A different approach to home buying
Critics say the real-estate industry has been slow to react to new realities, using outdated methods of business. But one Seattle start-up is trying to shake things up. Mitchell Hartman reports.
Conor O'Sullivan and his partner, Ryan Powell, in their new hillside home in Seattle. (Mitchell Hartman/Marketplace)
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Kai Ryssdal: Despite snippets of good news here and there, overall real estate continues to suffer. As do some of the people who make their living from it. Realtors are taking home less money. Many have quit the field altogether. But the industry itself has also been slow to react to the new realities.
A lot of real-estate agents continue to do things the way they have for decades, charging hefty commissions and letting properties sit on the market for months.
Mitchell Hartman of our Entrepreneurship Desk at Oregon Public Broadcasting checked out Seattle's real-estate market, where one start-up is trying something a little bit different.
CONOR O'SULLIVAN: We're sitting out here on our deck of our new modern home that we both love.
Conor O'Sullivan and his partner, Ryan Powell, bought this hillside home in May. Floor-to-ceiling windows frame a white baby grand . . .
O'SULLIVAN: We have a vista with a lot of green in it, and over to the right, there's the bay.
The couple moved to Seattle from Chicago to work for Microsoft. They started their search there using the online discount realty company Redfin.
O'SULLIVAN: The original asking price was . . .
RYAN POWELL: Was $895,000 and then the builder lowered that to $830,000 and then we ended up paying $780,000.
O'Sullivan and Powell found Redfin does things differently.
The company posts much more data online than other realty sites, like price and mortgage history. That makes it easier for buyers to size up the property before making an offer.
And Redfin pays clients a rebate. Buyers get back half of the traditional 3-percent commission an agent usually pockets. Sellers get a similar deal. O'Sullivan and Powell got $12,000.
Redfin can afford this because its agents work mostly online, rather than driving clients around on house tours and trolling for new business at open houses. And it pays them in a completely different way.
ALLIE HOWARD: I'm actually paid a salary to do what I do.
Allie Howard was one of Redfin's first agents in Seattle. I met her at the company's annual meeting. On top of her salary, she gets a bonus based on customer satisfaction, rather than a cut of the commission.
HOWARD: And I don't have that extra pressure of being nervous about losing a potential commission. I can just give the very best advice that I can. Sometimes it's brutally honest, people don't like it. But nobody wants to go on the market at the wrong price, and waste six months of their lives while their property goes down the tubes.
Redfin's approach has attracted the ire of realtors in some markets.
HOWARD: Nobody really wanted to play with us. I was literally called 'the enemy' once.
In some cases, the company's for-sale-signs were torn down and competitors balked at negotiating deals.
But not all realtors take offense. Gary Majors is a Portland Re/Max broker, and he heads the local realtors association. He's confident buyers and sellers will continue to use full-service agents like himself.
GARY MAJORS: I think the place of the full-service realtor is to take the transaction from start to finish, from disclosures to getting feedback from showings, and getting some of those ducks in a row ahead of time. There's some really key things that happen and that falls on the shoulders of the realtor to bring all of that together.
Still, in this cutthroat market, what matters to many customers isn't full service so much as low price. Glenn Kelman is CEO of Redfin.
GLENN KELMAN: What we want to do is change the game, and attack the real-estate industry so we can make it more efficient.
Kelman notes that ordinarily, realtors earn twice as much for selling a $500,000 house as one for $250,000. And often, the more you pay for a house, the more your traditional real-estate agent makes. By changing that incentive model, Kelman believes he can offer clients a better deal.
KELMAN: Our goal isn't to be the best rinky-dink little Web site. Our goal is to be a new way to buy homes, the number-one brokerage in the country.
Redfin has a ways to go. The company's still tiny compared to chains like Re/Max and Coldwell Banker.
But Richard Green of USC's Lusk Center for Real Estate says traditional realty services are becoming less necessary, now that buyers can see almost every listing on the market without leaving home.
RICHARD GREEN: Having a model where people examine what's on the market online, and narrow for themselves what they want, it's just not that big a deal. You really don't need somebody to drive you around to look for houses that are going to fit your needs.
The Redfin approach is catching on fast. The 5-year-old startup just turned a profit. It has offices in Washington, California, Chicago, New York, Boston, and the D.C.-area. It'll be in Portland and Atlanta by year's end, pressing its key value proposition: that it aligns the financial interests of agents and clients better than the competition.
It's a business model that could save home-buyers and sellers a roomful of money.
I'm Mitchell Hartman for Marketplace.
Comments
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From Chicago, IL, 09/15/2009
I purchased a 'two-flat' in Chicago through Red-Fin. I could not imagine a better way to purchase a property. When he story mentions 'full-service' vs. 'Red-Fin' service I'm perplexed ? I've dealt with many types of agencies. If anything I received better (more-full?) service through Red-Fin and in a tight lending environment was able to leverage the Red-Fin 'kick-back' to make the numbers work. No brainer for those who start with the internet in their home searches anyway - and who doesn't now-a-days ?
From Chapel Hill, NC, 09/03/2009
Gary Majors spoke as the head of his local Realtor's association, which includes many different models, probably including Redfin. If he had spoken as a RE/MAX Realtor, he could have pointed out that RE/MAX was the first to allow its individual agents to practice their profession as they see fit, and that RE/MAX agents have always responded to the demands and restrictions of the marketplace.
He might also have addressed the advantages of having a professional Realtor actually see the homes under consideration, attend the home inspection, structural and termite inspections. when necessary, provide information on comparable sales to comapre with the listing price, inform buyers of potential environmental hazzard and future development plans in an area and so on.
And "now that buyers can see almost every listing on the market without leaving home." one of my important services to have already seen the homes and, if not, to go preview for my busy clients. In fact I set up individualized web searches for my clients which automatically updates them on new listings, price and status changes, etc., as they happen, as well as setting them up on RE/MAX.com. What kind of representation would you prefer for the most expensive investment in your lifetime?
From Minneapolis, MN, 09/03/2009
I am a Realtor in Minneapolis and co-founded a company called Webdigs.com ( www.webdigs.com ) We have a very similar model to Redfin. We have modeled many of the ways in which we work with our clients off what they are doing. To add to Glenn Kelman's point - information is the key. There is a clear disparity between real estate commissions and the percieved value in the eyes of home buyers and sellers. What companies like Redfin or Webdigs are offering is another choice without sacrificing service. I think that agents from more traditional brokerages like Coldwell Banker or Re/Max feel we are not full service as "discount brokerage" has become synonmous with "lack of service" in the real estate industry. The reality is that is quite the contrary. Webdigs aims to provide a full service experience, however the delivery of that service is carried out in a more streamlined and efficeint manner through the use of todays technology. Simple things such as DocuSign (electronic signature) or Webex meetings save our agents time by not having to drive all over town to meet with clients. We use this time savings to work harder to service more clients than the average Realtor. Therefore we can work on a volume model where the consumers feel like they are getting a great VALUE from their agent.
Lets face it...technology has made the job (the fundamental X's and O's ) of executing a real estate transaction easier than ever. The role of today's real estate professional needs to transition from being a chauffer or open house host to that of a coach, guiding clients on how to interpret the the vast amounts of information available to them. This is an important skill. However - companies like Redfin and Webdigs argue that it should not necesarily cost 6 to 7% of the sale price of a home...especially in markets like Seattle where the avg sale price is $500K or more.
Service delivery and the manner in which service is carried out is the lynchpin. Companies who build infrastucture to deliver service to customers inexpensively will prevail so long as they can scale and do it profitably.
This will become more prevalent as more and more consumers have postive experiences with alternatives like Redfin or Webdigs. They will be inclined to refer their friends, family and co-workers to these companies. This is more in line with the nature of the real estate business. Because it is a professional services industry - it has always been and will likely always be a local phenonmenon. Traditional agents who dont discount should not necessarily be threatened by this business model if they are good at what they do. People will always refer them. Therefore, their clients may not be candidates for the discount model and vice versa. Poeple who have the inclination to work with us would not be a likely client for the non-discount business model. The reality is that the market is big enough for both to exist. And in the end, it doesnt matter what a Real Estate Agent or Broker charges - if the customer feels like they had a poor experience - they will have paid to much in their eyes for that particular person or company. I dont begrudge agents who dont discount - in fact I congratulate them. Good for you. In a competitive environment - they are able to present themselves and their companies in a manner in which a buyer or seller feels they are getting a good value - then good for that agent. But - over time, they are going to need to address the ever present challenge of price competition. Technology certainly doesnt replace the service that a professional agent will provide - but it does enhance the experience. And if agents want to use that to be more efficient and compete on price - then good for them too. Like I said before - the market is big enough for both to exist. The fall out of the discount model will really be the toughest on part-time agents. But lets face it. Most of the time (not all the time) - issues or problems with a real estate transaction generally reside with inexperienced agents who dont know what they are doing and in turn, fail to conduct themselves with professionalism and accountability. Would it be so bad to drive those agents out of the Industry? Wouldn't that increase the credibility for those of us who work hard this as a full time career and have established practices that are thriving?
From Seattle, WA, 09/03/2009
I don't doubt for a second that traditional realtors will still be around, the same way that Barnes and Noble is still around. Redfin has put its mark in the real estate industry, and will continue to grow for some time. I appreciate what they do for the business, and now clients have a choice of which business model they want to employ.
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