Redfin’s Business Model Better for Consumers
So the company claims. If you use its services you will save over $15K says Glenn Kelman on the Redfin Blog, quoting results of a new analysis of their business model:
- Redfin home-buyers over the past twelve months paid on average 1.015% below homes’ asking price, while customers of other brokerages paid .087% below asking price.
- This difference in negotiating results saved Redfin customers nearly 1% of the home’s final price, for an average savings of $5,048.
- In addition, Redfin refunded each of these customers an average of $10,520 in commissions.
I’ll let others debate whether or not these numbers mean anything. But their release means one thing for sure - Mike Arrington will probably write some slobberingly stupid headline. (yup, he did.)
Personally though, reading through Redfin’s release I couldn’t help but think it was a smart marketing angle for them to play up.One that I think is particularly savvy in the midst of today’s economic climate.
Let’s face it, who doesn’t want to save a buck… But rather than position Redfin as a bottom feader (we’ll do less, for less) these kinds of “studies” position them instead as the smart choice (we do more, for less). And that’s a message that I think resonates well with real estate buyers these days.
Interesting too, especially when you contrast it with Coldwell Banker’s Founders campaign (see Coldwell and Banker Back At Helm) which tries so hard to be fun, hip and cool to Gen Xers and Gen Yers, but I think is dreadfully mistimed and unfortunately way out of touch.
Rather, Redfin is appealing to the common-sense, want-to-save-a-buck DIYers out there who’re looking for a deal.
Who do you think there are more of out there shopping for homes right now?
While I think he’s totally off base when he implies it’s more effective to “use [a computer] in lieu of a buyers broker or agent when buying a house” — if he’s talking about their marketing messages, Arrington’s headline might make sense.
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6 Comment(s)
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- From Redfin Isn't Going Away, They Are Shaping The Business of Tomorrows Real Estate Brokerage | The XBroker Mortgage Real Estate Marketing Technology | Mar 27, 2008
Geordie Romer | Mar 25, 2008 | Reply
It’s really no secret if you want to buy a house for maximum under list price. Just look for the most overpriced houses that have been on the market the longest… after enough offers someone will bite.
Ohh. You actually want to live there…
The trick is not buying a house for as little as possible, it’s about getting the best value. Sometimes this means paying full price when the right property comes along, sometimes it means bidding above asking on the underpriced house, sometimes in means trying out a lowball offer.
I am curious to see how buyers who bought with Redfin fare when they re-sell. The Glenn Kelman/ Case-Schiller Index if you will. At resale we’ll really see who got the best deal.
Of course, Redfin might not be around when that happens..
Rob Aubrey | Mar 26, 2008 | Reply
I am not in any opposition to so called alternative business models. This model has entered the market many times over the years, this time with a cool web site. My biggest curiosity is profitability. When you are for profit, that is how the score is kept.
Any agent that cannot negotiate their own worth, do you expect them to negotiate a good deal for you the client. HELLO
People get hung up on the list to sale ratio. Which is better deal a property listed for $300,000, negotiated price $290,000 value $290,000
or
a property listed for $300,000, negotiated price $300,000 value $315,000
Like all professionals, good ones do not cost money, they make money. Before you go and get drunk on cool-aid and start slurring rants, I said good ones, not all.
Brecht Palombo | Mar 26, 2008 | Reply
Well in my market which is Greater Boston which is one of only a handful of area that RedFin is in the average sale to list is 95% and the average sale to original price is almost 90% (for single families. Considering the fact they are operating in some other hard hit areas like San Diego I’d venture to guess that they are using a national average against a localized figure.
LIES, Damn lies and statistics.
Brecht Palombo | Mar 26, 2008 | Reply
I have to say one more thing. I’m not really selling homes anymore so I don’t take offense to the discount thing personally but as a business model it seems ridiculous. Can you say Foxtons?
The Redfin Massachusetts office has sold in 1 year $1,763,000 in (3) listings and $21,647,000 in buyer sides. I suppose that doesn’t sound too bad except that they have 4 members in their office so here’s the math.
$12,000 Gross Income from listings
$216,470 Gross Buyer Side Income
$228,470 Total
It could be that they don’t have everything they do in MLS, I don’t, but I think that is unlikely. For all the time and effort this business requires to do it right and for all it costs to run an office, advertise etc, to then GROSS $57k per head - time will tell how well this model works. Foxtons is probably a good indicator though.
Lane Bailey | Mar 26, 2008 | Reply
I asked on my Active Rain blog, and on one of the Redfin blogs, how much was paid by the seller in the form of closing costs, etc. I looked over my average, and it is around 2.75% when I am representing buyers. So, While a home priced at $300,000, and sold for $300,000 seems like it was at list, if it includes $9,000 in closing costs, the net to the buyer is only $291,000. But, Redfin hasn’t been able to say if they include seller paids in their calculation.
Asn agent that operates in that area has informed me that seller paids are not part of the MLS information after the sale closes.
Tyler Wood | Mar 26, 2008 | Reply
What about the old adage of, “time is money.”
The time Redfin buyers spend trying to find properties online is worth something.
I am not saying they will spend the equivalent of $15k in time (depends on their job) but it is still time spent that they would otherwise not necessarily have to spend.
Also, what about getting the RIGHT house or property? Just because you save money off of the list price does not mean the house was the best option.
In my opinion, there is no substitute for the inventory knowledge of a professional real estate agent. You cannot tell me spending 1-2 hours on the computer and looking at homes online gives you the same inventory knowledge and experience that a full time real estate has. Sure, you might get a nice home that meets your needs, but is that the best option out there? That is up for debate.