Redfin The Transparent Real Estate Brokerage
October 2nd, 2007 Categories: Mortgage News, Random, Real Estate News, Real Estate Technology
Yesterdays News:
Active Rain vs Move.com
Todays News:
Redfin…Whipping Boy, Industry Innovator, and a Transparent Real Estate Brokerage…
Read the 3 articles above if you want my comments to make sense.
Personally I’ve been a fan of the Fin since day one, citing them as the most progressive real estate player in this space on more than one occasion. (Search Redfin on this site for more info)
I’m high on these guys primarily because they’re not trying to be another destination site set on profiting from pumping their sites traffic metrics for the promise of advertising dollars…instead they buck the system by promoting transparent pricing policies that are more about common sense than vaporous Realtor value propositions. They also maintain a very nice user interface thats intuitive, search friendly, and comprehensive..leveraging technology for the consumers benefit as well as their own.
They’ve thought this whole process out, which is a far cry from the mentally challenging model that is still in wide practice amongst the disciples of NAR.
Redfin actually has a business model with actual projections on a scale smaller than “We need to sell more houses this quarter” This is pretty much unheard of in the fu*^ed-up-enomics world of traditional real estate brokerages (Kevin articulates this very well, using a killer-app).
Considering that anything except a brutal undressing at the hands of the BloodHound is almost non-existent, Greg seems to have tipped his hat to the red headed step-child of real estate for once…kind of:
“Glenn Kelman lives in a world I know nothing about. I find the idea of salaried agents interesting — by which I mean exotic — and I could see a benefit to a coordinated, centralized back-office operation…”
He continues:
“In comments here yesterday, Kelman said, “At Redfin, we would prefer it if both buyers’ agents and sellers’ agents each charged a fee.” That would be much easier to effect if the commissions were divorced, a topic I definitely am interested in taking up again — and again.”
I would consider this a major coup for Glenn Kelman and Team Redfin 
Back to business models…Realtor math or Realtornomics looks like something like this, assuming a traditional broker house is in play:
((6% * Sales Price/2) * (~50%-80%)) - (taxes) - (fees, dues, expenses, advertising/marketing) = Crap.
6% * $300,000 = $18,000 Cost to Consumer.
$18,000/ 2 = $9,000 Buyer/Seller Agent Split.
$9000 * 80% = $7200 Post Broker House Split
$7200 - 33% in Earned income taxes = $4824$4824- $2500 in fees, dues, advertising/ marketing, and other incidental expenses = $2324
Sell 8 houses per year (if you’re good) @ $300,000 a piece (if you’re lucky) = $18,592 Annual take home income = Crap.
You are a multi-million dollar producer, $2.4M to be exact, and take home $18,592 per year…ehhh no thanks.
The scary part is that many Realtors are fighting to maintain this type of commission structure…while sipping Kool-Aid, praying at the Temple of NAR. Can you not see the BIG conflict in the above equation? A consumer sees $18k+ in equity or cash evaporating while the individual agent only sees ~$2400 in their pocket. The consumer and the Realtor both feel cheated, and rightfully so.
Anywhoo…Hats off to Redfin for having the courage to move against the grain…Here’s to hoping your initiatives are contagious.
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Depressing numbers, but mostly accurate. Only one correction I would suggest: If your tax accountant is halfway decent, you’ll get to deduct your fees, advertising, MLS dues, etc. pre-tax instead of post-tax. That’ll help the bottom line — not enough to go above the poverty line, to be sure, but every little bit helps.
I considered this for a moment Kevin, but chose to digress. Given your suggestion, I’ll amend to show the pre and post tax expense deduction differnce in the AM…
Watching the 20th anniversary edition of Wall Street as I type…and wondering where Michael Douglas gets the Ponce de Leon Juice from.
Given the cost of running a business as a Realtor and the gas which I don’t think is in your calculations…since Redfin simply does everything on the computer…they are miles ahead of the game with regard to their expenses. Not sure they have any besides Internet costs.
Very provocative post.
X,
Your taxes are off, and I’ve never spent $2,500 to sell a $300k home, maybe $1,000, but if your only doing 8 deals a year then you probably don’t have a buyer pipeline anyway.
Agents doing 8 deals a year should be drummed out of the business.
However, the point you miss about the consumer is that they invested nothing in the transaction until it was neatly laid at their feet. Consumer risk is offset by the cash agents invest in the potential sale, however long that transaction may close. Carrying inventory has a cost.
Glenn hopes that people will buy and sell houses online, I admire that I even hope for it. However, I don’t see it happening, the risk, the size of the transaction, the “home” won’t be something you can just buy over the internet.
They tried really hard to sell cars online, and gave up, $100 of millions invested and poof… nothing, dealers still rule because people want to bond with that car, that payment, the vroom-vroom…
One day… but not before the fin is in a little square can with a twist key…
Taxes off? I thought I was being conservative at 33% on earned income?
Agreed re: your point that a human being needs to be involved at some (many) levels of the transaction, and doubt we’ll see the day where houses are bought and sold exclusively online..maybe thats Web 5.0.
In either case, Redfin represents an evolution in real estate marketing and services…they’re not the end all be all, rather an innovative alternative for those who prefer their methods…which increases everyday as new consumers enter the marketplace, consumers who grew up on the net.
Gena points out, Redfins overhead is lower by design, so they can charge less.
As for cars…I bought my Infinity off of eBay…$3k below wholesale and $7k below the same year make and model on the lot of a local dealership.
Redfin’s overhead is not “lower by design, so they can charge less.” They can charge less because they got millions of dollars of VC that they’re spending, to make up the difference between actual costs and the real cost. They’ve got 100’s of agents, execs and engineers on staff and they’re paying them with VC, as there’s just not enough in earned commissions to cover payroll.