Last February, when the rain wouldn’t stop and we were bored out of our minds, Redfin released a year of sales records indicating that our buyers on average got a better deal than customers of other brokerages, on top of the commission savings.
Mose Andre, Redfin’s compulsive stats man, has only recently recovered. Hundreds of bloggers, commenters, e-mailers and callers raged against the idea that Redfin customers got a better deal, or that our agents had any part in our customers’ success. But the data held up.
In childish, tearful rants, I defended our agents. Our CTO, Michael Young, poked his head into my office to ask, “Who cares why our customers win, if they win?” And then shrugged (he has a two year-old). Mose nearly had a nervous breakdown calculating and re-calculating the numbers, then slept for two days straight.
But ever the kinky masochist, last week Mose called me out in the hallway to ask why we hadn’t tallied up the Redfin Advantage for our listing customers.
“Too hard,” I said, turning around. “We could intentionally set a low price than claim a big mark-up. What’s the right number to compare ourselves against?”
“The assessed value,” Mose said. “The Zestimate.”
“People would question those numbers, too,” I said.
“It doesn’t even matter if the baseline number is wrong,” Mose said. “As long as it’s consistently wrong for everybody.” He was now surrounded by his math nerds, and I was all alone.
“Try explaining that in a blog post,” I said.
“Just because it’s hard to explain doesn’t mean it isn’t worth doing,” Mose said.
I started to back away. Mose smiled and said he would come back from vacation with a new way to figure out how our listing customers really did.
Well, it turns out that somebody beat him to it (hopefully Mose will realize he should never go on vacation again). A Northwestern economics professor bet his colleague that a traditional listing agent increases the price of a home, and then spent the next three years analyzing Madison, Wisconsin data from 1998 – 2004 to prove his point. Today, that professor is taking his colleague to lunch, because he was wrong. The traditional agent often doesn’t get a higher price, and consumers know what their home is worth better than anyone in traditional real estate has admitted.
According to a review of the study published in this morning’s New York Times, people in Madison, Wisconsin “who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves.” In fact, the study found, the agent-sold homes actually sold for slightly less (the difference though was within the study’s margin of error).
The study pointed out one bright side for the traditional industry, reporting that Realtor-listed properties sold more quickly (105 days vs 125 days), but we’re not sure this is such a simple advantage. According to another study by Freakonomics professor Steven Levitt, when Realtors list their own properties, the properties are on the market longer because the Realtor is holding out for a better price. Perhaps Madison home-owners took the same approach.
The Northwestern study worked because Madison is a kind real estate of Neverland, where more than 10% of all the homes for sale are available on a single For-Sale-By-Owner — FSBO — site, FSBOMadison.com, which still allowed owners to offer the buyer’s agent a commission. So the data set of FSBO sales in Madison was large enough that the professors could correct for all sorts of skewing factors, like lot size, neighborhood and time of year — and compare it to Realtor-listed sales.
Everywhere else in America, FSBO marketshare has declined (14% to 12% from 2002 to 2006, scattered across many sites) at the same rate as traditional brokerages (74% to 70%), with alternative brokerages like Redfin taking up the slack. One reason for the decline is that through services like Redfin Direct and many others, consumers can now list their home in the MLS without paying their listing agent a traditional commission.
Which brings us to the final twist: we feel kind of weird promoting a FSBO study. It drives us crazy when traditional agents claim we’re a FSBO type of service. Redfin agents work with clients to price and promote their homes, to negotiate a deal and to handle all the paperwork associated with the sale. So it cheered us to see one of the study’s authors, Aviv Nevo, acknowledge that you do of course want to pay a listing agent for the work he does, so long as you don’t give him a piece of the action based instead on the value of your house. Which is how we’ve paid Redfin agents all along.