. YOU'VE BEEN REDFINNED!!!

From SHARK to Perch in 60 Minutes

What a dud. After all the spin and after all the hype, the phones still rang this week in the office. There was hustle and bustle, people in and out, and it was business as usual. I watched the traffic in and out, listened intently for signs of blow back, and still, nothing. There were happy conversations with buyers and sellers eager about their business of buying and selling and agents facilitating. What a great week it has been. Even online there were 10 or 15 blogs on the subject of the huge dump CBS took on your living room floor and a whole lot of commenting, but honestly, it was not the doom and gloom I think some had hoped for.

It got me to thinking about some of the things I had written about earlier in the week- my main point was that NAR is not a business model as some would like to portray. It is still 1.3 million agents all around the country that all do business in thousands of ways. Some would like to think that the idea of a discount is a new thing, but alas, the reality is still true- Realtors invented the discount brokerage over 20 years ago. Some practice it, others do not, but the truth to those who want to hear it is still loud and clear- real estate as we know it will adapt day in and day out (you thought I was going to say something else) as it always has, and so will the 1.3 million agents who practice it.

When the phone was invented, did the world as we knew it stop? Did the candle business cease at the advent of electricity? Did Bell keel over when cell phones were born? Did the desktop or laptop computer get pushed out the window to the awesome technology of the PDA? No. Most even suspected the end of American Airlines when Southwest Airlines popped onto the scene, but it just did not happen. Those businesses adapted and pushed forward, and so will we.

I personally am not worried about the fin I see in the water, I have come to the conclusion that Most in the Know have come to, and that is when you throw everything in the air- the hype, spin, blame, accusations, ill comments and everything else possible you see this cloud of smoke and haze, and beneath it all, you see a client and their Realtor. It will be on the ground, face to face with our clients that the air will be cleared. All the spin in the world cannot stop the one-on-one relationship a client has with his agent. Think about it… from their desk with their dual monitors and snappy headsets, it is hard to relate to the buyer or seller the way we do. On the phone, a client can hang up if he or she gets annoyed, but the service agent has the advantage of being there. That is where Real Estate is practiced- on the ground, face to face. That is precisely our advantage- the ability to do whatever it takes to make a buyer or seller happy. You just can’t do that from a call center. In time, even at a discount, the discounters will be held up to light about their commissions due to this inadequacy. What’s next? In order to become more profitable, the online discounter ships the jobs overseas to India? “Press one for English”

By no means do I advocate ignoring the issue- you should debate it in your office, in your mirror, or even with your clients as I have this week. Sharpen yourself and your business, and keep your eye on the ball. Negativity breeds negativity and that is their game.

Turns out it’s just a perch after all.

-T.R.E.G.

Be Careful What You Ask For- the Flip Side of the Redfin Argument

GUEST ARTICLE by That Real Estate Guy

It should be noted and stated loudly that the same folks who would bring down the NAR or redefine the industry as they put it are the same people who hate and want to bring down Wal-Mart. Not sure what I mean? I’ll explain…

WAL-MART

Before Wal-Mart, the streets were lined with mom and pop shops- from the corner drugstore to the large department stores that had been family owned and operated for years in their communities. When Wal-Mart came along, the nation rejoiced and flocked to the big discount store to buy many of the same products they were getting at the stores I just described, but they were obviously lower quality, lower quantity; you name it, it was lower than just the price. Little by little, the old mom and pops fell off one by one. This phenomenon has been noted on popular shows and your local news. You’ve seen it for yourself when you visit your old hometown only to see the old fashioned drug store sitting vacant on the corner. The reality was explained away on major news networks as capitalism at its best, and the way of the world much the way CBS has done.

NAR is much the same as the mom and pops as the National Association of Realtors is made up of 1.3 million independent contractors (every day average people, mostly sole-proprietors) who already work to the advantage of their individual clients. Realtors assess the situations of all clients and are generally reasonable with them in their listing or buyer commissions. Realtors negotiate their price and sometimes settle with a reduced commission to build a stronger trust with the client because the clients’ needs were put first.

Mom and pops of yesteryear were much the same way. They knew their clients personally and by name most of the time, and knew when the O’Brians needed a helping hand and let them pick up a few essentials on credit until next month. The O’Brians would be grateful and would remain customers for life.

Somehow today, the same folks that would redefine our industry are the same folks who hate what Wal-Mart has done to the landscape of downtown main street- they’ve basically rendered them useless as the independent owner could not compete at volume discount pricing. The Anti-Wal-Mart lobby jeers at the idea of “one more Wal-Mart” while the Capitalists applaud. Slowly over time, the competition has faded away and we really aren’t sure if we’re getting every day low prices at the Wal-Mart because we really have nothing to compare it to. We simply have to pay for quality.

But again, the Anti-Wal-Mart Klan would have you believe that tearing down the network of 1.3 million independent contractors of the Real Estate Industry would fix what may or may not be wrong with it. I would argue that the industry is fine. There is room for argument about real estate practices (such as the argument of dual agency), but fundamentally, the industry could not be more diverse in its current state. Another example of this phenomenon is the oil industry. I remember when independent gas stations were competitive and abundant, creating the kind of competition that kept prices in line. Today, we have roughly five major suppliers around our cities basically deciding what we pay. Let’s face it, tearing down the independents of our country is fast becoming the way of the land; and to be honest, it is scary. Last I checked, there are no discount gas stations opening up, nor an outrage over the fact that real gouging is taking place on a daily basis. Are we going to continue this vicious cycle? I pray not.

THE MEDIA SPIN

I would say to online vendors such as Redfin, pay your dues- your Realtor dues. Be a member of the Board and agree to the CODE OF ETHICS and we’ll work with and trust you; join the list of the already competitive 1.3 MILLION independents in the industry. Work within the guidelines that have already proven to work countless times a day when Buyers and Sellers shop their list of local professionals and make their choice based on their needs. The bottom line of what this is all about is that companies like Redfin want to practice real estate without paying to be a Realtor and following the Code of Ethics. I noticed this was omitted.

The title of the 60 Minutes Story says it all about the spin that the media has already begun to spew- (“Chipping Away at The Realtors’ 6%”). The last time I checked, I only charge 3% of the transaction, and the buyer’s side (the other Realtor) charges 3%. So you aren’t chipping away at 6%, you’re simply chipping away at my little old 3% that I earned by being married to my client for 30, 45, 60, or 120 days or more. You’re chipping away at my ability to earn the trust of my individual clients (the O’Brians) by giving them back what I see is needed to make a sale work. When bringing a buyer to the table, many listing agents already discount the buyer’s side anyway, so the Redfin argument is moot on the so-called 6%.

CBS was also bias in the fact that it brought one couple from the discount side, versus clients from the 1.3 Million agents around the country to say exactly the same, only at least 1.3 millions times over. Another telling moment of the interview was: "Redfin very proudly says that they returned in rebates $3 million last year to its buyers," Stahl remarks. "You can't boast of anything like that." "Absolutely not," Arends acknowledges. "I don't know how to answer that one." I have the answer to this question- ONE POINT THREE MILLION INDEPENDENT AGENTS can boast a hell of a lot more than 3 Million dollars saved- we save it in equity at purchase, we save it in profit at sale, and you know what? We save it in rebates too. I’ll need a bigger calculator for that one….

Redfin is a tic tac in scale to 1.3 million Realtors in the United States, who are all independent voices and advocates for their clients- and Redfin aims to “redefine” 1.3 Million small businesses, 1.3 Million opinions, 1.3 Million consumer advocates that proudly stand up for their clients daily! Are you kidding me? We don’t need to defend ourselves. The DOJ needs to buck up and get the fact that 1.3 Million voters/agents/human beings make up NAR and those 1.3 Million voices know a little more about “the O’Brians” than a faceless machine that is designed to spend even less focus on consumer advocacy- the small fraction of those complaining or having problems with Realtors are guarded by the local Boards and Real Estate Commissions, we are already held to a higher standard than those that are not members of the Board and believe me, we are held to account!

Commission levels of 3% (standard in Texas) per agent were set to protect consumers from gouging. In the past, that number has remained the standard regardless of the market or home prices. With the home prices spiking, protecting the seller’s equity has become even trickier and even more needed. Realtors have never been MORE needed, yet all we hear is how they need to reduce agent income. If your profit margin on your home is $80 grand, then why are we debating over $2,400- how is that a price gouge? If I had $80k to net on my home, the last thing I would be doing is attempting to go it Wal-Mart style.

REFORM: Redfins needs reform to be able to compete with 1.3 Million agents that make up NAR

Redfin does not scare me nearly as much as this so-called reform many say this industry needs. Why does it need to be reformed? The reality is, the MLS is a product of NAR- not an open source code for any and all to access, much like Zillow’s product offered. Let them build and develop their product the way NAR has done.

Imagine a world with five different NARs and you have the world as envisioned by Redfin. Are you telling me that Redfin is going to allow the other four Redfin-type companies to list on their version of the MLS? Consumers are not best served by this business model that forces home buyers to search four, five, maybe six online listing systems. It’s like the BCS- the MLS may not be the best system in the entire world, but it does work!

CLOSING

NAR represents 1.3 million diverse independent contractors that practice real estate under one code of ethics and one common application of fair Real Estate practices that safe guards consumers. The alternative is to “redefine” ourselves into a corner where we go back to having numerous Listing Services, a lack of industry standards and an overall discord in Real Estate. The alternative is not even viable.

I would suggest that all Realtors throw away the talking points and simply say that all 1.3 Million of us already guard your interest, less than 100 say otherwise.

NAR is not something you just change without affecting the 1.3 Million Mom and Pop voices (who only average $47,700 per year) within it; you don’t just do that because a tic tac says so.

Be careful what you ask for!
That Austin Real Estate Guy