What, Me Worry? Redfin in a Buyer's Market…

This is shaping up to be the winter of our discontent. High real estate prices were once a threat to the middle class; now low real estate prices are a threat to the middle class.

Reporting last Friday that new homes sales’ hit a seven-year low, USA Today’s Noelle Knox quotes an economist as saying “this is just hideous.” The same day, House Intelligence’s Jonathan Smoke notes that transaction volumes would seem healthy if we could just forget the past five years.

Inman’s Glenn Roberts brings word that discount listing brokerage Foxtons may be filing for bankruptcy. TechCrunch highlights Realtors at each others’ throats. The Wall Street Journal somehow predicts the demise of an entire real estate-mad state. Yet online real estate startups have nonetheless banked $62 million of venture capital in the past four months.

So, are we worried? OF COURSE WE ARE (but hey, we always are). After increasing revenues nearly seven-fold over the first seven months of the year, our top-line is taking its first dip in 2007. It’s too early to tell if it’s the same seasonal lull we saw last year or Apocalypse Now.

Since we pay our agents a salary and a customer satisfaction bonus, real estate’s ups and downs can affect us more than a commission-driven brokerage. So like others in the industry, we probably always wish more people were buying houses.

And yet compared to other brokerages, Redfin’s business may thrive in the coming storm. After all, we’re at the beginning of one of the greatest buyer’s markets in U.S. real estate history, and Redfin is predominantly a service for home buyers.

As inventory piles up in every market, the voodoo promised by traditional agents offering private previews of their buddies’ listings doesn’t matter much to buyers anymore; consumers know that finding a home to buy has gotten easier, even as buyer’s agent commissions have increased.

What does seem to matter to buyers in a market like this are simple services performed very well: the zeal and skill to negotiate for the best home price, an area where Redfin and its clients have outperformed the market; as well as a commitment to making the whole process as well-informed, hassle-free and cost-effective as possible, where we believe our technology can empower customers to feel in control of a transaction they once found bewildering.

So while fewer people overall may be buying a house these days, we expect more of those people to buy through Redfin. And while tougher market conditions may be crunching margins at pure discounters (which we are not), Redfin can thrive as an online broker, using technology to lower our per-transaction costs and improve our service.

Over the longer haul too, the market hasn’t changed the fundamental dynamics driving our business: a generation of home-buyers that grew up with the Internet want data, not a sales pitch, and they feel most comfortable with a real estate agent who gets paid more when they are happy with the service they received, not when they buy a more-expensive house.

This doesn’t mean we can’t screw it all up. We may fail to build the world’s best MLS-powered search site, which is how we first develop a relationship with our customers. Or, as we grow, we may struggle in our mission to use a combination of technology and personal service to generate the best results for our clients, which is the ultimate arbiter of our success.

Startups are risky that way. But it’s comforting to believe that our fate lies not in our stars but in ourselves. If you have an opinion on how the real estate downturn will affect Redfin, leave a comment and let us know.

Discussion

  • http://FlatRateRealEstate.com Craig Davidenko

    Ok lets all calm or should I say “com” down?! Denial, some people think that certain things last forever.however those people eventually learn the plain and simple truth.many many years ago the dinosaurs romed the earth alongside real estate brokers and agents who held the “holy grail”..”the mls book” but then came along came the world wide web.dinosaurs extinct and brokers and agents wondering when people would notice that they in fact did not hold the “mls” anymore.
    The fact is that all appraisals have realtors commissions “built” in!!!! I am a broker and have realized this for some time……I am starting a new marketing site “FlatRateRealEstate.com” for real estate brokers that want to come to “reality” and participate in the real estate market of today and tommorow.

  • http://redfin.pbwiki.com/audio-opp Palo Alto Podcaster

    Hi Glenn. You are right to point out that there is a LOT of news about real estate out there .. most of which focuses on the downturn, not on the opportunities.

    I am NOT in the real estate biz. I produce a community podcast for the Palo Alto/ Stanford area. I became aware of Redfin’s site when I was reviewing web analytics for my site. (Apparently there are readers out there who ALREADY made the connection between us I was about to discover.)

    In your post you asked what effect the current market downturn will have on Redfin. Chances are that while potential buyers are waiting on the sidelines, they’re still interested in acquiring information and tracking developments in different areas. Therefore NOW is a good time to expand your community of current and potential clients and build up Redfin’s *brand equity*. HOW can you promote your brand, increase your reputation for providing useful info, and reach a new audience?
    Given my penchant for podcasting, you probably can guess that my answer involves AUDIO outreach.

    Click (or download) this link to *hear* all about it.
    http://podcast-connections.com/redfin/audio-opp.glen10-1.mp3

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