Redfin just announced a big milestone: we’ve saved consumers more than $100 million in fees, based on more than $8 billion in home sales, with customer satisfaction of 97%. We’ve done it by charging half the usual fee to sell a home, and saving the average buyer an extra $5,000.
With all that money, you could get every Australian man, woman and child a burrito. You could fly the city of Cincinnati to Hawaii. Yet we still have a ways to go: according to a University of Chicago economist, inefficiencies in the real estate industry still create $8 billion in “social waste” a year.
These are the kinds of problems technology is supposed to solve. No wonder I’m often asked why technology hasn’t changed real estate’s fundamental economics, so that customers get better service for less money. Since September 2005, when Redfin, Trulia and Zillow all announced their first funding, investors have poured nearly half a billion dollars into new real estate technology.
Clearly, the assumption that most technology companies are even trying to make real estate service better and more efficient is wrong. The customers for most real estate technology companies are agents, not consumers. Their websites usually feature the agents who pay the most, not those who deliver the best service.
And what the agents have to pay is passed on to the consumer. The technology industry still imagines itself as a disruptive swashbuckler, but sometimes new media companies act more like another middleman, coming between the consumer and the service he wants to buy.
This is not to say that other real estate technology companies don’t offer consumers valuable information, or agents a valuable marketing medium. But what makes Redfin so special, and this milestone so meaningful, is that it represents the triumph of one of the last swashbucklers.
We’ve done the long, weird thing, hiring software engineers and real estate agents to work together from the initial search to the final key exchange, just so we can actually make real estate service better in the real world.
The real world was hard on us at first, but all the things that once made it hard are now what make Redfin hard to stop.
For starters, it was hard to build a national real estate brokerage very quickly. Just try hiring a good real estate agent for every neighborhood in America. It took us five years to reach 19 markets, and in some we’re still stretched thin. But as we grow, our service gets more local, and our service gets better.
Second, breaking up is hard to do. Most folks over 40 have a relationship with a Realtor who delivers a bottle of wine every Christmas. The toughest part about deciding to use Redfin is telling him about that decision. Customer loyalty makes a brokerage hard to cold-start, but then as happy customers of your own pile up, that loyalty works in our favor too.
And lastly, it’s hard to convince everyone you can offer better service for less money. If aliens descended from outer space with a plutonium-powered gizmo for instantly selling a home, but charged a dollar less than the typical commission, industry pundits would dismiss them as “a discounter.”
Even though we’ve seen how technology changed the market for books, shoes, maps, stocks, travel and more, we pretend where real estate is concerned that there’s no better way to do things — only a cheaper way.
It’s as if the only disruptive business model we can imagine for real estate is K-Mart, not Amazon or Apple. Having the most-visited brokerage site across all of our markets isn’t some speculative potential advantage for Redfin agents; it’s an overwhelming economic reality: this is why we can spend all our time serving customers, not searching for customers.
This doesn’t just make our service cheaper; it makes it better. Our agents are paid – quite nicely actually – on customer satisfaction, not commission so it’s easier for us to tell you what your home is really worth or why you should walk away from a bad deal; our technology makes every step of the process more convenient and less stressful, and gives us a way to hold agents accountable for great service.
But mostly technology makes it less expensive for us to meet customers. To gauge how much money we save, just check the mail: chances are you’ll have four flyers from four different agents, all employed by the same broker. That broker could be four times more efficient just by sending one flyer — or no flyers, for that matter — or by serving the neighborhood with one agent.
Our website and mobile tools save us hundreds of millions in marketing costs, a value we mostly pass on to our customers.
Like any customer, real estate customers care about value. If you pull a dozen homeowners off the street to ask how real estate could be better — as we have, over and over again — they will all tell you, with a depth of feeling usually reserved for bad breakups and family feuds, that they want an agent who’s really on their side, who will give them better value.
We’ll spend all our days at Redfin meeting this deep need. Redfin still does not grow as easily as other real estate technology companies, but its opportunity is larger, its sources of competitive advantage are deeper, and its impact on the world is hopefully broader.
We believe a new era in Redfin’s history is beginning, in which the company operates at a national scale, working together with other brokers, to change the overall economy for the better.