What Would An Agent Do? Long-Time Agent as First-Time Home Buyer

Guest post by Greg Whelan, Redfin Agent serving Chicago’s Near North Side

Deciding It Was Time to Buy

After helping more than two hundred people buy and sell homes during my last decade as a real estate professional, I decided last spring that it was time to become a homeowner myself.  I had been quite content renting my very reasonably priced apartment for the last several years, but I was finally starting to crave more space. After reviewing available rentals, I realized that renting the type of apartment I wanted would cost nearly as much as a monthly mortgage payment on a comparable place.  It was a perfect storm: low interest rates and declining home prices combined to make home ownership an affordable option.  It just felt like right time for me to buy.

Touring and Negotiation Processes

I had my eye on a house in the Ukrainian Village that my friend had lived in a few years ago. It had been pulled from the market as a short sale and was in the process of becoming a foreclosure. When it was finally relisted as a foreclosure in September, I got in to see it right away.  After spending an hour and a half touring the house, I realized it just wasn’t what I remembered it to be. It had been pretty badly beaten up in the foreclosure process and needed new floors and windows among many other repairs. This was a lot more work than I wanted to do, and it made me realize I really wasn’t in the market for a fixer-upper.

I expanded my search a couple neighborhoods up the EL to Logan Square where I found the two-flat (a two story building with separate apartments on each floor) I eventually bought.  After touring the home, I wandered the neighborhood at various times of the day and night, on bike and on the EL. I took the advice I give my clients: I ate at the little café on the corner, walked to the EL, and had a drink at the neighborhood bar to make sure I really liked the location.

I did a Comparative Market Analysis (CMA) and found that the home was significantly overpriced, so I came in with what I deemed to be a fair offer at twenty percent below list price. I justified my offer with comparables, knowing that the seller might take offense at my “lowball” offer. Next ensued a week of fierce back-and-forth negotiations culminating with us agreeing to meet halfway at ten percent off the list price. The process taught me a lot about myself and my role as an agent. I repeatedly found myself becoming angry when the seller wouldn’t respond quickly or agree to my preferred terms (or simply accept my offer). When I’m representing a client, I know that to them, it’s way more than just a deal, but coping with my own feelings gave me a  greater understanding of how important my job is to not only represent my clients in a professional manner, but first and foremost to advocate for them and their feelings.

Inspection

I wish I could report that once we had settled on a price it was smooth sailing. To the contrary, the inspector uncovered several minor items that needed repair and one huge problem: the underground crawl space was not sealed off, leaving the house un-insulated and vulnerable to pest infestation.  For me, this was a deal breaker, but the seller refused to pay the cost of sealing it off.  I threatened to back out of the transaction using the inspection contingency and told the seller I’d be happy to watch the home sit on the market through the winter. The seller backed down and agreed to cover the cost of this major repair, and the deal moved forward to a successful closing.

What I Learned

As a Redfin agent, advocacy has always been a core value of mine, but the emotionally charged process of negotiating on my own behalf instilled in me a much greater appreciation for the fact that my role as an agent is not just to be a cool, calm and, when necessary, fierce negotiator. My most important task is to advocate for my clients to not only get them the best deal possible, but also to get them what they want out of the deal, whether it’s a fair price from which they can’t budge or a repair they can’t live without.

After devoting so much time and energy in helping others become homeowners, I’m proud that I can now call myself one too.  I called my mom as I was pulling into my new garage after closing and said to her, “Coolest thing about buying this place, I got a house for my car!”

Services and Service Providers I Used

Inspector: Larry Robbins
Lender: Erik Johansson
Attorney: Jason Schram
To List Rental Unit: Craigslist
Tenant Screening: TransUnion SmartMove

In 2012, Competition On More than 50% of California Offers

Redfin real estate analyst Tim Ellis just collected information from offers that Redfin agents have prepared since January 1, 2012, to gauge just how often our customers are bidding on listings that have competing offers. In major California markets, more than half of our offers faced competition. Here are the Redfin markets where competition is most common in 2012:

• Bay Area: 73.0% of Redfin offers faced competition
• Southern California: 62.3% of Redfin offers faced competition
• Seattle: 48.9% of Redfin offers faced competition
• DC Area: 42.4% of Redfin offers faced competition
• Long Island: 41.7% of Redfin offers faced competition
• Boston: 40.9% of Redfin offers faced competition

In other markets, our offers face competition less often, between 22% and 39% of the time, but still most customers are shocked that there is any competition whatsoever.

And this is one reason why Redfin, after describing the market in years past as a “fat man who can’t get up” and predicting declines of 5% – 10%, is now forecasting the end of major declines when others have called for another year of falling prices.

As real estate agents who buy and sell homes, we have access to real-time data about what is happening now in the market. Because we use technology to generate offers and schedule tours via a central database, we can track this at scale. And what we see happening, at least for now, is that demand is outpacing the supply of homes for sale.

This doesn’t always mean that listings are selling for more than the asking price. Just last week, we hosted an open house for a Redfin listing in Chicago’s Wicker Park that attracted 30 different individual buyers or couples, and immediately generated three offers, all under the asking price. It is now pending, but still for slightly less than the asking price. Even when everyone wants a house, not everyone is willing to pay for it, at least not for now.

2012: The Beginning of a Long Bottom for Housing

If you’ve bothered reading the real estate section of just about any newspaper or website, you’ve probably seen more bottom calls than you can count from various real estate professionals since the housing market totally fell apart in 2008. So let’s be up front here.

Yes, we are a real estate brokerage. We make our money by helping people buy and sell homes.

And yes, this is another bottom call. Well… sort of.

Did we come here today to tell you that you need to buy a home right now because any day now prices are going to start shooting up again and if you don’t buy today you’ll pay more tomorrow? Hell no.

We’re not interested in trying to convince you that now is or is not the right time for you to buy or sell a home. We’re interested in the data, and we haven’t been shy about predicting further declines on these pages and elsewhere in the past when that’s what the data suggest.

A year ago we said sales would be up in 2011, and despite the unfair comparison of a 2011 with no tax credits to a 2010 that had the homebuyer tax credit in effect for half the year, 2011 did indeed see about 2% more sales than 2010 in the markets we serve across the country.

So what do the data suggest today? What’s in store for the housing market in 2012?

Buyers Coming Back

Let’s dive into the data. Compared to a year ago, this January…

• Redfin home tours were up 27%.
• Redfin offers were up 26%.
• Redfin website traffic was up 48%!
• Consumer Confidence was up 23%.

So it would seem that buyers are certainly returning to the market, hungry for something to purchase. And with rents across the country beginning to climb slowly as well, the math is making sense for more people with each passing month. But what’s going on with closed sales? If there’s so much demand building out there, why the one percent dip in buyers actually purchasing homes so far this year?

To put it bluntly, selection sucks!

Sellers Missing in Action

Let’s go to the data again. Compared to a year ago, this January…

• Total new listings were down 17%.
• New non-distressed listings were down 10%.
• New REO listings were down 33%.
• New short sale listings were down 20%.
• Total on-market inventory was down 26%.
• Bank repossessions were down 35%.

It’s fairly difficult for sales to see a substantial increase when there just isn’t anything out there to buy. We’ve been hearing it from our customers for months, and their cries are only increasing in intensity as the expected seasonal bump in selection has failed to materialize with the new year.

Just since the beginning of the year, over half of offers submitted by Redfin clients have been on homes with multiple offers, a number that is rising rapidly every month, even through the winter—traditionally real estate’s slow season. Those rare times when something good hits the market, all of the buyers seem to immediately descend at once. This issue is most pronounced in California, where our buyers encounter multiple offers nearly two thirds of the time.

Prices Likely to Roll Along the Bottom

So what does this all mean for home prices? We agree with Bill at Calculated Risk. For home prices around the country, on average the bottom is here.

On the way up, it took a year or two for increased supply and shrinking demand to turn into home price losses. We’re now heading into Year Two of the opposite pattern: supply is shrinking and demand is on the rise. Expect prices to hit the bottom in most markets this year (barring another complete economic collapse, of course).

Of course, the catch is that we’re likely to be here, at the bottom, for quite a while. As in, years.

In some markets where investor activity is heating up (Phoenix), or inventory is especially slim (SF Bay Area), prices may rise somewhat on certain types of homes. In the Bay Area, our buyers have been coming up against multiple offers (many of which are all-cash with no contingencies) in almost three out of every four offers so far in 2012. It’s hard to imagine prices continuing to drop in a situation like that. But overall, the continued slow release of foreclosures by the banks coupled with a steady flow of short sales by underwater home owners will put a damper on prices as the excesses of the housing bubble work their way through the system.

“Shadow inventory” is a term that has been thrown around a lot in the last few years, overused even, but the fact remains that the banks are currently sitting on tens of thousands of homes across the country that they have foreclosed and not yet listed, along with tens of thousands more homes somewhere in between the first missed payment and the actual foreclosure. The banks can only process these so fast, especially now that the light of day has shone on the shady robo-signing processes that allowed them to push through so many foreclosures between 2009 and 2011. We’re talking at least three years’ worth of backlog in foreclosed home inventory at the banks.

Any sign, however slight, that prices may be on the rebound will cause banks to release more of their inventory onto the market, along with a wave of pent-up supply from would-be sellers on the margin to rush to list their homes to take advantage of the “recovery.”

Nationally, prices will probably move ±1% between January 2012 and January 2013. We expect 2012 sales to come in at least 5% higher than 2011, and inventory to be 20% or more below 2011 throughout the year.

We’re slightly more optimistic than our friends at Zillow, who recently predicted an average drop of 3.7% in national home prices during 2012. Meanwhile, famed economist Robert Shiller says that home prices are “not overpriced anymore,” but that “the question is whether we’ll overshoot.”

2012 Won’t be a Cakewalk

Unfortunately, although home prices may be rolling along the bottom in most markets this year, the squeeze on inventory means that buying a home in 2012 is likely to be a frustrating, lengthy experience. And while sellers may be excited about the lack of competition on their street, they probably won’t be thrilled about how much they can sell their house for.

2012: Welcome to the housing bubble hangover.

Redfin Brings Transparency to Title, Inspection, Mortgage, Staging

Big news! Today, Redfin is launching a major expansion to our charter as a technology-powered real estate broker: Redfin Open Book, a local reviews site for lenders, inspectors and title companies.

Later this spring, we’ll add the stagers, landscapers and handymen used by sellers to get their home on the market.

Our goal is to ensure our customers get the best service at every step of a deal, by bringing together the best local team and holding that team accountable for the best result.

The Goal: Better Service
Unlike Angie’s List, Open Book is completely free. And unlike Yelp, it’s completely focused on the folks who serve our customers when buying or selling a home.

There are no kickbacks from anyone we include or recommend. In fact, there’s no revenue model at all for Open Book, not now nor in the foreseeable future.

The goal is simply better customer service. The best real estate agent in any market is good because of her own skills, but also because of her team, and her ability to hold that team’s feet to the fire when a loan or a listing is on the line.

As Redfin’s online traffic and transaction volume grows, our influence over all the folks who provide real estate services grows too. We want that influence to lead to better performance across the board for our customers.

This means that our focus is quality, not quantity. We don’t want to be the phone book, showing every lender or inspector in town. We want to be a reliable guide to the partners you should actually use, in any market we serve.

Today, people mostly take their agent’s recommendation for an inspector or a lender. But we think customer recommendations are important too, in finding an inspector who will tell you when to walk away from a crumbling house, or a lender who will steer you toward a cheaper loan, even if it pays him less.

This is crucial information, which is why Open Book, while intended for our own customers, is available to everyone browsing our site.

Our Advantage: Redfin-Certified Reviews
No one else could build such a reliable reviews site for real estate vendors.

Because we honcho a transaction the whole way through, hundreds of times a month, we know which inspectors and lenders our customers are using. Redfin’s online Deal Room, for tracking who is supposed to do what to close on time, stores information about thousands of vendors in a big database.

And we already survey every customer, deal or no deal, so it’s easy to ask each customer about his lender, inspector or stager. This means that we can validate every review, to avoid the bogus reviews from vendors’ friends and competitors that plague most review sites.

At some point, we’ll probably solicit reviews from the general public, but we’ll always highlight the reviews that came from actual customers, just because we can verify that the customer did in fact use the vendor she’s reviewing.

Our Investment: Redfin-Certified Partners
As with our brokerage, we aren’t just offering technology; we also offer a human touch. The inspectors, lenders and stagers who get the best reviews qualify for an additional level of certification, as Redfin partners.

Redfin has hired a team of former Redfin agents to interview potential partners, briefing each one on Redfin’s mission and our service expectations. We then monitor the partner’s performance. The ones that make the grade are certified as official Redfin partners. In Open Book, a tiny Redfin ribbon appears beside their profiles.

These are the folks our agents are most likely to recommend to our customers.

Over time, we’ll ask each certified partner to deliver premium service to our customers. This may entail attaching digital photos to an inspection report, or offering to refund the inspection fee if an unexpected repair crops up within 60 days of the closing.

We expect to drive plenty of customers toward our partners; if history is any guide, we’ll have to be careful to ensure no one gets overwhelmed.

And of course we’ll also be careful to strike a balance between ensuring our partners build a profitable business, and giving Redfin customers premium service. Inspectors, stagers and lenders who want to apply to be a certified partner can email us at openbook (at) redfin (dot) com.

Where We’re Starting: Washington DC and the San Francisco Bay Area
For now, the reviews are available only in the Bay Area and Washington DC.

To find Open Book, just click the “Buying” link at the top right of any page on Redfin.com, and choose “Open Book” from the menu. As we capture more reviews in the coming months, we’ll launch Open Book in more markets, for a wider range of services.

The Machine and the Beast

Redfin has hired Tom Vogl as our chief marketing officer. It once seemed hard to ask a total stranger to be the ambassador for Redfin’s brand: of the ten people now on our management team, only one prior to Tom hadn’t been promoted from within Redfin.

But almost immediately, we began to feel that Tom was one of us. Halfway through our first dinner together, Tom made a stray comment about having an unusual nickname from his time running Dell in Brazil. I looked up at from the blast-radius of bread-parts and beet salad that had, until that moment, been my evening’s main focus.

“What was the nickname?” I said.

“Well, I used to be called ‘The Machine,’” Tom said. “It wasn’t always a compliment.”

“I’ve been called ‘The Beast,” I said. “It’s one of the nicest things anyone ever said to me.”

And then I knew Redfin would hire Tom. He started last week.

For nearly six years before that, Tom ran marketing for REI, a co-op that happens to embody some of Redfin’s most cherished values. As a mission-driven retailer that, even in a savagely margin-sensitive industry, puts customers and employees before profits, REI has its fair share of ex-hippies and tree-huggers.

And so do we. The first time Tom met me for coffee, he looked the part: he was wearing a rock-climbing outfit with those crazy all-rubber shoes, having just descended the summit of a lonely peak. It became clear then why Tom had dedicated himself to building the REI brand. He was the REI brand.

It isn’t easy to find someone who is both a machine and a hippie, a believer and a beast. The people who are the most driven are usually the ones driven by all the wrong things.

And at Redfin, what drives you matters. After all, we aren’t just trying to draw attention to a media site. We’re trying to make our case — that real estate can be different, that the Redfin agent you see on our site puts customers, not commissions first — that we’re worth a shot. It’s a great leap of faith for our customers, and, for us, perhaps the greatest marketing challenge on the Internet. If we don’t believe, no one else will.

And so we interviewed folks for chief marketing officer who had hyped bogus diet pills, doomed websites and dubious financial services, but could never get excited by a hired gun. After every interview, Redfin’s Matt Goyer would shake his head and say, “Doesn’t love Redfin enough.” He reminded me of a Jewish mother-in-law. No one was good enough for his child.

But finally Matt and the rest of the team found someone not only good, but absolutely, insanely great. We popped the question, and the rest is history. Over the next year you’ll probably see from Redfin, for the first time in our history, a significant investment in marketing.

Part of this is because of the expertise Tom brings, and part of this is because we’re finally growing up, with a service we think everyone should try. We need to tell the world about it. Mostly, we’ll do this without marketing — through our own website and mobile tools — so we can spend more of our money giving consumers the best tools and the most value and giving our agents great pay.

But with the arrival of Tom and of another great marketer, Kuba Poraj-Kuczewski, we will also probably begin to advertise at larger scale, across the web and other media. I’m glad we held out in our earliest days against advertising, but also glad we are open to it now.

Of course, Tom’s importance goes beyond being a mouthpiece for the brand. Marketing at its best is every sensory organ for a business, its eyes, skin and ears, listening to customers and refining the entire Redfin experience – from the first website visit to the final closing — based on what we learn.

Not many people have the brainpower, the empathy, the moral authority or the belief to do that. Tom does. Welcome Tom!

What Can’t Change

There has been plenty of talk lately, from Phil Sugar and Ben Horowitz and from me too, about how you have to be a different leader at different stages of a company’s growth. This is almost entirely true. But a tiny, important part of it is a crock.

What I notice about the greatest companies, and the greatest leaders of companies, is their commitment to changing as little as possible about their fundamental natures.

For a stunningly long time, Amazon, Apple, Google, Microsoft, Facebook ran like very early-stage startups, valuing speed in everything they do, focusing ferociously on tiny details of the customer experience, creating a culture of individual accountability.

Instead of acknowledging like responsible adults their elephantine growth, they kept on attacking like rabid squirrels. Much of this energy comes from a founder surrounded by people telling him he needs to change, but who in some essential way won’t or can’t change at all.

When Facebook registered for a public offering, Mark Zuckerberg posted a reminder at his workstation: stay focused, keep shipping. When Larry Page took over Google, he halved the number of people reporting to the CEO. Both may as well have said, “Don’t change. Keep it simple.”

I just got the same message from Ilan Lovinsky, a partner at a Gunderson law firm, who shared a car to the airport with me after giving a talk at Redfin. “As you get closer to going public, everyone around you will tell you to be less of a maniac, to muzzle yourself, to delegate everything, to become a figurehead,” he said, getting out of the car. “Don’t do it.”

Then he stuck his head back in the car: “The only thing you’re good at is being a maniac.”

If you run a successful startup, you will certainly have plenty of people trying to civilize you, with conferences, coaches, books, meetings. When venture capitalists invest millions in a company, they also invest millions in you, which you can take as a compliment, though it’s also a terrible commitment.

Investors try to help their CEO for the same reason a house-flipper upgrades the kitchen: to ensure the investment appreciates. And so I’ve had people walk into the room of my personality and take out the sink, the countertops, the cabinets.

It has been enormously helpful. Tim Draper told me the fundamental obligation of an entrepreneur is to be an optimist. Doug Mack said you have to intervene rarely so that when you do everyone takes you seriously.

These have been the good changes to the Kelman kitchen. But no one has ever touched the stove or the oven, the source of heat and fire. Sitting in a house constantly undergoing a crazy, half-done renovation, the problem I think the most about is figuring out which parts of myself have to go and which have to stay. And the hardest part of the renovation for many is the part that has to stay.

It’s hard to not-change because your day starts to fill with baloney that has nothing to do with products and customers. Jeff Bezos supposedly has his assistant review his calendar to ensure 20 hours every week are focused on what will deliver the next billion dollars in Amazon revenue.

And it’s hard to not-change because the law of conformity is like the law of gravity, pushing harder the bigger you get. Whatever makes a company different, whatever sticks out, is celebrated as a symbol even as the consultants, the pragmatists and the stuffed-suits wear the whole company down to an almost featureless, perfect sphere.  The new hires at Amazon no longer build their own desks. The coders at Google don’t always work in C. The band in “Almost Famous” gives up their beloved bus for a private plane.

And it’s hard to not-change because you can so easily become a different person three or five years from founding a company. MySpace CEO Chris DeWolfe started dating Paris Hilton; how would the history of social networking be different if Paris had zapped onto Mark Zuckerberg instead? A friend of mine who started one of the most influential startups in technology moved to a northern town on a tiny island where he now actually owns a goat.

How long you can last probably depends on whether your startup is a means to an end or an end in itself. And lasting has become increasingly important. Companies won’t go public in a flash like in 1999, or drop like flies like in 2002. For all the talk about how lean a startup can be in 2012, series B and C rounds are still hefty. Good companies can raise capital quickly, but success takes years.

You can beat the odds, though the world is filled with people eager to convince you otherwise. The skeptics like nothing better than telling you that you’ll fall out of love once you get married, that you’ll never see a restaurant again once you have kids, that you can’t play basketball after 30. These are the same people who ate gas-station hamburgers for breakfast in their 20s.

The truth is that some things get worse over time, some get better, and the most important things stay exactly the same. I meet founders and CEOs every month who tell me they’re flummoxed, angry, frustrated, dismayed, discouraged. It doesn’t faze me. But when they tell me they’re tired — really, really tired — I think it’s time for them to stop.

I tell them that most startups don’t run out of money or ideas; their leaders just run out of gas. I tell them Haile Gebrselassie set a world-record  in the marathon by running almost perfectly even splits: the first half was actually 5 seconds slower than the second. Whales swim across featureless oceans in dead-straight lines, holding a course better than a computer-navigated super-tanker.

These qualities are innate and mysterious. No one learns to focus on the customer and the product, to think for yourself, to bite the ass off a bear every day you come to work. But it turns out you can unlearn these traits, as you get corporate, go soft, as you’re surrounded by people whispering that you have to change now that the company you’re leading has 15 people, 50 people, or 500.

Change everything, but not that.

Introducing Redfin 3.0: Redfin Becomes a No-Brainer

Redfin is proud to launch today a massive upgrade to its service, designed to ensure that each Redfin customer has a one-on-one relationship with his agent.

The Redfin agent who works with you throughout the touring and negotiating process now meets you from day one, sees with his own eyes the home you’re buying or selling, and attends the closing.

Because we believe this service upgrade is of the same magnitude as our decision to offer free unlimited home tours, known within Redfin as Redfin 2.0, we are calling this new service model Redfin 3.0

To deliver Redfin 3.0, Redfin has hired and trained more than 50 additional agents, all while reducing the number of customers each supports by 25%.

Now each Redfin agent is still supported by a coordinator to answer the phone and handle the paperwork, and by field agents to host short-notice tours.

But the customer primarily works with one person, his Redfin agent, who can spend the time walking through houses with the customer to better understand her needs, recommending new listings to tour and new neighborhoods to explore.

As Redfin agents shift from the office to the field, we’ve equipped each one with iPads and wireless computers so we’re always connected with incoming offers, new listings and customer messages.

The customer gets the best of traditional and Redfin brokerages, with no tradeoffs: as before, a brokerage entirely re-structured to provide uncompromised customer advocacy, with technology at every step to make the process easy — and now a personal, face-to-face relationship with one agent.

Price Increase of 16%
We’ll also offer the best value for money, by far.

But to support this investment in customer service, Redfin 3.0 will lower the commission refund we offer buyers. Our pricing for sellers won’t change; we’ll still list properties for 1.5% of the final sale price, about half the traditional fee.

The price increase for buyers will affect some more than others. With Redfin 2.0, we refunded 50% of whatever commission we got from the seller, but the actual amount depended on the final sale price and the percentage of this price that the seller paid to the buyer’s broker.

Under Redfin 3.0, we now offer a fixed-dollar refund for each listing. As a percentage of the sale, this amount increases with the home price. We refund about 25% of whatever we get for a $300,000 home, resulting in a roughly $2,000 commission refund. For a $1-million home we refund 45% of the commission, for a refund of roughly $13,000.

We set the Redfin 3.0 refund based on the listing price, so a customer knows at the time of the offer what that amount will be to the dollar; for each listing, Redfin’s website and mobile tools display a hard-and-fast number. We’ve also eliminated our $6,000 minimum, so on some properties, Redfin customers actually get a larger refund.

Redfin 3.0 Trials Drive 58% Increase in Demand, 19% Increase in Customer Retention
Our refund, of course, is larger than that of any other major brokerage, but still we have raised prices above where they were, by 16%. We did not do this lightly: every dollar we raise prices costs my soul a shriek of agony. But already in trial markets, customers have overwhelmingly decided the gains in one-on-one service are worth it.

In Boston, which launched a Redfin 3.0 trial last June, demand rose 58% year over year. Customer satisfaction increased as we expected, but what really surprised us was how much agent satisfaction increased too. Our agents understood our customers much better, and our customers trusted our agents much more. The percentage of Boston customers who stick with Redfin is now up 19%.

What Still Makes Redfin Different: Our Customer Advocacy, Our Technology
This is a big change for Redfin. Some will say that, by investing more in customer relationships, we are becoming just like a traditional broker.

Anyone who says that doesn’t understand what has always made Redfin different — it has never been a matter of principle for us who hosts a home tour — or how new business models are perfected: by systematically eliminating one reason after another a customer would go anywhere else.

This means that when it comes to building relationships with clients, we actually want to be just like traditional brokers, because relationships are what traditional brokers have been best at. But even as Redfin has in some ways become more like traditional brokers, the differences between the two have in other ways become starker.

First we radically re-structured every aspect of the traditional brokerage to put the customer first. We send every would-be Redfin agent through a four-person, values-driven sequence of interviews, and then three days of technology training. Once on board, agents earn a salary, and a bonus based on customer satisfaction, to ensure no one ever pressures a customer to close.

We survey every customer, and post every review to the agent’s online profile, deal or no deal; other brokers claim to have the best agents, but only Redfin publishes the data to prove we do. And no matter how productive a Redfin agent may be, we ask him to leave if he doesn’t deliver good results for customers.

We’ve also deepened our technology differentiation. We now give every customer electronic signatures, online tour scheduling, uploaded notes and photos from their tours, email and web marketing for their listing, online insights from listings we’ve previewed, and a digital Deal Room for tracking escrow deadlines and tasks.

This technology won’t substitute for personal relationships, but personal relationships won’t substitute for technology either. A modern brokerage can’t compete without both, and without creating a new covenant between consumers and agents. The old model is broken in some ways, but it works in others. With Redfin 3.0, our humble hope is to give our customers the best of both.

Availability: Everywhere But Seattle and Washington DC Areas
The new service is available to customers everywhere Redfin serves, except in our two largest markets, Seattle and the Washington DC area, where we still have more agents to hire. We’ll launch Redfin 3.0 there in a few months.

Elsewhere, the service goes into effect immediately. Customers who have already begun working with a Redfin agent can choose between the old and new pricing, whichever offers a larger refund, so long as their transaction closes by April 30, 2012.

In the Land of Steve, Quality Counts for Something

Redfin is now the top-rated real estate application on every major mobile device. This is an objective fact for Android, where Redfin stands clearly above the competition and it is true for iPhone and iPad too, where Redfin’s cumulative rating is higher than any other application’s.

We are comparing cumulative reviews, not just reviews for the latest release. After all, nobody wants the scoring to completely re-set with each new hot-fix, which would allow any comparison to be easily gamed; this is probably why the Android marketplace doesn’t even segment reviews by release date.

Trulia has a claim to fame for being the highest-rated iPad-only application, but Trulia is the only major developer of mobile real estate search to offer an iPad-only application. Everyone else simply upgraded our iPhone application so that the same installation delivered a completely different user experience depending on whether it is launched from an iPhone or iPad. The only way to compare Trulia to any of its competitors is to combine the total reviews for its two iOS applications into one iOS category, where it fares worse.

Redfin became the top-rated iOS and Android application without rigging the reviews, without asking friends of the company to give us five stars or even allowing employees to do so. We have just gotten better reviews from our users: better because as brokers we have access to far more homes that are actually for sale than pure technology companies, and better because we took years to build our applications ourselves, so that the user experience is seamlessly integrated across web and mobile tools.

Being #1-rated on mobile is a good trend. It’s good because in general mobile traffic will one day exceed website traffic, and good especially in real estate, because mobile traffic is more important than website traffic: as a real estate agent once explained to me in Redfin’s earliest days, the most important quality of a home-buyer is his willingness to tour listings in person.

But it is a good trend at a deeper level, because applications ratings have restored every developer’s focus on the quality of the user experience. The quality of the user experience has always been important, but perhaps what was most important to software developers for many years was the quality of Google’s experience with a website. After all, most of our website traffic comes from Google.

Google often struggles with real estate websites, because many don’t present homes for sale in a simple list; we display listings on a map, using code that Google struggles to sort through. For years, developers at Redfin have argued about whether simply building a better website was the right focus when what immediately delivered more users was how high we appeared in Google’s search results or how often someone shared our links on Facebook. We still have that argument.

But we almost never have that argument about mobile applications, because user reviews matter so much. It probably isn’t a coincidence that this is because Steve Jobs, the ultimate champion of the user experience, created the first marketplace for mobile applications. It is hard to imagine Steve Jobs arguing for very long about whether to make an application Google-friendly or user-friendly, and it is probably why, for all his many achievements in the Internet age, Steve never once led a company that built a competitive website.

Like every business besides Apple, Redfin has both challenges. We have to build a website that can thrive in the wilderness where Google’s indexing robots roam, all while Facebook’s personalization of the entire web is changing the landscape beneath us. But for mobile devices we only have to create the perfect little garden to which our users can escape for a few minutes every day.

Now Redfin won’t be the top-rated real estate application forever, I promise you, particularly since our advantage over Realtor.com on iPhone is narrow indeed. But the importance of being top-rated will last a long time. Rather than being search-engine optimized, the whole world has tilted again to be beauty-optimized, to be delightful-optimized, to be user-experience optimized. SEO, meet UXO. No one less than Steve Jobs could have pulled that off.

Will I Make More Money if My Listing Agent Also Represents the Buyer?

A surprising number of U.S. listings – about 1 in 10 — are sold by a real estate agent who also represents the buyer. How, we wondered, does this work out for the seller who originally hired the real estate agent?

Dual Agency Costs the Seller $4,789 On Average
To answer that question, Redfin’s real estate analyst Tim Ellis dug up every sale from January 1, 2011 – December 1, 2011 across 22 counties in nine different states — over 230,000 records in all. The results were remarkably consistent:

In every county we measured, the discount off list price was much larger when the seller’s agent also represented the buyer.

The average discount off list price was worse by 1.6 points with dual-agency sales, which is the industry term for a transaction where the listing agent represents both sides:

For a $300,000 home, dual agency cost the seller $4,789. The consistency across all 22 counties surprised us almost as much as the magnitude of the disparity in outcomes:

Many brokers treat dual agency as a choice the buyer makes, at his own risk, assuming the seller would never have reason to complain about how a buyer is represented. But in fact the damage done is to the original client of the dual agent, the seller.

Is the Difference Because Dual Agency is More Common Among Foreclosures? Nope.
We wondered if the results were correlated with distressed sales, since banks seemed less likely to notice dual agency than a typical home-seller.

But it turns out the prevalence of dual agency is actually higher among traditional home-sellers, not banks. And the outcomes were the same: both traditional home-sellers and banks got significantly worse prices when the buyer did not have his own agent.

Is Dual Agency Even Legal? Mostly, Yes

Concern for the seller is why at least eight states have attempted to outlaw dual agency.

In Alaska, an agent can act as a Neutral Licensee, providing a limited set of services to buyer and seller without representing either side. In Colorado, an agent who starts off as an agent for the seller can meet a buyer and become, with the seller’s permission, a Transaction Broker. A Transaction Broker carries out the deal on behalf of both parties but with  no fiduciary obligations to either side.

Florida, Kansas, Oklahoma also allow Transaction Brokers. Texas allows an agent to act as an intermediary between buyer and seller, not fully representing either, and Vermont allows Limited Agency, in which the agent represents both parties but with very narrow responsibilities to either.

In Maryland, one agent cannot represent both parties, but an agent can represent the seller while still collecting the commission reserved for the buyer’s agent, so long as he doesn’t provide the buyer any advice. In Maryland in particular, it is the seller who loses at the negotiating table in these situations, more than 2% on average of the total home value.

So all of these arrangements are not, regardless of what you call them, usually in the seller’s best interests. The official responsibilities of a transaction broker, neutral licensee, or limited agent differ from the original duties of an agent, but no one else performs the essential duty of the seller’s agent, which is to sell the house for the best possible terms.

For this analysis, we considered any transaction an example of dual agency if the Multiple Listing Service used by agents to record transactions listed the same agent as representing buyer and seller. In a separate analysis, we’ll take up designated agency, in which buyer and seller are represented by two different agents working at the same brokerage.

But Don’t You Also Save Money by Paying Only One Agent? Yep (But Not Enough)
But wait! Is dual agency all bad?

The advantage of one agent bringing together both sides is, of course, efficiency, since you avoid having to pay two agents. Some listing agents will collect the full commission normally due the buyer’s agent as well as their own listing commission, eliminating any efficiencies or savings.

But some will refund a portion of the fee offered to a buyer’s agent. A seller can save 1% or even 1.5% of the total value of the home in commissions; in an extreme case this is almost worth as much as the 1.6% a seller will on average give up at the negotiating table.

But if you’re the seller, the commission savings probably isn’t worth worrying about a conflict of interest with your agent. Even if you get a good price, you’ll need that agent’s advocacy beyond the initial negotiation: when the inspection turns up problems the buyer wants you to fix, or when you need an extra two weeks to move out.

If your agent also has a relationship with the buyer, and a stake in your working with that buyer over others, it becomes harder for the agent to function as an impartial guide to the deal best for you. It may be harder for you to feel like someone’s really watching out for you and you alone.

This is why almost no real estate agent would argue that dual agency or its equivalent is better for the home-seller; the only debate is about the extent to which it does or does not damage the seller.

Where Is Dual Agency Most Common?
What was most surprising to us was how often dual agency and its equivalent occurs. It isn’t just the occasional menage-a-trois: in Baltimore, the seller’s agent is listed as the buyer’s agent in 15% of all sales. In Queens, it’s 34%. Across the 22 counties we surveyed, it was 9%:

By contrast, among Redfin’s 10,000+ clients, dual agency or its equivalent has never happened. We also don’t allow dual agency among our partners.

How to Have Your Cake and Eat It Too
So what does this mean for you as a seller who isn’t using Redfin? Should you turn away a buyer, just because your agent also wants to represent him? Of course not, especially in an age when less than half of all listings sell.

If your agent meets a buyer, he can refer the buyer to another agent or — if you want to avoid paying two commissions – a lawyer, so that both sides have an advocate.

No agent would put a sale in jeopardy by refusing to refer the buyer to someone who can represent his interests. No buyer will hesitate to buy a house simply because the buyer has to get his own agent or attorney.

An even simpler solution is to head this issue off at the pass; the language allowing dual agency is optional in most listing agreements, so your agent can easily use a form that precludes dual agency.

You can also raise the issue in a listing consultation, asking how the agent will handle a situation in which he himself meets a buyer. In my experience, the best agents at traditional brokerages dislike dual agency, though attitudes also vary by market.

Regardless of the prevailing attitude among agents, at a time when 100,000 people will soon be signing listing agreements, one of the simplest ways to ensure you get the best terms is to ask that your agent is committed exclusively to you.

A Series on Data-Driven Best Practices for Home-Sellers

This essay is part of a series that takes a scientific approach to selling homes for more money, faster, with less risk. As listing agents ourselves, we use what we learn to help our clients make better decisions. We also share that with other agents and consumers.

Recently we’ve discussed what season to list your home (surprisingly, winter), which day of the week it should debut (Friday), and whether professional photography is worth it (absolutely).

This has turned out to be very handy information: the vast majority of listings come to market too late, in spring and summer; only 19% debut on a Friday; only 15% feature professional photography.

If there are other analyses you’d like to see us undertake, leave a request below and we’ll dig into it soon.

[Note: This post was updated to reflect a correction in our calculation of what percentage of sales were dual-agency in each market. The sale to list ratios were unaffected.]

Creative Destruction

Only six month months ago, we compared photos of a home before & after  foreclosure. Here are the shiny SUV, the boat, the second car, the crazy topiary, the pink flamingo, the Virgin Mary statue, circa 2008:

And here is how bare it looked like summer:

Now after an investor bought the house just six months ago, Redfin’s Tim Ellis noticed it’s being flipped at nearly twice the price:

Only in America!