Archive for March, 2008
March 25, 2008
April 24, 2008 addition: Redfin is correcting how it calculates the weighted average in the Redfin Advantage report.
Greg Wharton, the general counsel at my last job, liked to answer questions enigmatically. When I asked him if a software pawnshop in Florida was trying to buy us, he would smile and say, “answering that question now would obligate me to answer that question in the future.”
That can be a heavy burden to bear, especially when the question you’ve answered is a contentious one. Last spring, Redfin analyzed the MLS data available to all brokers to show that our home-buyers negotiated a better deal on a home — saving an extra $4,000 off the list price — over and above our commission refund. We called the total savings, of $14,080, the Redfin Advantage. We promised to make calculating it a regular thing, which meant that saying we saved customers money in one year would obligate us to admit it was a fluke if we didn’t repeat our performance in the next.
So when Redfin set out to evaluate our performance over the last 12 months, in a downturn that has brokers of all stripes competing ferociously at the negotiating table, I was sick to my stomach. As transaction volume grows, we should regress towards the mean. But the numbers came in for both Seattle and the Bay Area, and they only show the Redfin Advantage got bigger, with a smaller range of error (thank goodness!):
- Redfin home-buyers over the past twelve months paid on average 1.015% below homes’ asking price, while customers of other brokerages paid .087% below asking price.
- This difference in negotiating results saved Redfin customers nearly 1% of the home’s final price, for an average savings of $5,048.
- In addition, Redfin refunded each of these customers an average of $10,520 in commissions.
- The data is statistically significant, with p-values for each of the three counties we evaluated between .00004 and .02. To a statistician, this means there is less than a 2% chance that our results could be the result of chance. The p-value for last year was closer to .03 or 3%.
- It would be hard for us to exaggerate or fabricate this data, since other brokers can and will challenge the result. There was a huge brouhaha last year. One intrepid broker found an error on one transaction, and we immediately issued a .01% correction.
- Redfin’s customer satisfaction rate was again 95%, for home-buyers whose offers succeeded or failed. Our demographic broadened, with the number of high-technology customers dropping from 48% to 33% of our total, and the number of first-time home-buyers increasing to 45%. Unlike the negotiating advantage, the satisfaction and demographic results come from our own surveys, which are less reliable.
The report analyzes data from February 6, 2007 - February 5, 2008, based on the anniversary of our launch of our home-buying service, Redfin Direct for Buyers. We didn’t analyze LA, San Diego, Boston or Washington, D.C. because we hadn’t served those markets for the full year, and we didn’t have a statistically significant numbers of sales there either.
Because the negotiating advantage is consistent across different Redfin agents, different customers, different counties, different years, in markets that were healthy and slumping alike, it seems fair to conclude that the advantage stems from the Redfin business model itself. What does that mean?
Customers on the prowl for a deal are a big reason we negotiate effectively. The partnership we try to set up with customers gives them a more active role in negotiations and, because they
have the most skin in the game, they come to the negotiating table armed to the teeth with data from our site. Last year we tried to give all the credit to our agents, but now, we think Greg Swann was right: a lot of credit goes to our customers too.
We still think the results validate the skill of our real estate agents too, whom we pay customer satisfaction bonuses rather than commissions to avoid creating any pressure for customers to close on a bad deal. Alone among any national brokerages, we require our agents to have experience with at least 20 transactions before representing a client. Hats off to all our Redfin agents, and thanks for your hard work, now being recognized on TechCrunch, in our favorite real estate blogs and the local papers.
Many thanks to Redfin star Chris Glew for preparing the report, his first big business project. An anthropology M.A., Chris previously studied ancient Mexican turds and fabulous jungle-buried relics. In his interview for the job, he explained that the diameter of an empire’s tortilla-making griddles increased with its ability to enslave people in the fanatical construction of monuments (which in turn prompted us to expand Redfin’s Costco order.)
March 23, 2008
Michael Arrington complains again today that people are overwhelmed with email. Michael cites a venture capitalist who encourages people awaiting his email reply to befriend him on Facebook, but then admits he is even less responsive there.
“Someone,” Michael says, “needs to create a new technology that allows us to enjoy our life but not miss important messages.”
But if Michael wanted fewer messages, he could just switch to a private address without telling me what it is. Every time we write an email rather than call, or add another distant “friend” to Facebook, we choose a network over true friendship, communication without commitment. And usually, we’re choosing what we want.
This is a process that starts early: the New Yorker’s Adam Gopnik recently wrote about the imaginary friend his toddler talks to on her toy-cellphone, usually only to say that she’s too busy to talk to him.
And it began a long time ago. The critic Hugh Kenner speculated that the disembodied voices of modern poetry grew out of the invention of the telephone. What I grew up seeing as a way to reach out and touch someone, a previous generation saw as a paltry substitute.
And now that’s how I now see Facebook, as a paltry — but not quite dispensable — substitute. Facebook comforts us with the thought that we have lots of friends. And yet the prestige that this network offers is the opposite of security, that 8th-grade sense we got from knowing exactly who our friends were.
The “social utility” of friends on Facebook is different than other forms of friendship. Most of my friends’ Facebook updates have the quality of overheard cell phone calls: mundane, impossible not to listen for, really only half of a conversation, but also comforting. Someone stuck in Singapore for a year once told me that what he missed most was the English chatter of overheard conversations.
This is why I’ve stopped checking Facebook throughout the day, but then suddenly find myself, alone in the wee hours of the night, glad to see everyone there. The feeling it gives me was best described in Augie March: “Wherever it was dark there was this sound, continental and hemispheric, again and again, like surf, and continuous and dense as stars.”
Saul Bellow was writing about falling asleep to the chirping of insects, but now that sound is the buzz of our friends. Maybe the one-line updates of Facebook have just reduced communication to what we really need to hear, over and over again: “Are you there?” “Yes, I am (everything’s fine).”
(photo credit: Moriza on Flickr)
March 19, 2008
Out of nowhere last week, an NPR producer sent us a note asking about Redfin’s March Madness plans. At first I thought she was talking about last week’s open houses release. Then I was about to say we aren’t doing anything special, but double-checked first with Redfin power forwards Klaus Gosma and Loren Ellingson, who are thick as thieves.
Klaus consulted with Jamie DeMichele, a developer on our data team who on one of his first days at Redfin explained to me with perfect solemnity that we could never play basketball together because “it would be too humiliating for you.” (”Well maybe you could come over to play cards instead,” I suggested. “That would be worse,” Jamie said.)
Jamie had secretly created a customized web application for running Redfin’s big bracket competition, complete with credit card authorization for the entry fee. He, Klaus and Loren had also talked to the IT department, which had commandeered one of our projectors to stream the games in our largest meeting area. Together they came forward to explain their comprehensive plan to make sure Redfin gets nothing done for the next two weeks.
I had no choice but to write the NPR producer back to explain that yes, perhaps, Redfin was doing something for the basketball tournament. Tune in to NPR this afternoon to hear the young DeMichele and his colleagues explain our plans:
Seattle: 94.9 at 6:30 p.m.; Bay Area: 88.5 at 4 p.m.; Southern California: 89.3 at 6:30 p.m.; Boston & DC: do we really have blog readers on the East Coast? Or just stream it.
Update: the segment is available here.
(Did anyone see ChandraB’s TechCrunch touching comment on the death of science-fiction great Arthur C. Clarke?
HAL 9000: What is going to happen?
Dave Bowman: Something wonderful.
HAL 9000: I’m afraid.
Dave Bowman: Don’t be. We’ll be together.
HAL 9000: Where will we be?
Dave Bowman: Where I am now.
This is the conversation I always think of entrepreneurs at near-death startups having with their software…)
March 18, 2008
“If there’s one thing I know how to do,” a friend once told me, after one of those long, grappa-fueled nights of ping-pong that make the rest of life seem like such an enigma, “It’s how to have a good time.” 
Over the years, this friend has explained to me many things: what different drugs are like (”if you must choose just one, mushrooms”), how to bake a chicken (salt, pepper, nothing else), the only way to actually finish writing a book (feverishly, in a remote cabin), and how good family life could be (his toddler-age children fetch beers from the fridge).
But never how to have a good time. Whenever I’ve been supposed to have a good time, like at an amusement park or a party, I’ve failed, and then felt worse because of my failure. “Corporate fun” has been especially miserable. But then I came to Redfin. And if there’s one thing Redfin knows how to do, it’s how to have a good time.
In that spirit, we threw
a Red Carpet party last week for our Seattle customers, so they would tell us how to improve our service or our site. And we had a really, really good time. Naturally, I was opposed from the start. “Nobody will come,” I said. “And we won’t have anything to say.”
But I wasn’t in charge. Our ringleader, Chelsea Mitchell, got $200 worth of beer on a high-heeled sprint through Costco. Mykie Gunderson cleared out his “Rock Band” junk just outside my office. Matt Goyer set up a computer to show drunk people the next release of Redfin.com.
And the customers came in droves. A Russian couple, on hearing that I was Lithuanian, told me that the “hard-working Lithuanian is a myth.” Bahn Lee took one of our prettiest guests and her boyfriend on an extensive Redfin tour. Angela Cough’s husband explained to an awe-struck crowd of scrawnies how to do 100 pushups (”just be naturally strong, I guess”).
And a dozen different customers came up to me just to gush about how great their experience was. The cumulative effect was overwhelming. Running an online business is a constant effort to think in inhuman dimensions, about changes to your site that can bring millions of new visitors. But at the end of the Red Carpet party, each happy customer seemed like a triumph.
If you’d like to meet the Redfin people in your area, let us know, and we’ll set up a Red Carpet party there, too. Thanks to Chelsea, Pam, Janelle and everyone else for setting up the party, and thanks to all the customers who made the event such a blast.
March 12, 2008
A bill introduced by the Illinois legislature to outlaw refunding real estate commissions to consumers, which we complained about last month, finally died today. An obscure group called the Homeowners Club of America had supported the bill as a response to “West Coast brokers attempting to change Illinois commission structures.” Since the bill came just as Redfin was planning to enter the Illinois market, we wondered if we were the primary target.
The U.S. Department of Justice applied behind-the-scenes pressure, and the Illinois Association of Realtors, which we had earlier assumed would support the bill, openly lobbied against it. Several delays, and eleventh-hour modifications (some made as recently as last night) to require only that brokers show a property before claiming a commission on behalf of a client, were not enough to save the bill. In the words of one Redfin correspondent, “the bill was crushed” in the Illinois legislature’s Judiciary Committee. It didn’t even get a motion.
Hooray! And thanks to the Illinois Association of Realtors, and to Redfin reader Mark Reitman for taking the fight to Springfield. Illinois, here we come!
Bonus link, from our devblog: why Redfin chose Bricolage.
March 11, 2008
A recent Redfin Forums contributor raised the question: Does a higher buyers’ agent commission = faster sale? From Baltimore to Seattle to Southern California, real estate agents and journalists have endorsed the idea of offering unusually large commissions so buyer’s agents will recommend a listing.
Because we’re curious masochists, we decided to answer that question. But first we had to establish what constitutes a “higher” commission. Higher than what? While traditionally the seller has offered the buyer’s agent 3% of the final home price and reserved 3% for his own agent, the very existence of a standard commission has been hotly disputed. Again, some notes from the fray: Realtors from Canada to Florida insist that a standard commission doesn’t exist, while professors from Berkeley and the Hudson Institute insist that it does.
Of course, Redfin’s business model demonstrates that it’s possible to charge different commissions. But Redfin has always been careful when listing a home to encourage our clients to offer the buyer’s agent 3%, even while accepting a lower fee for ourselves. In this at least, we’re like everybody else. We analyzed commissions paid to buyers’ agents for all broker-listed residential homes sold in King County in 2007, and found that 79% paid commissions of exactly 3% to buyers’ agents. Whether 79% adoption constitutes standard behavior or not, it is certainly common behavior.
The average commission, factoring in the lower and higher commissions as well, was 2.88%. The chart below (source: NWMLS) shows the average commission grouped by list price of the house. Most agents will tell you that the commission as a percent of the list price is lower for more expensive homes. We found this to be true: for list prices above $2 million, the average commission started getting closer to 2.5% than 3%.
Because of the difference in commission rate for more expensive homes, we broke our data set into two parts: homes listed above $2 million and homes listed below $2 million. We focus here on the homes listed below $2 million because it’s a more interesting set– it’s much larger and the effects are a lot greater as well. This data set included 22,673 home sales.
Table: Home Sales, King County Residential Homes, 2007
| |
Commission lower than 3.0% |
Commisison equal to 3.0% |
Commission greater than 3.0% |
| Sale-to-List Price |
99.9% |
99.3% |
98.5% |
| Days on Market |
89 |
68 |
129 |
Rick West in our real estate group and Chris Wilkins in engineering ran the numbers, and the results were not as expected. That’s exactly why we created The Real Estate Scientist: to ferret out the data behind the myths and assumptions.
Homes offering a commission higher than 3% actually had a lower sale-to-list price than homes offering a 3% commission, by about 0.82%, or the equivalent of $4,095 on a $500,000 home. We had hypothesized that a higher commission would correlate to a better result for the seller. In contrast, homes offering a commission below 3% did get a better result for the seller: they had a higher sale-to-list price, by 0.54% or the equivalent of $2,719 on a $500,000 home.
The real difference between these groups was in days on market: homes that offered a 3% commission took 68 days to sell, while homes that offered a lower commission took about 30% longer, and homes that offered a higher commission took almost twice as long.
According to our data, setting a higher commission to get better results doesn’t work. It’s best to be typical, with respect to commissions.
How should we interpret this data? Is it the doing of the seller’s agent, who offers a lower commission on a property he knows will sell, and a higher commission on a property he thinks will be difficult to move? Or was the high commission itself a signal of desperation that encouraged negotiating? We tend to think that unusually high commissions are a symptom rather than the cause of a distressed listing. Whatever the case may be, the Seattle data suggest that offering buyer’s agents an unusually high commission isn’t worth it. If you have a different take on our results, just leave a comment.
March 6, 2008
Last fall we opened our doors for a live real estate mashup dubbed The Red Carpet; a sort of customer meets agent and engineer free-for-all. And I was reminded again why we don’t need ice breakers or alcohol (we’ll still bring it anyway) at our events. Real estate is the ice breaker. It’s like talking about the town’s favorite ballclub except you don’t need to be a sports fan.
If you’ve ever wanted to interview one of our agents in person, or grill an engineer about why you can’t search by
$ per square feet, now’s your chance. The next Red Carpet happens Wednesday, March 12th in Seattle and you’re all invited, whether you’ve bought or sold with us or decided to kick the tires while the market cools off. True story: one of our guests at the last Red Carpet came looking for a job and now she works here.
Product man and Redbull-drinker, Matt Goyer, will be demo-ing all the cool new features on Redfin. Don’t worry about the oxymoronic blog heading. Coronas, Chipotle and Redfin… it will all make sense when you get here.
The Details
Date and Time: Wednesday, March 12th, from 6:00PM to 8:00PM.
Location: Dexter Horton Building at 710 2nd Ave, Suite 600 in Downtown Seattle (between Cherry and Columbia).
Parking: There are many garages nearby. Street parking is also available, free after 6PM.
This event happens to be at our Seattle office again but we plan on holding Red Carpet events soon in our other markets. If you’d like to sign up for a future event email our event coordinator: Chelsea at chelsea (dot) mitchell (at) redfin (dot) com.
RSVP for next week’s shindig on our invitation page: Click here!
March 4, 2008
Like a hideously tortured beast finally broken free of its chains, Redfin’s engineering team has been on the rampage this winter, releasing the second major upgrade to our site in just the past 45 days.
This one features Listing Metrics, a dashboard for Redfin customers selling their house to see whether their listing is getting more traffic than other properties in the neighborhood, and where that traffic is coming from. The dashboard also shows neighborhood inventory levels, and whether average days on market is increasing or decreasing for the area.
Ever since it got harder to sell homes last fall, we’ve tried to dig up more data on what works, first with the Real Estate Scientist report, and now with these dynamic metrics. Customers can check the graphs to see which marketing efforts generate web traffic, and to understand supply and demand in their neighborhood. We’ve also included prices for homes that recently sold in the neighborhood, and links and photos for comparable properties currently on the market.
It’s good stuff. Greg Swann at Bloodhound Blog has already asked why we wouldn’t share this page with everyone, and I did too when I first saw the prototype. But we first conceived the feature-set within the commerce group, which is responsible for supporting customers involved in a transaction, so we didn’t have enough time to work out how to show Listing Metrics in Redfin’s search experience.
Hopefully we will soon. The whole idea behind our strategy of Freakish Depth is that doing deals can give us market insights to share with everyone. As Redfin CTO Michael Young explains in today’s press release, “our website makes our business model possible by automating key tasks, but our business model is also what gives us the deep data access we need to build a better site.” We think it’s hard to build a good search site if you aren’t up to your knees in deals.
Which brings us to what we did with search in this release. Probably most important for our home-buyers is that you can now see open-house information on our map, and subscribe to listings just as you subscribe to this blog. Making it easy to find open houses is important because, notwithstanding Redfin’s new tours policy, so many of our customers see properties that way.
Adding RSS was also a big emotional win, since we’d been pushing it into “the next release” for two years. Finally Michael Smedberg and Matt Goyer couldn’t take it anymore, and rallied to cram it in. We encourage all you bloggers to grab a feed, and widgetize it.
Or you can just embed listing results in your favorite feed-reader:
Finally, we added to the site estimates from Cyberhomes, owned by title insurance giant Fidelity National Financial. It’s sort of fun to compare Cyberhomes’ numbers to those of Zillow and eppraisal.com: Zillow is almost always the lowest, and eppraisal.com is usually the highest.
And so where does that leave us? Exhausted, Matt Goyer says. But also happier than this team has ever been with our site. Redfin is the only national player to crack Joel Burslem’s list of “kick ass real estate search sites.” And while we’re still small potatoes compared to the truly national sites, traffic has increased 88% since December. We’ve got plenty of other challenges, but they’re easier to solve when there’s lots of people using Redfin.com. Enjoy! And let us know what you think…
Bonus link: in our devblog, the Great Smedberg writes on how to search Redfin from Internet Explorer or Firefox. Next up on the devblog, we’ll explain how we went about choosing a content management system, also live in this release…
