Friday, April 6, 2007

Redfin: Real Estate Revolution?

Ever since I sold my first house, I've thought that the real estate business was in need of a shakeup.  The typical cost of buying or selling a house is 6%.  The buyer's agent gets 3% and so does the seller's agent.  On a $100,000 house that's not a big deal.  However, houses in the Seattle area average $430,000. That means the commission is $26,000.  That's a pretty big sum of money.  The buyer rarely notices this cost because it is hidden from them.  The seller, however, notices that they are only getting $400,000 from their $430,000 sale.  The transaction costs are really high.  That is definitely a scenario ripe for disruption. 


A Seattle-area real estate company called Redfin is trying to be this disrupter.  Redfin realizes that most homes are found on the web.  In those circumstances, agents don't deliver nearly the value they once did.  Because of that, they offer a no-frills real estate service at a fraction of the cost.  Redfin lets you do most of the legwork and in return refund most of the commission to you.  That could save $10,000 the seller or buyer on the typical Seattle-area transaction.  A friend of mine recently used them and found them to be quite efficient.  Most people are already familiar with the area they are looking at and don't need an agent for anything other than showing them the inside of the house and helping them with the paperwork.  If you are comfortable with the process, Redfin could be very useful.


Scoble posted an interview with the founder.  He (Scoble) spends a lot of time telling us about his recent move from Seattle to Silicon Valley but there's a lot of interesting information in there too.  There's also a good article in the Seattle Times discussion the business model.


I'm very interested to see where all this goes.  I suspect that in the next decade (real estate moves slowly), the way we buy and sell homes will be radically different and a lot more streamlined.  Markets don't like inefficiencies.  The web likes them even less.

6 comments:

  1. very useful information about selling or buying real estate,I will see where this goes too.

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  2. There's a chapter about this in Freakonomics.  They surveyed the history of real estate transactions in Chicago and discovered that brokers typically took a little longer to sell their own houses and got more money for it.
    The conclusion was something to the effect that if a broker gets a 3% commission but gives half of that to their firm, how much motivation will they have to get an extra $10K from your home?  It's only $150 for them, while it's $9400 for you.
    They are working for you and they have an incentive to get the best price, but their incentive is much less than yours.

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  3. That book is on my list to read at some point.  You raise an interesting point.  The corrolary is interesting too.  Conventional wisdom says that real estate agents will push you toward buying a more expensive house because they make more money off of it.  If the only make 1.5%, how much incentive is there to them to do so?  Selling you a $20,000 more expensive house is only $300 to them.

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  4. I totally agree that the real estate business was in need of a shakeup. After watching 60 Minutes on CBS TV on May 13 my hat's off to Redfin for revolutionizing the industry. I wish them more power!  

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  5. I listed my house for sale with Redfin in February of this year in Anaheim Hills, CA and must say that it is one of the worst experiences I've ever had with a real estate company.  Many promises were made but never fulfilled.  If anyone wants more information, please feel free to contact me at eshi@hotmail.com

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  6. @Ed, sorry to hear that.  I've never worked with them so I only know about them 2nd hand.  The few people I know who have used them have liked it, but apparently there are still some kinks to work out.  Perhaps Redfin isn't the disrupter that will win this market but I bet someone like them will be.  The transaction costs are just too high.

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