A Return to Rationality

Everyone is writing about declines in the real estate market, with new home sales declining for the fourth straight month, and inventory at a ten-year high. Attributing the decline to seasonality doesn’t jibe with the fact that prices have declined year over year for the first time in at least one market, Sacramento.

Agent bloggers have mostly ignored the topic. The brokers that newspapers count on for a bullish quote haven’t had much to say either. Zillow has resisted saying, “We called it.” Because the truth is that it’s a bummer for all of us, even if we all saw it coming, and even if the decline is only mild. As members of the industry, Redfin would greatly prefer that everyone prosper.

But we also believe that this return to rationality makes for a great time to start an electronic real estate brokerage. When housing prices are jumping a few percent every month, nobody cares about traditional agents’ 6% cut. In 2005, freaked-out buyers would do anything to win the house, and hopped-up sellers expecting 20% over asking didn’t mind paying listing agents 3% for the extra marketing juice.

But now, as the pendulum swings the other direction, it seems undeniable that the market will become more rational. Plenty of consumers will continue to choose traditional service (a rational choice for many). But nobody will look askew at someone who saves 2% through an electronic service. According to a February 6 WSJ (subscription required) survey, consumers already have become commission-sensitive, underscoring arguments that the boom has only drawn unwelcome attention to the industry.

Redfin Survey

Agent fliers and other local marketing efforts won’t matter as much as online exposure, because that’s the most cost-effective way to get the word out. Buyers will make decisions based on value and price. Sellers will take the best offer. Maybe we’ll even get a break from all those real estate ads funded by the boom.

That’s why, amid all this glum news, Redfin has had more offers come in every week, and lots of people call us asking about doing electronic listings too. 75% of our customers so far have said our service is “much better” than what they got from a traditional agent, with the other 25% saying it’s “better.” No one so far has said it’s the same, worse or much worse.

Redfin Survey

It’s a small sample size, from our own survey, so the numbers will regress toward the mean over time, but the difference between those two graphs is still striking. The bottom line is that when times get tough, customers say “show me the money.”

Discussion

  • Seattle

    I worked in biotech before I went into Real Estate and I learned that you can spin a statistic any way you want…

    One important detail I need to make this graph valid is HOW MANY PEOPLE 75% of 3, 300, 3000????

    AND about the RE bust people are ALWAYS going to need a place to EAT, SLEEP, AND SHOP!!!