The Redfin Effect

Have you used the Redfin Direct commission refund as leverage to get a better deal from a traditional agent? If so, drop us a line. We’re doing a litle Freakonomics study here in Seattle and San Francisco. Whether you’ve used Redfin Direct or not, we’re also interested in any crazy interactions you’ve had with traditional agents about Redfin.
Redfin Customer.jpg
As you can see from this picture of another satisfied Redfin user, a lot of the people who hit our site can be tough hombres when it comes to negotiating, so we’re sure you’ve got plenty of juicy stories about what happened when you tried to get a better deal.

You can leave a comment here or just drop us a line at glenn (dot) kelman (@) redfin (dot) com.

Discussion

  • CSP

    Why should a traditional agent give a rebate if they aren’t offering the same service model that Redfin is? The service levels are completely different. Full service agents give full service and should be compensated for such, and Redfin clients receive reduced service and are charged less.

    Regardless, why should a traditional agent give a rebate if Redfin’s business model fails to comply with the rules of the MLS system? Buyer beware, Redfin will entice you with a rebate but may not receive anything from the listing agent and therefore won’t be able to give you anything.

    Does Redfin have a rebate guarantee for consumers? In other words if they lose a procuring cause arbitration, will they still refund a portion of the commission to the buyer or is that tough luck for the consumer?

    For more information on the topic, see the thread on “The Hall Shame” and read from the bottom up. A very in depth analysis of the matter from some very knowledgeable sources.

  • http://www.redfin.com Glenn Kelman

    A consumer has never failed to recover a refund through Redfin. The company has never faced a procuring cause issue. If it did, we would make the customer good.

    We agree with you that traditional agents offer a different service; we weren’t arguing that traditional agents should charge the same rates as Redfin.

  • CSP

    Glenn,

    Simply stating that it has never happened says nothing of the risk that is being taken. Just because it never has happened neither means that it can?t nor that it won?t.

    Would you not agree that given the present definition of procuring cause that the buyer faces significant risks as it pertains to cooperative compensation when they contact listings agents directly to view homes?

    If you weren?t hoping to pit your pricing model against that of the full service agent, why would you post such a question to your blog?

  • Parkite

    Any chance CSP is a traditional agent? Eventually all intermediaries are disintermediated. Especially ones that charge so much and provide so little value.

  • CSP

    Parkite,

    What does my role in the real estate industry have to do with procuring cause?

    Glenn,

    Are you still out there?

  • http://www.activerain.com/caleb Caleb Mardini

    Seem’s like there are a lot of professionals concerned about Redfin’s model. Isn’t there enough room in the market for testing out all sorts of ways of selling real estate?

  • CSP

    Caleb,

    There is plenty of room for all types of competition in the market. But a key insight into why Refin has angered so many agents is found in their pricing model itself. My understanding is as follows.

    Option #1: Find the house on my own and receive a discount from the buyer’s agent’s commission.

    Option #2: Use a Redfin agent to view houses and receive no discount.

    Redfin doesn’t offer a discount on the second option because there is a considerable amount of work involved for the buyer’s agent. If there is work to be done in the second scenario, who is doing the work in the first scenario?

    The answer is that part is being done by the buyer, and part is spread out over the real estate community of listing agents. Procuring cause aside, the reason agents are upset is because they are doing the showings and someone else is stepping in and asking for payment for their work.

    Consider the following scenario:

    Yesterday afternoon it was 80 degrees and sunny where I live, the first nice day in over a week. I had taken my first day off in nearly a month and was very much enjoying a day at the lake with my wife and small children when my cellular phone rang.

    The caller asked to see a property that I have listed that is in another city. I ran them through the standard qualifying questions and made arrangements to meet them. They explained that they absolutely loved the house and that they just had to get inside quick before they could write an offer. I tried to schedule for a more convenient time, but yesterday afternoon was the only time that would work for them and they were desperate. I asked them whether they had an agent or not and they told that they weren’t working with anyone.

    I felt that it was important to service my listing in this market and so I decided to meet them in about an hour. I kissed my wife on the cheek and went inside the house to shower, change and get on my way. I drove 30 minutes to my appointment and spent two hours at the house going over every detail about the property. Afterward, the client wanted some more information about the neighborhood and so we headed back to my office and I spent another hour and a half going over comps for the area.

    After all was said and done, they wanted to sleep on it and they told me that they would call me in the morning. I bid them farewell and made it home just in time to kiss my sleeping children?s foreheads and heat up dinner that had gone cold. All totaled I spent 6 hours driving to, showing, and driving home. However, the biggest loss was a day on the lake with my family.

    Imagine my surprise this morning to receive a faxed offer from an agent who had never showed the property. As it turns out the brother of the buyer was an agent and they called him to talk about it last night. They wrote the offer up this morning and now the brother expects to get paid. I asked him why he didn?t show the property and you will never guess what he told me. The buyer?s called, but he didn?t answer the phone because he was out boating. Ironic?

    Who should get paid for their efforts in this transaction??

    Example aside, this is why listing agents don?t like Redfin. You see it has nothing to with the fact that they offer a discounted model, or that they harness technology. The problem that agents have with this model is that they offer the buyer a discount for the efforts put in by other agents. I did the right thing yesterday and sacrificed a lot in order for someone else to step in and ask to get paid for my day away from my family. That is what upsets traditional brokers.

    If Redfin wants to do all of the work of selling houses and give back a portion of their commission, they are entitled to do so. In fact they can give away their entire commission for all I care. However, what angers the real estate community is that they are asking us to take our Saturdays and Sundays and to show our listings to their clients. That in and of itself wouldn?t bother me, but don?t then come back and say that you want the commission that I earned by selling my listing to your client. If Redfin wants the commission, they should show the property.

  • JJ

    CSP,
    So you’re mad at Redfin because, in your opinion, a traditional agent hosed you? Doesn’t make much sense to me.

    Since we’re telling war stories, here’s a recent one of mine. I recently sold a house in Redmond and bought one in Woodinville. My listing agent for the sale did essentially zero work but walked away with about $20k (3%). We received multiple offers within hours of our home being posted in the MLS. We showed the house ourselves (our agent was unavailable) to several couples and their agents. Within 24 hours we had a signed contract. During the final discussions with the buyer, our real estate agent finally showed up with a sign for the front yard and some flyers.

    Similarly, we found the house that we wanted to purchase online (via Redfin). Our agent showed us the house, we submitted the offer and signed the papers a couple of days later. For showing us one house, one time, our agent walked away with $30k (3%) of our purchase price.

    So, my experience has been that real estate commissions are not remotely related to the amount of work the agent puts in. I’m sorry that other agent put in less work than you did. But based on my experience, that’s how the entire industry appears to operate.

  • JJ

    BTW, I want to clarify that this was summer of ’05, before Redfin was offering a commission rebate. I’d have used Redfin’s agents if they had any at the time.

  • CSP

    JJ,

    I am not mad at Redfin because of my experience. Agents dislike Redfin’s model becuase the experience that I described is exactly what they go through every time a Redfin buyer buys a house.

    You feel as though brokers charge too much for their services. Nothing is stopping you from selling your house FSBO or through a flat fee company. By all means if you think full service agents charge too much, don’t hire one.

    Congratulations on selling your home and finding a new one so quickly. I am confused as to why this upsets you. Would you have rather spent months on the market with countless dinner-time showings so that your agent could “earn” their commission? Would you rather have looked at hundreds of properties so that your agent could “earn” their commission?

    Your comment that commission rates don’t reflect the time put into each transaction shows that you don’t understand how the real estate business operates. If you think the only thing an agent does is show houses and go to listing appointments, then I could understand how you might carry this opinion.

    For every deal that comes together, there is a deal that falls apart. (inside scoop: agents earn absolutely nothing when a deal goes south, and spend lots of time and money trying to keep them together) We also have other costs associated with running our businesses. We must spend money on marketing houses as well as our services so that we can find new clients. We are also independent contractors so there are costs associated with health insurance, extra taxes, cars, gas, borkerage fees, office space, copies, technology, etc.

    So while it may appear that your agent earned way to much for the work they put into your transaction. Please keep in mind that your successful deal covered the others he/she had that year that went south. The commission also went to cover their expenses first and then at the end they need to take a living home.

  • cbr

    Just yesterday I watched three listing agents froth at the mouth when the name Redfin came up in the course of a meeting. Here are their Redfin “horror” stories:

    One was completely put out because he actually had to show a home he was listing to a potential buyer. I guess I misunderstood a listing agent’s responsibilities. I didn’t realize that they don’t typically do that.

    Another was livid that the 3% SOC wasn’t being paid to a human being. Apparently, neither the buyer or Redfin employees qualify as humans in her book. Sad.

    The third did a pair of buyers a Great Service by explaining that what Redfin does is “illegal”. He then persuaded the buyers to allow him to be their agent. So, he scared them into paying him more money for the same basic service.

    There is only thing that prompts people to this type of irrational behavior – Fear. All I could conclude is that Redfin must be doing something right in the marketplace to be perceived as such a threat.

  • JJ

    CSP,
    What I was trying to say is that I did most of the work. Found the new house, showed my own house, did all the staging of my house, etc. I paid 3% on the sale essentially for the privilege of getting put in the MLS. I paid 3% on the house I bought for having my agent open the key lockbox one time. She met us at the house, opened the lockbox, phoned the seller’s broker with our offer & then brought us the papers to sign. There wasn’t any relationship between how hard she worked for me and what she got paid. Which isn’t how the rest of the world works. If I hire a plumber, he/she gets paid by the hour.

    Anyway, I understand why some brokers don’t like the Redfin model. What I don’t understand is why brokers don’t understand that the current system is very frustrating for home buyers and sellers. The reason that Redfin exists is because realtors created a market for Redfin through the way the realtors interact with home buyers/sellers. So, the rational thing, seems to me, is not to get mad at Redfin but to address the underlying cause. Which is what Redfin seems to be doing.

  • ds

    To CSP regarding the “MLS rules”
    are you referring to a commission advertised in the plano? usually stating a percentage of commission offered. REMEMBER..the plano is just “an advertisement” and anything stated is to be verified (disclaimer on bottom of page)or can be negotiated. Plain and simple .IT IS NOT rules or a contract.

  • ds

    Response to CSP in regards to “procuring cause”

    if a buyer chooses to access homes thru the Redfin website or drive-by or any other variety of ways BUT has an agreement with Redfin. THEY are the procurring cause ,as they sought out the RELATIONSHIP with Redfin.

    Suppose a Redfin buyer stumbles onto a home while a showing is going down, the agent at the home showing someone else , offers to show the unknown stumblee the home, and tries to capture them as a client. Only to have the pot’l. buyer state they are working w/ another agent.(THIS HAPPENS MORE OFTEN THAN GUESSED!) They even offer bribes or ??words to get the $$
    IF they are the listing agent it is usually in their agreement to do whatever it takes to get the property sold for THE OWNER!!

    So CSP

  • ds

    Caleb,
    get used to the real estate business.
    Your newbie rank is obvious!!!
    The showing is the easiest part.(I won’t go into the hoopla you spoke of in preparation..it shows you are a beginner)No offense real buyers don’t care if you smell like cow manure and accomodate them in quick showing the way you described,if you have what they want..

    Besides you are getting paid if you’re the listing agent. Plus look at all the things you commited in the listing contract to do> Does your box have flyers?
    do you have a virtual tour?

    the showing is easy,
    how hard is it to get someone to commit to the most expensive thing they usually buy? to guide them in the loan process perhaps, and maitain a patient , humorous bedside manner thru the following terse weeks of closing?

    think about it .
    6 hours now maybe 4 more hours to complete the deal? with a 3% listing fee??
    give or take a few bucks THATS darn good payola for a 100 hour education.

    just my take and I’ve been doing this for 25 plus years thru the good ,bad abd UGLY ( try 16-18% int.rates)

    one who knows flexibility
    ds

  • ds

    CBR,

    what you witnessed is illegal and complaints should be brought against the agents who commited the offenses. It first , violates the code of ethics a realtor agrees to uphold and PAYS to support thru their memebership to such.
    Besides it is against the Civil laws on the books governing the R.E. profession and maybe against certain language the agent PROMISES TO PERFORM IN THIER LISTING AGREEMENT W/ THE OWNER & OFFICE BROKER
    REPORT INAPPROPRIATE ACTIONS TO THE STATE DEPT OF R.E.

  • CSP

    I have been gone for a couple of days; I had no idea that my comments had touched as many people. I will try to respond to each post in order:

    CBR,

    You did not misunderstand the obligation of a listing agent. I feel it is very important for a listing agent to do exactly what I did and show the house. However, you seem to have missed my point. While I agree that it is my responsibility to show the house, I don?t feel that the other agent should be compensated for my efforts simply because they were too lazy to do it on their own. In fact the rules of the MLS concur with that notion.

    RE: commission not paid to a human. I think you and I agree that this agent is irrational. Money is never paid to computers and never will be?I hope!?!

    RE: legality of Redfin?s operation. In the state where I operate my primary practice, there is no statute of which I am aware that makes Redfin?s business model ?illegal.? The RULES of the MLS however are an entirely different story. If you want an education on procuring cause, track back up the post and read about it from a previous posting of mine. Illegal would be the wrong word for the matter, a better explanation would be that their rebate model may violate the rules of the MLS depending on the action of the buyers.

    If the agent was able to persuade the buyers to willingly choose to use his services, I would credit him as a good salesperson. However, Article 16 of the Realtor?s Code of Ethics precludes any agent from soliciting a client who is subject to a valid exclusive representation agreement with another broker. I guess my opinion of the agent would only be good if he had previously determined that they were not under contract with another broker.

    JJ,

    I am sorry that you feel that you overpaid for the services of your listing and buyers agents. In the case of the listing agent, I would encourage you in the future to find a reduced service broker who is willing to list your home in the MLS for a reduced or flat fee. Please be aware however, that you will required to do the work that you outlined whether you like it or not and the failure rate of these types of brokers in my area is atrocious (did I mention that you usually pay up front and not at closing?). There is also the option of listing your house For Sale By Owner.

    I think with a bit of research you will find that the scenario that you presented me with is more the exception rather than the rule. I can see how you would find the present system to be frustrating if you thought that every seller showed their own houses and sold in 1 day and every buyer found their new house on the first dry. The present system is working and will be working even better as the real estate markets begin to cool off. There is always someone trying to make money by doing it for less; that is Redfin?s niche in the market.

    DS,

    Unfortunately, I have no idea what ?the plano? is. I might postulate that it is the name of your local MLS system or provider, but can?t be certain. The MLS rules are a body outside of the information published in your local database. The disclaimers that you see and read on MLS printouts are a waiver of liability for the MLS provider and have no bearing on the actual data or the rules of the MLS board. It should also be noted that it would be a violation of the Realtors Code of Ethics for a buyer?s agent to use the terms of an offer in an attempt to modify the published offer of compensation. If you would like to take a look for yourself, Article 16 and specifically Standard of Practice 16-16 would be of interest to you.

    DS,

    I know that you want very badly for this all to work out for Redfin, but you are simply mistaken in your understanding of procuring cause. A key factor to procuring cause is that the person who holds it must first be an agent. To claim that a buyer themselves can hold procuring cause would therefore not follow with the rule. Before you claim that this isn?t fair, I need to point out to you that procuring cause is a rule of the MLS and therefore only the MLS members are subject to it.

    RE: offering bribes to potential buyers. I would find this practice unethical in nature and would therefore in no way condone such actions. I would encourage you to bring any evidence that you may have of such misconduct to Redfin or your local board of realtors. It should be noted that a listing agent is not precluded from soliciting your business while you are not subject to a valid exclusive representation agreement. If an agent offers you a rebate (?bribe??) in order to gain your business after determining that you aren?t under contract with another broker, they are well within their legal and ethical rights to do so.

    DS, how dare you attack my personal or professional ethics having never met me!! You have no idea who I am, what I stand for, or how I conduct my business. My efforts here to offer free advice to consumers should be a tip-off as to my professional ethics. Newsflash: I don?t get paid for the time that I spend educating you as to how the system really works. To follow your argument to its logical conclusion, if I were only about money, then I wouldn?t be here helping you for free. I was hoping that you could also point out the fiduciary duty that obligates me to compensate someone else for my efforts. Notice that I didn?t say that I wouldn?t show the property, but rather, I don?t care to pay someone else for the time that I put in.

    Your last statement in this post makes no sense to me (?Procurring causes are acknowledged relationships!?), and I was hoping that you can explain it. Reality: procuring cause is a rule of the MLS and has nothing to do with your relationship with Redfin. Your ?relationship? with a broker is only valid if it is in writing and is determined between each individual client and their broker. Procuring cause is a rule of the local MLS board regarding who will be compensated for the sale of a property to a buyer, and exists only between the members of that particular MLS board.

    DS,

    Your next post to Caleb shows that you have once again taken your eye off of the ball. Procuring Cause has nothing to do with who did more or less work in the transaction. However, it has everything to do with whose efforts caused (it?s even a part of the name procuring CAUSE) the buyer to purchase the home. Your claim that it takes more work after the fact and that showing a house is easy shows your failure to really understand the concept of procuring cause and why it exists.