Redfin Goaded Into Long, Crazy Post by Rain City Guide…

Ardell DellaLoggia posted a very thoughtful argument today about Redfin’s obligation as a real estate broker (can a post be very thoughtful if it’s titled “Is Redfin a ‘slut’?” Apparently, yes). In it she argues that e-commerce companies exploit traditional providers’ service ethic, comparing Redfin to an Amazon that benefits when someone browses at Borders, then buys on Amazon.

Of course Redfin offers free home tours, and provides every service from offer to close. Traditional agents are often pleasantly surprised at how easy it is to work with a Redfin agent on closing a deal. But Kevin Boer points out in a comment on Ardell’s post that if we really wanted to hold up our end of the bargain, we would stop giving customers the option to ask listing agents for tours, too.

We’ve thought about taking his advice, but we think he goes too far. This isn’t to say we disagree with Ardell’s analogy. I’ve always felt uncomfortable about Zappos (e-commerce for shoes), which sells a product that almost requires personal service. Since every brand is sized differently, don’t you have to try on a pair of shoes before you know what fits? For that matter, don’t you have to see a house before buying it?

But there is one important difference between the shoe salesman and the listing agent showing a property. When you order on Zappos, the shoe salesman makes nothing. When you buy through Redfin, the listing agent still earns his share of the commission.

What we are really arguing about then is whether the listing agent deserves both commissions for showing the property. Redfin believes that the function of a buyer’s agent providing a home tour is to advise his client on the advantages and disadvantages of the home; our customers prefer their own counsel about what they like or don’t like about a house. They only want property access, and objective Internet data.

Giving qualified buyers access to a property seems to us to be one of the basic functions of someone selling a house. We could argue that point, I suppose, but it really doesn’t matter what we think: if the listing agent doesn’t believe his commission entails showing the property, he should say so to the seller.

In those situations, we could then arrange what we believe is the most natural connection, for the seller and buyer to walk through the house together, leaving it to the real estate brokers to handle the areas where we really earn our commissions, negotiations and legalities. Maybe this scenario sounds naive to you, but not to us (the couple who previously owned my house showed it to me even though they had a traditional listing agent; their tour was *fantastic*.)

But why end on a high note? The comments section of Ardell’s post is a dog’s breakfast of creative legal strategies for denying Redfin customers their commission refunds, which has never happened in our history.

The first strategy is the most easily dispensed with: procuring cause. As Ardell herself notes, it is well established law that the buyer’s preference rules the day, so any listing against on our commission will be arbitrated by the customer and her amply documented intentions. It’s an open and shut case.

Then there’s variable office commissions, in which different commissions are paid depending on whether the listing agent shows the property. This seems to us like a potentially fair solution to the problem of listing agents feeling they should be paid more to show their own properties. But we think this requires all parties to be able to clearly account for the circumstances under which commissions are split differently.

In the rare cases when we’ve encountered such variable commissions, they’ve been unenforceable because the seller was not informed that his agent was taking a larger share of the commission for showing the property. Every time, we got the full commission refund for our customer (if we hadn’t, we’d have probably given it to them anyway). So where we come out is for transparency; pay either brokerage whatever you like, just be straight up about it and tell the buyer & seller what they’re paying for.

And hey wait a minute, since we started offering free home tours, why are we even having this discussion? It’s late at night in the dorm room, and none of these issues seem that relevant. Ardell goaded us into it, again!

One clarification to a question Ardell asked in her post: we do not ask buyers to sign buyer’s agency agreements with us when going on a home tour. We do ask buyers to sign these agreements when submitting an offer, but not to obligate the buyer to work with us — we will never enforce such an agreement on an unwilling buyer — but only so it is clear we are the buyer’s agent, so we can get the buyer her commission refund. If not for that, we agree 100% that these agreements are lame.

“Say ‘Hi’ to Your Mommy for Me”

The aftermath of Redfin’s congressional testimony was initially rather ho-hum.

My parents and their elderly dog fell asleep watching out for us on C-Span (in the middle of the day, actually). Chairman Bob Ney left a kind, careful message on my answering machine just a few days before announcing his retirement from Congress. A high school guidance counselor who’d read the testimony wrote me an oddly encouraging note.

But then C-Span must have decided to air the hearing after all (we’ll post it here as soon as we can find it). The way we figured it out was through feedback submitted via our site. Embarrassing personal critiques were forwarded by engineers who monitor the alias for bugs, though I think they know I’m already on the alias anyway.

One person wrote a note called Maxine Waters vs. Kelman that consisted almost entirely of:
“Next time, be prepared: http://www.opensecrets.org/politicians/contrib.asp?CID=N00006690&cycle=2006”
Which I liked. But my favorites are always the ones nearly incoherent with rage, like this one from a Sarasota broker:

From: Bruce Y
Sent: Thursday, August 10, 2006 4:38 AM
To: feedback
Subject: Kelmen in Concress
Glenn Kelman,
Saw your weak, whiney testimony in congress.
You have never been a RE broker, you are a computer geek. (Checked you out).
You arrogant little twit.
Get off you dead ass, stop your whining and let a real job.
Say “Hi” to your mommy for me.
Bruce Y

What are the chances that Bruce didn’t say something very similar 20 years ago, right before stuffing an 80-pound 9th-grader into a girl’s locker?

His tone reminded me of an essay written by the New York Times’ conservative columnist David Brooks, who observed that all political divisions spring from primal high-school-age differences between handsome jocks with the “emotional depth of a cocker spaniel” (future conservatives) and sensitive, misunderstood nerds who “have as much personal courage as a French chipmunk in retreat” (future liberals).

Maybe the real division is between “computer geeks” and real estate agents, though we have plenty of both here, and we all seem to get along fine.

Redfin’s Day in Washington

Redfin’s day in Congress was like a lot of days at Redfin: filled with swashbuckling controversy and juicy intrigue, unavoidably goofy and improvisational, tinged with a Quixotic sense of futility.

Mostly it felt like a schoolday field-trip without a chaperone. Going to Congress was fun. The whole place seemed set to a music we couldn’t hear. The halls are filled with handsome young people in impeccable suits, and the clocks are outfitted with lights and alarms to warn of impending votes.

The staffers often seemed elaborately bored by the droning testimony but eager to pounce. Everywhere, everyone seems to know everything that’s going on, tracking bills coming to vote by BlackBerry, watching hearings by Webcast, whispering in one another’s ear.

The whispering was constant and congenial, with the ranking liberal Democrat Maxine Waters and the stolidly Republican chairman Bob Ney sharing a joke while the local yokel-dokels and the legal stiffs rattled on about Grand Rapids, Michigan or obscure points of law. I felt bad for them having to listen to this stuff, day after day, and was relieved to see how well they got on, despite all the reports of increasing partisanship.

It was also hard not to feel a little awe. Most public buildings I’ve been in, usually to argue traffic tickets, are a combination of old-train-station grandeur and the run-down, cut-rate decor of a high-school classroom. I was worried the hearings would be all the latter, with card-tables and government-issue plastic chairs, and a gigantic clock on the wall.

But the hearing rooms are grand, with tiers of committee members arranged in concentric semi-circles above the testimony table. The gallery behind the witnesses was packed to capacity with realtor-pin-wearing supporters and staff attorneys toting binders of committee-member profiles. There were overflow rooms, photographers with gigantic lenses that they still managed to put right in your face, and remote-controlled TV cameras.

Two panels spoke. The first consisted of Department of Justice & FTC anti-trust attorneys and an analyst from the non-partisan General Accounting Office, who were polite but firm in their findings that realtors and listing services violate anti-trust laws designed to protect consumers. The second, which Redfin was on, consisted of six members of the industry, including the President-Elect of the National Association of Realtors.

Each witness read a prepared five-minute statement, getting the gong the second he or she went over (lights on a small display controlled by the chairman and visible only to the speaker turned yellow then red). Surprisingly, many witnesses were cut off with pages of testimony unread. A carbuncular Texas discount broker, talking a mile-a-minute, finished 1:30 early and then looked around for a second as if he couldn’t believe it.

For our statement, which you can read here, we copied the intro off the script of the Lending Tree lady next to me, because we’d forgotten to include the pro-forma niceties to “Chairman Ney, Ranking Committee-Member Waters” and all the rest.

While I spoke, I tried to look deeply into the congressmen’s eyes for effect, then lost my place and kept talking anyway. So I have no idea what I really said. After I was done, it seemed like a long way to go for a speech that was already over. Except it was far from over.

Every congressman except the powerful but soon-to-be-retired Congressman Oxley was ferociously pro-realtor. And once Oxley was gone the entire hearing became a bloodsport, with Redfin in its customary position at the center of the fray. All the congressmen directed most of their questions towards us. As each one lit into Redfin, the realtor crowd moaned with pleasure.

The Democrats of all people cited states’ rights in their refusal to act, while the Republicans seemed intent on protecting the realtors rather than free markets. Their opposition was impenetrably uniform but also outlandishly varied: do online brokers discriminate against those who lack Internet access? Since realtors are often divorced women starting second careers, aren’t we hurting those who need jobs the most? If lawyers’ fees have increased recently why shouldn’t realtors’? If your service is so great, why isn’t your business bigger? Since you’re not out of business, how could you complain?

The Grand Inquisitor was Congressman Artur (yes, that’s how it’s spelled) Davis, a brilliant former prosecutor whom other committee members gave their time to so he could sustain his attack. No one seemed remotely disturbed by the fact that consumers who buy online can be discriminated against without legal recourse, or that MLS rules limit competition.

It was all political theater, as everyone knew what we never figured out: that Congress would leave it to the DoJ to go after the realtors. An FTC lawyer told me before the hearing started that just having companies like Redfin testify was already alarming to the realtor lobby. “They did a big letter campaign,” he said (the committee members often waved letters at us from concerned realtors in their districts).

Everyone was very nice to us afterwards. Chairman Ney came by to ask if we’d ever testified before, and Cindy Chetti, the fantastic staffer who hooked us up in the first place, said that the congressmen were talking among themselves about how fun we were as a witness. A DoJ attorney gave us her card.

This would all be cause for unmitigated celebration if the fellow witnesses hadn’t been so solicitous of us afterwards: “Are you OK? Really? Really? Wow. I mean wow.” Even the intern in the committee office who was watching my luggage looked up from his Webcast when I came in and said, “Oh man.” Only then did it dawn on me we’d gotten into an argument we couldn’t win. The Lending Tree legal team of six lawyers and PR experts felt so bad when they saw I was by myself that they offered a lift to the airport by chartered van.

We drove past the Washington Monument, encircled by 50 pretty flags, and the Jefferson Memorial, lonely in its perfection, and soon we were enveloped in the dense green of FDR Drive along the upper Potomac. It was very beautiful. But we were all already so immersed in our BlackBerries that we could not see to see.

P.S. One weird, funny note. In mangling the answer to one question, we explained how we came to testify before Congress. “We didn’t make any donations, Democrat or Republican,” I said, “We just read an NYT article and called Clinton to tell him we wanted to come.”

The whole room froze, thinking I was casually referring to President Clinton rather than the urbane, knowing attorney/consigiliere for the subcommittee, Clinton Jones (whose name we found on a Web site and who seemed to find it quaint that I wanted to shake his hand before the hearings began).

Puzzled, oblivious, we all just moved on. Mr. Jones whispered into Chairman Ney’s ear, and both of them had a big laugh…

The Hall of Shame

In the early, crazy days of Redfin Direct, when the whole office went bananas every time we got an offer (which was usually bogus, and was often breathlessly announced in the middle of a meeting with skeptical venture capitalists), we encountered plenty of resistance from listing agents. Some called customers about to close on a property and said such awful things that the customers sat on the floor and cried. Some sent us deranged, vengeful e-mail, comical with misspellings.

Mostly, the listing agents just tried to scare the crap out of our customers. It got so bad that we occasionally went on home-tours posing as Redfin customers, and secretly recorded what listing agents said (for a TV news magazine story being prepared later this summer). It was like watching a movie where the bad guy is so ridiculously bad that you just start laughing. The cloak-and-dagger stuff was fun too.

The Wall Street Journal (subscription required for full story) picked up on the action in a story published in last weekend’s paper:

Cem Sibay, a business-development manager at an Internet company in Seattle, sought a rebate through Redfin. Mr. Sibay says he and his fiancee, Tam Pham, arranged to see a condo about six months ago. The agent representing the seller, Ron Waxman of Coldwell Banker Bain, was initially friendly and helpful, Mr. Sibay says. But Mr. Sibay says Mr. Waxman’s attitude changed when Mr. Sibay mentioned that he planned to use Redfin as his agent. Mr. Sibay says Mr. Waxman then refused to show the condo to the couple again and said he would advise his client not to consider any offer they made.

Mr. Sibay and Ms. Pham gave up on the idea of bidding for the condo.

When reached for comment Wednesday, Mr. Waxman said, “I don’t remember that at all.” He said he stopped working as an agent last year; then, a few minutes later, Mr. Waxman acknowledged that he was still working as an agent and declined to comment further.

Here’s Tam Pham, Cem’s fiancee, pictured alongside Redfin’s Rob McGarty, who worked with Cem and Tam on the condo:

The WSJ article goes on to say that Cem and Tam stuck with Redfin, won a house that is now closing, and are due to receive a refund in excess of $10,000. Judging from its picture, the house they ultimately got seems a lot better than the condo:

And that’s the real story. That things have started to turn around. Some time in May, we began taking ten, twenty offers a week. The winning percentage of our clients when competing against multiple offers increased to above 40%. Every deal we did, the agent we talked to was surprised at how comprehensive our service was from offer to close and how experienced and professional our agents were. We started sending thank-you notes, and now we’re even including gift cards for the agents as part of a charm offensive to win every agent over in Seattle and San Francisco.

The overwhelming majority of listing agents take their profession as seriously as we do, and always act to advance the interests of their clients, but even now there a few listing agents who just don’t care. They hate our model, and wish our customers would drop dead. Unfortunately for those listing agents, our customers tend to be highly qualified buyers who are usually going to submit the best offer (especially since they have $10,000+ in commission refund to sweeten the deal). So in the rare case when a listing agent is hostile to one of our buyers, we just call the seller. You can tell during these calls that the seller is hopping mad, and can’t wait to get off the phone so she can chew out her listing agent.

We’ve created a special place on the Internet to bust those agents. It’s called the Hall of Shame, and it’s right here on the Redfin blog. If you’ve got a listing agent who tried to kibosh your offer, tell us about it in a short e-mail (glenn (dot) kelman (@) redfin (dot) com) and, if the story checks out, we’ll post the agent’s picture. Our first electeee is the agent who was hostile toward Cem and Tam, Ron Waxman.

Welcome Ron to the Redfin Hall of Shame.