Redfin Goaded Into Long, Crazy Post by Rain City Guide…

Ardell DellaLoggia posted a very thoughtful argument today about Redfin’s obligation as a real estate broker (can a post be very thoughtful if it’s titled “Is Redfin a ‘slut’?” Apparently, yes). In it she argues that e-commerce companies exploit traditional providers’ service ethic, comparing Redfin to an Amazon that benefits when someone browses at Borders, then buys on Amazon.

Of course Redfin offers free home tours, and provides every service from offer to close. Traditional agents are often pleasantly surprised at how easy it is to work with a Redfin agent on closing a deal. But Kevin Boer points out in a comment on Ardell’s post that if we really wanted to hold up our end of the bargain, we would stop giving customers the option to ask listing agents for tours, too.
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We’ve thought about taking his advice, but we think he goes too far. This isn’t to say we disagree with Ardell’s analogy. I’ve always felt uncomfortable about Zappos (e-commerce for shoes), which sells a product that almost requires personal service. Since every brand is sized differently, don’t you have to try on a pair of shoes before you know what fits? For that matter, don’t you have to see a house before buying it?

But there is one important difference between the shoe salesman and the listing agent showing a property. When you order on Zappos, the shoe salesman makes nothing. When you buy through Redfin, the listing agent still earns his share of the commission.

What we are really arguing about then is whether the listing agent deserves both commissions for showing the property. Redfin believes that the function of a buyer’s agent providing a home tour is to advise his client on the advantages and disadvantages of the home; our customers prefer their own counsel about what they like or don’t like about a house. They only want property access, and objective Internet data.

Giving qualified buyers access to a property seems to us to be one of the basic functions of someone selling a house. We could argue that point, I suppose, but it really doesn’t matter what we think: if the listing agent doesn’t believe his commission entails showing the property, he should say so to the seller.

In those situations, we could then arrange what we believe is the most natural connection, for the seller and buyer to walk through the house together, leaving it to the real estate brokers to handle the areas where we really earn our commissions, negotiations and legalities. Maybe this scenario sounds naive to you, but not to us (the couple who previously owned my house showed it to me even though they had a traditional listing agent; their tour was *fantastic*.)

But why end on a high note? The comments section of Ardell’s post is a dog’s breakfast of creative legal strategies for denying Redfin customers their commission refunds, which has never happened in our history.

The first strategy is the most easily dispensed with: procuring cause. As Ardell herself notes, it is well established law that the buyer’s preference rules the day, so any listing against on our commission will be arbitrated by the customer and her amply documented intentions. It’s an open and shut case.

Then there’s variable office commissions, in which different commissions are paid depending on whether the listing agent shows the property. This seems to us like a potentially fair solution to the problem of listing agents feeling they should be paid more to show their own properties. But we think this requires all parties to be able to clearly account for the circumstances under which commissions are split differently.

In the rare cases when we’ve encountered such variable commissions, they’ve been unenforceable because the seller was not informed that his agent was taking a larger share of the commission for showing the property. Every time, we got the full commission refund for our customer (if we hadn’t, we’d have probably given it to them anyway). So where we come out is for transparency; pay either brokerage whatever you like, just be straight up about it and tell the buyer & seller what they’re paying for.

And hey wait a minute, since we started offering free home tours, why are we even having this discussion? It’s late at night in the dorm room, and none of these issues seem that relevant. Ardell goaded us into it, again!

One clarification to a question Ardell asked in her post: we do not ask buyers to sign buyer’s agency agreements with us when going on a home tour. We do ask buyers to sign these agreements when submitting an offer, but not to obligate the buyer to work with us — we will never enforce such an agreement on an unwilling buyer — but only so it is clear we are the buyer’s agent, so we can get the buyer her commission refund. If not for that, we agree 100% that these agreements are lame.

Discussion

  • http://3oceansrealestate.com/blog Kevin Boer

    Glenn, a clarification on my comments on Ardell’s post over at RCG: I’m not suggesting that “Redfin stop giving customers the option to ask listing agents for tours.”

    I’m only suggesting that Redfin change the wording in that section of its website. The way it’s worded now raises the hackles of the “traditional” industry. We can have long, and probably fruitless, arguments about whether it is, or should be, the listing agent’s responsibility to show the property to anybody who calls. There are good arguments on both sides of that discussion.

    Be that as it may, as it currently stands in the industry, it’s usually the buyer’s agent who shows the property to the buyer. Most listing agents, I believe, are certainly happy to show their property to other agents’ clients — but get annoyed with the Redfin approach which implies an obligation to do so, and a penalty if not done (in the form of contacting the seller directly).

    Change the script. Make it more friendly and less combative. Teach your clients that, though it seems really, really, really screwy to folks outside the industry, as it stands now, the listing agent does not have an obligation to show the property, and if he/she does, it’s going above and beyond…and some simple appreciation of that fact would go a long way.

  • http://www.searchingseattleblog.com ARDELL

    Glenn,

    Not sure why everyone is missing the point, so I’ll cut down on the words. A “slut” is NOT one who sells it after the listing agent shows it. You and I agree there.

    A “slut” is one who sells it after a Buyer’s Agent (not the listing agent) works with the buyer for weeks or months to find a house.

    All I’m asking is if Redfin asks the buyer at any time before writing the offer, how they got to the end…deciding to buy THIS house. If the Redfin agent verifies that they saw it with the listing agent or at an Open House. Fine. Not a slut.

    If they don’t ask or do nothing if the buyer says:

    “I worked with an agent for a year and when I found just the right house, I called you to get 2/3rds of the commission”.

    What do you do when that happens? What measures are in your policy and procedure to prevent that from happening?

    All I’m asking is does Redfin do what every other agent in the MLS membership would do. Do they ask and make certain that the buyer didn’t “use” another member of the mls to get to their decision to buy this house, before they write it up.

    I’m hoping the answer is yes.

  • http://www.360Digest.com Marlow

    Glenn,

    I’ve been following this issue now through several posts, loved what you wrote on RCG and enjoy your optimism, unbridled enthusiasm and seemingly unformed or non-existent inner filter. I’m sure, under different circumstances, I’d enjoy working with you. However, I really feel the need to jump in here with a comment.

    You often complain about “hostility” you feel from other agents. I feel I must point out that you bring this upon yourself by “threatening” agents and interfering with their client/agent relationship, just to make trouble and to limit your costs so you can continue to offer back those rebates. To threaten to contact the seller if an agent won’t show your clients their listings, to “tattle” and “tell”, is very contentious and antagonistic.

    If you keep threatening to make trouble for agents, interfere in their business relationships and inappropriately contact their Sellers, you will probably continue to face antagonism from the real estate community. Where there could be tolerance, there exists animosity.

    Seattle is a small town and the real estate community of active players is even smaller.

    Do yourself a favor and quit threatening other agents and it will make it much easier for everyone to just do their jobs.

  • SV

    I live in the Bay Area, where I have purchased three homes, and sold two in the last 7 years. I used a buyer’s agent on the first home purchase, but after that, I did all buying and selling on my own. Hey Glenn, want to talk about hostility? You should check out the Bay Area – home to some of the meanest, highest paid and laziest agents around. And they DO NOT like it when you sell your own home. Even if you do all your own paperwork, reports, all of your own open houses, etc. they treat you like dirt. The fun part is when they realize that you’re not an idiot – when you tell them to shove their offer that’s chock full of rip-offs and holes that they know no agent would accept – but they think they can pull over on you because you’re not an agent. I’ve also had the lovely experience when holding open houses, of being mistaken for an agent, had a great conversation with “fellow” agent, then revealed myself as the owner, only to get dismissed with a huff.

    Now, I agree 100% with Ardell, no buyer’s agent should get stiffed in that manner, which is why they should ask for a contract when they begin the home search for a client. I signed an agreement with my buyers agent that simply stated if I bought any home he showed me within 3 months of him showing it to me – he got his commission. Problem solved. NOT Redfin’s responsibility to solve it either. As for Kevin… oh boy, the fact that you don’t think a listing agent should show the home they have listed is nothing short of insane. Your BS about “outsiders” not understanding the business is exactly that – BS. The truth is, more and more outsiders are figuring out that buying and selling homes is only a mystery because your industry has made it such. Redfin and others are simply pulling back the curtain and exposing the great OZ to be a tiny, balding guy running a big machine. Sorry Kevin, the way it is supposed to work is that listing agents, just like everyone else, have to actually work for their money.

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

    Marlow, In this rare case when I applied a filter, Ardell just posted what I decided not to say anyway! I agree with you about leaving agents-client relationships alone. We only contact the seller when we have reason to believe that the agent’s seller is acting to intimidate our clients from making an offer on the seller’s property. The fact that scaring off buyers may be a disservice to the seller is not our business; our concern is in protecting the interests of our buyers.

    We would not have been as successful as we are if we tolerated discrimination against our clients.

    The rare communications we have had with sellers have always been as a measure of last resort, and our focus has been exclusively on conveying what our buyers want the seller to know. There has never been a case in which we have used this communication as an opportunity to solicit another agent’s clients, or to disparage the agent. I am not aware of a case in which the seller was not glad to get the call.

    It is worth noting that over half of our customers report instances of solicitation or disparagement from the agent representing the other side, so we know from our own experience how amateurish that kind of mudslinging would make us look. Our focus really is on our own customer.

  • Scott

    I am a Seattle area real estate agent. Since Redfin came on the scene, my interactions with buyer-callers to my listings has changed. I now have to probe differently regarding how they want to work with me, why they are calling me instead of using an agent, what kind of agency relationship they both assume and seek, and whether or not they are working with Redfin specifically. My impression is that buyers are sensing a general resistance to Redfin, or understand its unfairness at some level, and as such I am increasingly finding people who are not upfront/honest about their intention to use Redfin since they feel they will receive less service and information from the listing agent.

    Redfin particularly concerns me on two fronts. First, their presumptuous attitude that I should do their work for them, and they get to walk away as the “discount hero” while not providing full service, buyer representation in the home selection process, or knowledge about the specific property and other properties that may be better matches for the buyer. They force upstanding listing agents into a situation where we either have to knuckle under and say “yes, we’ll do your work for you only because we want the best for our sellers and not because you are compensating us for doing your work for you”, or else we have to say “your client, you do the work that you should do” but then have to look bad to our sellers since they very understandably don’t care where and how the buyers get there. Redfin in effect discounts the entire industry, not just their side of the deal. They give a cut back to buyers thus reducing the buyer’s agent side commission, and they reduce the per-hour income for the listing agents by unilaterally forcing more work upon them.

    Second, their “solutions” to the complaints lodged against them lack a sense of reality and are definitely more PR fluff than anything. For instance, their new offer for free home tours is of little real value. That offer is limited to a tour of up to three hours. Few buyers actually decide upon their home in one rushed tour of several homes. The majority of buyers take weeks or even months to decide upon a home, and on average (per NAR) they look at 10 homes. In my experience those 10 homes can frequently be spread across different days of 1 or 2 homes per day as new ones come on the market or as buyers learn more and hone in on their priorities by close work with me as their agent. And of course that’s just the average, with many people needing to look at more than 10 homes, and I provide that service for as long as they need. I predict that once the first 3 hour tour gets used up by Redfin buyers, those buyers will then revert to the same behaviors as before instead of letting tangible costs start racking up when Redfin starts directly charging them afterwards. This is a disservice to the buyers either way: if they actually use the Redfin additional cost tours later they will likely feel rushed and not look at as many homes as they should, or else feel rushed in the ones they are looking at. If they use the uncompensated services of others instead, then they are back to the underlying ethical problems of the Redfin model.

    Frankly, Redfin should share some of that additional “discount” with their extended team who helped make their business happen: the non-Redfin listing agents or the improperly used non-Redfin buyer’s agents.

  • horace

    Glenn,

    You write:

    “We would not have been as successful as we are if we tolerated discrimination against our clients.”

    Care to quantify that success? How many listings does Redfin have in San Francisco, for example?

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

    We have approximately 350 pending or closed transactions, with commission refunds/savings worth over $3 million. I haven’t gotten the December data yet but our customer satisfaction rate has been in the high 90′s %.

    We do not report revenues segmented by market or deal type but most of our revenues come from buyers not sellers.

    We have done more deals in Seattle, but make more money from each deal in San Francisco. The San Francisco business is now growing faster than the Seattle business.

    Scott’s comments about the number of homes most people need to see may be true of the industry generally, but the California Association of Realtors last year published a report showing that Internet-savvy buyers see far fewer homes than traditional buyers.

    And our customers are taking advantage of open houses and the free tour. They also don’t seem to have a problem paying for additional tours, which in the grand scheme of things don’t cost them that much.

    I could say more but too much has been said already… thanks for the comments folks.

  • Michelle

    Glenn:

    You don’t have access to things like how many listings Redfin has in San Francisco? That seems unlikely.

    Also you stated: “We have approximately 350 pending or closed transactions, with commission refunds/savings worth over $3 million.”

    What time period does this cover? Let’s assume it’s since Redfin officially launched (almost a year ago, correct?).

    If customers have saved 3 million and customers get 67% of the revenue than by extrapolation, total commission revenue is $4,477,612 of which Redfin gets 33% or $1,477,611.

    Stated alternatively Redfin has gross revenue of $1,477,611. That’s not a whole heck of a lot considering the number of employee’s Redfin has, the overhead the technology expenses, the marketing budget (see google ads).

    One traditional agent operating with an assistant taking in this much in commission would be a “success.” Not sure the same can be sade of a fairly large organization (there are at least 20 folks working over there full-time aren’t there?)

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

    Hi Michelle,
    I am not sure any business could be a success if you assume it has to pay its employees $1 million per year.

    Redfin has access to information about the number of listings in San Francisco, but we choose not to share that information with the public. We have been remarkably candid about our business thus far — more candid than any other privately held business in the industry — and just have to draw the line somewhere.

    But you are right, Redfin loses money. We are glad that we lost less money than we had planned to lose, but we still lost money in 2006. It will be a long, hard fight to build a profitable business.

    We launched Redfin Direct in February, originally with one agent. Now we employ more agents, but most of those started in the fall, when our revenues had really started to grow.

    If you were to take our revenues for the last three months and assume we can continue to perform just at that level for a year, annual revenues would be much, much higher than the number you calculate.

    The real issue is whether we can continue to grow. Our real estate operation is profitable, but our business loses money overall because of the engineers we have to pay. Our plan is to have the real estate operation expand until it can pay for the engineers. It will take another year and more, but all the people who work here are painfully aware of the risks — most startups fail. Nothing ventured, nothing gained.

    Happy holidays to all of you!

    Glenn

    • Anon

      Ardell,
      Do you or any other real estate agents ask a new customer “at any time before writing the offer, how they got to the end…deciding to buy THIS house”? I’m betting the answer is you don’t and neither does any other agent. So why should Redfin go above and beyond what’s normal in the industry?

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

      By the way, we were quite clear at the outset that our agents should ask if someone was working with a buyer’s agent, because we were anxious to avoid conflict. There was at least one case where our first agent, Rob McGarty, turned a customer away, and this was when we needed the business quite badly.

      Ardell’s comment, which I didn’t notice until now, reminded me that this policy is probably no longer being actively enforced, not for any malicious reasons, but because after the early days the situation just wasn’t really coming up. I’ll check to make sure we are sensitive to cases where it seems obvious that a buyer had been working with another agent.

      One of our customer satisfaction survey questions is about whether a customer had been recently working with a particular agent prior to working with us, so we have a pretty good sense that our customers aren’t taking traditional agents for a ride before buying through us.

      If there’s a deal where that’s not the case, we’d like to know about it.

  • Cyril

    Hi Michelle,

    Did you ever get a response to your questions? I’m just curious. I’m thinking about selling my home but I don’t know who to list it with.

    Does anyone have any advice for me?

  • Cyril

    Hi Michelle,

    Did you ever get a response to your questions? I’m just curious. I’m thinking about selling my home but I don’t know who to list it with.

    Does anyone have any advice for me?

  • Ken

    Hey Glenn,

    From discussion here and on ARDELL’s blog I’m reminded of one of my favorite Machiavelli quotes (from The Prince). Perhaps you’ll find inspiration in it as well:

    “there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new”