Friday Redfin, the online real estate brokerage went public. Investors liked it and the stock RDFN, went up 45%. Yet even with that, it’s market cap is under $2B. Why is that I wonder?
Real estate is and always will be a local business. It’s also a very personal business. It is true that Realogy which owns Coldwell Banker, Century 21 and Sotheby’s as well as relocation behemoth Cartus and Warren Buffet’s acquisitions of Real Living, Prudential and Brookfield Relocation are examples of corporate investment into the local business of real estate, it is equally true that the only thing those companies really bring to the local business of real estate is some branding. Relocation is the jewel here because relocation is corporate. In the end, those companies are only as successful as the individual efforts of the individual agents. Kind of like Herbal Life is only as successful as it’s network marketing sales people. It’s all about the people working the business, not the corporations. So where does Redfin fit into this minefield of local entrepreneurs and can it be successful?
In 2011 I was at a conference of my brokerage’s new relationship with Real Living and Brookfield in New Orleans when I found myself in the elevator with the CEO of Brookfield. I introduced myself and asked him, why the heck they were trying to reinvent the wheel and develop new software when all they had to do was buy Redfin. They had the best software in the industry I explained. He had no idea what I was talking about. I explained that my younger clients loved Redfin. Moments later in the same elevator going down, I found myself standing next to then Real Living CEO Harley Rouda Jr. I introduced myself and he said, “You’re the guy that told Brookfield to buy Redfin.” I love it when my reputation precedes me… My idea was then dismissed I was told, because Redfin was in huge debt and an acquisition like that would prove very expensive. To Harley Rouda who is currently running as the Democratic challenger to Congressman Dana Rohrabacher of Orange County, I think you’ll be great, just don’t cite passing up on Redfin as one of your great achievements. Redfin has great software, they really do.
The problem with Redfin isn’t that Redfin agents are somehow less qualified or unprofessional, this is not the case nor is it that traditional agents discriminate against them, as some have asserted, rather that real estate is a relationship game. And while I’m not going to give them my secret sauce of success, I will say that until they understand what a Realtor does, they will only be a marginal player. Discounts only go so far. Redfin is banking on the Millennials to be their fodder for the future. I can assure you, aging baby boomers probably think Redfin is a fish or a bird and they are not going to be hiring some internet person to sell their home. Truth be told, Redfin is really more of a buying site than a listing broker. It is also true that Millennials are very comfortable with doing their own research and for this Redfin is outstanding. In many ways, it is superior software to my Multiple Listing Service, but that’s a whole other discussion. However, while research is a big part of house hunting, going through the home buying process is another thing entirely. I have been in escrow with Redfin agents. Gad zooks is what I say to that. There’s always someone different you’ll be working with. Unlike when you hire me, you work with me, Redfin’s model is based on a division of labor and different folks do different jobs throughout the process. Recently I completed one deal that was a Redfin listing. The representation of the seller was at best distant and un-involved. I mean the agent wasn’t at the inspection, didn’t deliver the keys, the owner did, wasn’t at the walk through… It was basically a for sale by owner. There was one agent as the contact but I never met him. There were other people handling the papers, someone else doing disclosures. It was pathetic really. I felt terribly for the seller. He left $1000’s of dollars on the table which was just fine by us, but as a career real estate broker it was unpleasant to watch.
Redfin agents often show my listings and to their credit they will do more transactions than I will ever because discounting by definition, is a volume game. Redfin is a discount broker. The rebates however don’t come close to the money I have personally witnessed being left on the table by the Redfin client. If you are not paid by commission and you are a volume discount person, what kind of representation would or should you the consumer expect? Get real right? If you don’t think you get what you pay for, you’re nuts. We are talking about the single most important investment of your life! When a local Redfin agent calls to show one of my listings, before I even set the appointment, I find out what they know about the client and if they can’t demonstrate a good knowledge of their pre-qualifications and the client’s situation, urgency, motivation etc., I don’t waste my time anymore. Redfin may sell a lot of homes, but they must show far more homes than a traditional broker because they don’t know their buyer. The same agent may or may not work with the client. Since the buyer does the research they initiate the contact. By contrast a traditional broker is paid by successfully finding and negotiating the transaction. And unlike a Redfin agent who is paid on salary, the traditional agent wakes up unemployed every day. Eating is a great motivator to work really hard, do the best possible job for your client and hope your brilliant efforts are rewarded by a referral of a friend or family member in the future.
So Redfin has great software. I even use it myself sometimes and they may even increase their market share over the coming years, but my experience has shown that Redfin corporate doesn’t understand the real estate business yet. Most corporate real estate entities do some training but are primarily tasked with branding and recruiting. In the end, real estate is all about relationships; the relationship with the client and the community not the relationship with a corporation.
So my advice? Use Redfin for your research if you like but call me so I can help you.