How Much Does a Redfin Agent Earn?

To be the best brokerage, you have to hire and train the best agents. This is Redfin’s goal. In our mind, the best agent is the one who gives the best service, not gets the most clients. This is why we survey the past clients of every agent who wants to work here, to ask about his or her service. We only hire one out of every 25 agents we interview.

But how much do we pay the 25^th guy? If you give the best service, you should get the most money. So every year, we compare pay between the average Redfin agent and top-producing agents everywhere else. Here’s how:

• Full-timers only: We take all the agents in a market, and exclude anyone who only closed one or two deals as part-timers, dabblers, newcomers. In 2011, this was 43% of the work-force.
• Top 15%: Then we look at what an agent in the 85% percentile of the remaining full-timers earned in 2011 gross commissions before paying a desk fee or commission split to a broker like Century 21 or Coldwell Banker.
• 20% split: We assume each agent paid 20% of gross commissions to the broker and kept 80%. We call the 80% left to the agent his net commission. The last time we did this analysis, we assumed the agent kept only 70% but that was too low: top producers usually do better than that.
• Costs: Then, to calculate net pay, we subtract costs for health-care, gas, payroll tax, dues, phone bills and computer equipment. Redfin pays for all of this for our own agents. We assume that top producers do not have an assistant or a transaction coordinator, even though most do, and virtually all Redfin agents do. We assume that top producers buy mobile service and health-care at our rates, even though they can’t even come close, and we hold annual equipment costs at $1,000 even though this is less than the cost of a phone and an iPad, let alone a computer and a printer — all of which we provide to our agents.
• Compared to Redfin employees: Then we compare this to the earnings for agents who worked at Redfin for all of 2011, as reported by Redfin to the IRS. We include agents who led local teams, but not our field agents. Team leads still represent customers directly but field agents mostly work part-time to host customers on home tours and inspections when the customer’s agent is out of town or busy — a field agent doesn’t represent Redfin customers in a sale.

On Average, Redfin Pays 31% More Than the 85^th Percentile of Full-Time Agents
The results show that in 2011 Redfin paid well in many markets, and fell short in one or two.

Table 1: Pay for Full-Time Agents in the 85^th Percentile of 2011 Gross Commissions

To calculate a traditional agent’s net pay, we assume the agent had to bear the following annual costs:

Table 2: Expenses Borne by Traditional Agents

After analyzing these data, Redfin last month significantly increased base pay for our San Francisco Bay Area agents, as this market is more expensive to live in, and traditional agents there have recently made more money. My bad, Bay Area team.

And across California, DC and elsewhere, we expect that Redfin’s customer-satisfaction bonuses will be much higher in 2012, because 2012’s bonus for a happy customer is now much higher for agents serving high-end neighborhoods. My guess is that Redfin agent pay for 2012 will significantly increase in our most lucrative markets.

Forget the 85^th Percentile. What About the Typical Agent? How Much Does He Earn?
Comparing average Redfin pay to what traditional full-time agents earned in the top 15^th percentile is useful, but what about traditional agents in the 50th percentile? If you take all the agents who closed at least three deals in 2011 and line them up from highest to lowest gross commissions, the agent at the 50th percentile would be right in the middle.

We aren’t calculating net pay for this guy because he barely earns enough after his commission split to offset basic tax, health-care and transportation costs. Here are his commissions after his 20% split with the broker but before any other expenses:

Table 3: Net Commissions at 50% Percentile of Agents With 3+ Deals in 2011

The truth is that it’s tough to make a good living as a full-time real estate agent.

Most agents remember their best month and multiply it by twelve to calculate their annual pay, excluding all sorts of expenses. They remember their best year and assume the next will be even better.

In reality, real estate is such a hit-driven business that the top 15% changes significantly from year to year. If Redfin had looked at the top 15% of agents in gross commissions over several years, their average earnings would have been lower, for the same reason even a great baseball player’s lifetime batting average is worse than the best batting averages in the majors for any given season.

Redfin agents on the other hand do not prospect for business and so their earnings are less hit-driven. We tend to earn the same amount of money month in and month out, and year in and year out, with increases as we become more productive and the business becomes more profitable. It’s hard work, but it’s steady too.

What About Redfin’s Top Performers?
But even though every Redfin agent gets plenty of opportunities, some really stand out. Having compared the pay for an average Redfin agent with the pay for full-time agents in the 85th percentile and the 50th percentile, let’s account for the perks and promotions earned by some of our top performers. What do we pay our top 15%?

Our best folks lead teams, which boosts their pay on average by more than $20,000. Many folks who started as agents or field agents go even further, earning promotions to manage an entire market like Maryland or Washington DC. The guy who represented our first customers in Chicago now runs the whole Midwest. A transaction coordinator in Seattle now runs a $5-million business.

As Redfin grows, these opportunities will keep cropping up.

And every six months, we also distribute options to buy Redfin stock to the top 15% of our agents and other real estate staff, as measured by their customer satisfaction and productivity. For years, Redfin gave every real estate agent stock options, but as we’ve grown to hundreds of agents, we’ve limited the options to the top performers.

We hope that one day these options will be worth tens of thousands of dollars, becoming a significant form of compensation not accounted for in the table above, and taxed at a favorable rate.

Redfin is Hiring
But it’s not all about the Benjamins is it? I hope not.

Redfin is a mission-driven company. Our first value is that you have to work for more than just a paycheck, and you have to care about more than just yourself. In the dog-eat-dog world of real estate, Redfin wants to reflect the values of our best agents, and help everyone reach his full potential.

For now, we’ll continue to look out for the most talented agents, and we won’t settle for less. Redfin is certainly hiring fast — in the first three months of this year, Redfin hired 158 employees — but our revenues and profits would be much higher if we could hire even faster. As my old freshman roommate once solemnly explained to me, “I’d be getting a lot more action if I didn’t have such high standards.”

We’ll refer more business to partners than we’d planned until we can recruit the right agents to handle the load. My expectation is that we’ll hire at least 100 more agents by year-end, and maybe more. If you’d like to throw your hat in the ring, just apply here.

Roske Speaks: Redfin Should Be More Like Costco

Chris Roske, Redfin’s director of finance, recently sent me a letter explaining how Redfin should be more like Costco. I think the letter’s pretty good even though I disagree with a few points (Costco does send a ton of direct mail and I think its overhead costs for website development should actually be higher because this will deliver more customer value over time).

I asked Chris if we could publish his letter and he said yes. With his permission, we are removing one sentence about Redfin’s high-end listing business just because it has a lot of inside baseball, and another sentence about Costco’s supplier relationships that is probably sensitive to Costco.

When I asked for a picture of Chris to accompany this post, he said he doesn’t have one of just himself, without the kids. So you’ll have to take my word for it that he’s a very handsome man. Other facts to know about Chris:

• He told me when my first child was born that I should get pictures of him with Santa every year until we are 18. When my second child was born, he made a comment about the child’s name that persuaded us to change it.
• Even though Chris is our top dog in finance, he reviews phone bills, expense reports, invoices for unreasonable charges.
• Chris makes 100 suggestions per month about how Redfin could be better, and just about all of them are right on. He travels around the office with binders of materials that have every known fact about our business since inception, and shuffles through them to make his points. Often, the first premonition that I have said something wrong in a board meeting is the sound of Chris rifling through his binders. Do you know how rare it is to find someone nitty-gritty and strategic at the same time?

In short, we would be lost without Chris! I hope you enjoy hearing what he has to say about Redfin’s strategy.

*~*~*~*~*

From: Chris Roske

Sent: Wednesday, March 21, 2012 4:43 PM
To: Glenn Kelman
Subject: FW: Costco note

Glenn, I enjoyed your blog on Costco. I am somewhat passionate about Costco (my wife would not use the word somewhat) and feel in many ways that the more Redfin is like is Costco the greater our ultimate success will be. I think Costco goes beyond the customer experience. I think the key to their success is value and the trust that is developed by putting the customers interests first. I think Redfin shares many of these same traits and certainly is the standout leader in the Real Estate Industry and can be just as successful as Costco. I think the market value of both Redfin and Costco is based on the customers trust that has been earned and potential to earn it in the future. I apologize if this rambles but I love the fact we have a lot in common with Costco and I think we can still learn from them. I also appreciate the opportunity to share my thoughts with you and take this with a grain of salt as I have a bias (likely irrational bias) to how Costco operates. You do not have to reply.

My passion for Costco:  We own some Costco stock, first buying more than 20 years ago, and are a loyal customer. Because their value proposition is so strong they have insulated their business from the competition by keeping their business simple and their focus on value for the customer, I am confident the business will continue to create great value for shareholders.

Value: The reason I do not sell Costco stock is exactly the same reason I bought it back then.  It’s simple.  There is simply not a more efficient way to sell goods than their model and other retailers cannot match their ability to provide superior value to their customers.

Costco’s profit is basically its membership fees, as it essentially breaks even on the sale of goods. Thus, competitors who make their profit on the sale of goods always have to charge more in aggregate. Costco also has great purchasing power in that it limits the number of goods in a store.  This provides greater  leverage with supplier pricing as there is competition to get products into a warehouse.

Redfin perspective: We offer great value with the team approach and agents spending time working with customers, not marketing. This is a core value proposition and it is clearly a huge differentiator. The team approach is more efficient and gives us a huge advantage in the market.  Our ability to make our agents much more productive is the same advantage Costco has with its efficient warehouses. Redfin Open Book is another great opportunity to leverage our buying power with service providers to provide a benefit for our customers from both a quality and pricing perspective.

Trust: Costco strives to earn customers’ trust and all actions align with this goal. Costco does not sell anything unless it can offer a better value. It never markups any national brand more than 14% and limits the private label markup to 15%. Customers also can return anything. This provides customers with great confidence in purchasing at Costco. They may find an individual item less expensive somewhere else, but on a cart full of items, you are almost always going to be better off buying at Costco. Costco values customers’ trust so much that it is incredibly resistant to raising prices. If it raised prices just 2.5%, its profits would double and result in short-term increases in the stock price. However, if Costco had done this 20 years ago, I doubt the company would have the market value it has today.

Redfin perspective: Our 100% guarantee and no-commitment stance on working with us is similar to Costco. Our incentive pay does align the agents’ interest with the customer. However, our ability to create trust is much more difficult than Costco’s because it depends on individuals providing a service that is personal in nature. Our employee model gives us a great opportunity to be better than our competition by our ability to standardize best practices and not accept anything less to create this trust.  You have recognized that this can be a huge differentiator for us and the emphasis on training will help.  However , we need to commit to consistency of quality service across all markets. On the pricing aspect, no business is as disciplined as Costco and long-term Costco has certainly benefited by keeping price increases to a minimum. Costco also benefits from a pricing philosophy that is simple, consistent and transparent and it is important that Redfin remain committed to this.

Marketing: Advertising does not provide any benefit to the customer so Costco does not do it. It is a cost that needs to be passed onto the customer. Costco’s  marketing is usually limited to contacting employers to encourage employees to sign up for Costco memberships.

Redfin Perspective: This is a hard one because we originally adopted this stance but competition has forced us to use marketing and it makes sense for us. The event marketing is incredibly consistent with Costco because it does provide a benefit for our customers. I understand we need to let marketing do what marketing does but it is a different philosophy than Costco’s and can even reduce the customer or potential customer’s trust if this is abused.

High-end Customer: I think it has been very key to Costco’s success that it  was accepted by the high-end customer first. Costco got lucky in that they originally appealed to small business owners and once it was acceptable for them to shop for values in warehouse, it was acceptable for everybody and even became trendy.

Redfin Perspective: We have made some inroads but in my opinion, Redfin could learn from what I think has been a key part of Costco’s success. I know Redfin wants a standard level of service that is high for all customers, but let’s make it higher for higher-end buyers. A home-run customer experience gets shared and the power of our brand grows. If it can be cool amongst high-end buyers to use Redfin, we will find it easier for moderate-priced buyers to follow suit. It is much harder to go from the low-end market to the high-end. As you know, the Japanese auto companies created different brands because this is such a challenge and Windermere’s local significant market share can at least partially be attributed to the fact they started off serving expensive neighborhoods.

Expansion: Costco has always had a conservative approach to physical expansion. It typically owns rather than leases, looks at demographics and has a bias toward lower-risk infill over new markets. It also only goes into markets where the cost of building a warehouse is low enough to support its business model. It also often goes in to new markets with more than one warehouse or at least plans for more than one, to leverage its marketing efforts. Finally, when Costco goes into a market, it engages in pre-marketing with free memberships. It has also had success introducing ancillary businesses like travel, pharmacies and gas that encourage more visits and are consistent with its value proposition

Redfin Perspective: Redfin has followed Costco’s strategy of selecting markets and done a good job in going after more desirable markets first. The new strategy of ramping up our PR and Marketing campaigns as we enter new markets in order to make a bigger splash is consistent with what Costco has done. Redfin’s consistent value approach into ancillary businesses is similar to Costco’s.

Perspective on Overhead: Costco focuses on keeping costs to a minimum. It has modest headquarters, low marketing and basically tries to minimize costs that do not directly benefit the customer.

Redfin Perspective: Redfin does a good job on this  because you think it is important, however it is becoming more difficult as we grow. I am conservative and am concerned as overhead costs increase more than transaction growth.  I believe Costco would argue that despite its size ($89B), the business  is pretty simple and does not require huge overhead to manage.

Perspective on Customers, Employees and Investors: Costco values its customers first, followed by employees.  Its strives to deliver stockholders a attractive but not fantastic return. Everything flows from the customer value proposition. It takes care of its employees with higher pay and benefits, but expects more out of them than other employers. This higher pay makes it a desirable place to work. Further, there is a culture of hard work that permeates the organization and it rewards that hard work. Also, the lack of turnover is a huge competitive advantage in an industry that has high turnover. Finally, the goal for stockholders is a strong, consistent annual return which Costco achieves by growing profitability and revenue.  Given the loyalty of Costco’s customers, I am confident they will continue to deliver a strong return.

Redfin Perspective:  Redfin leads the industry in watching out for our customers. Our customers recognize that. I do get concerned when we spend time and resources on initiatives that don’t deliver value to our customers. As far as employees, like Costco, Redfin does a great job of providing benefits to a class of employees who normally don’t get them, of promoting from within and you clearly have the employees’ best interests at heart. The stockholder comparison is irrelevant because of our maturity, investors… but I think the fact the value of the company is based on customers trust that has been earned and potential to earn it in the future is a common trait between Costco and Redfin.

Thanks again,

Chris

What’s Your Home Worth? Well, See For Yourself

For the past five years, Redfin has sought to build the perfect site for folks to preview, visit and ultimately buy homes for sale. But in 2012, we have opened a second major front, to serve owners and sellers of homes.

In just the past three months, Redfin launched Home Report, a personalized monthly email monitoring sales near your home, and Open Book, a reviews site for Redfin’s trusted real estate partners that will one day include handymen, general contractors and stagers. Not coincidentally, our listing business has shot up 81% year over year and we expect it grow even faster as we add more agents focused on listings, and provide better exposure for our listings on our own site.

The most important initiative on that front just became available on Redfin.com this morning: the revolutionary, beautiful Home Price Tool, which gives you as the customer the same information used by real estate agents to develop a comparative market analysis. Our hope is that you will be able to price homes more accurately and with greater confidence than ever before, in an open process that can involve your spouse or real estate agent.

For any home, the new online tool automatically assembles a list of potentially comparable recent sales, drawn directly from the Multiple Listing Service (MLS) databases used by agents to record sales. By reviewing pictures of each home sold, you as the customer can decide which are actually comparable, adding and removing sales to and from the list.

The Home Price Tool then calculates a likely price range for the home you want to buy or sell, allowing you to share your analysis with your mom, your Redfin agent, even with the other side in a negotiation. We just posted a YouTube video to guide customers through the entire process.

Sometimes, the price range will be broad, because the home in question is one of a kind. Other times, especially when the home is part of a larger development, the price range will be narrow. If your house includes, as mine someday will, a giant ping-pong pleasure dome, the comparables will be sparse and the price range will be very broad. This isn’t a limitation of the Home Price Tool; it is a limitation of life itself, and one serious buyers and sellers can’t ignore. You have to buy the ping-pong pleasure dome on faith.

We do not pretend that Redfin’s valuation tool is as simple or as immediately gratifying as seeing a price-tag on every property in America, a feature that Zillow has long had, and which Trulia — by some freak coincidence — also launched today.

Zestimates, restimates and testimates are popular and cool, and will always be included in our site for fun, but it’s a way we at Redfin can never go as real estate agents. Our goal is to be credible and transparent rather than provocative or easy, explaining exactly when our pricing is likely to be accurate and well-informed — and when it isn’t. If we think a home is worth $300,000 instead of $350,000, we should we be able to say exactly why, using the same Home Price Tool to show our work to our client.

Since we have a fiduciary responsibility as agents to get it right, we can’t embrace a purely algorithmic approach to pricing. A computer using a secret formula to price your home doesn’t have eyes and so it can’t see that one property looks nothing like another. You can say what you like about its estimate but you can’t really see what it’s thinking.

The truth is that pricing a home is not a science reserved for the high priests of mathematics. If you’ve walked through all the houses in the neighborhood and noticed what each sold for, you can price a home far more accurately than a computer simply because you have much, much better information.

This is the experience Redfin has tried to bring to the web, because in fact we have much, much better information. Only real estate agents have full and complete access to the local MLSs agents use to list properties and record sales. And only Redfin has incorporated that sales data, with all the pictures used to market the property, into an online tool for pricing a home.

Whereas public records takes weeks and usually months to record a sale, we know within 15 – 30 minutes of the property going off market what it looks like and how much it sold for. That we even have this information is because of a seismic turn of events in 2008, when the National Association of Realtors and the Department of Justice agreed that a real estate agent can publish any information on the web that she can share in person with her customers.

It took the MLSs a year or two to share all the data, and then Redfin a year or two more to incorporate that data from each MLS, but now that we’ve done it, customers on the web have access to the same prices and pictures that agents do, and we can all work together in a more informed way. Revolutions sometimes occur so slowly they hardly seem like revolutions, but this is exactly what the Home Pricing Tool is.

Over the coming years, we will work just as hard on perfecting the experience of pricing a home as we have at previewing listings. For now, take the Home Price Tool  for a spin and see what your home might be worth!

How Stupid Can You Be?

Catherine Rampell at the New York Times today reports that “state colleges in Nebraska, Nevada, South Dakota, Colorado, Michigan, Florida and Texas have eliminated entire engineering and computer science departments” due to budget cuts.

How are we doing in Washington state? Well, consider a few facts about the University of Washington’s computer science department:

1. The department produces only 285 graduates at all levels per year.
2. 35% go to Amazon, Microsoft or Google; 15% go to other big companies like Boeing; 15% go to graduate programs elsewhere, leaving only 30% for start-ups and small companies. There are more venture-backed companies in Seattle than there are local computer science students graduating each year. Redfin and many other startups here would be growing much faster if we could hire more engineers.
3. The UW computer science department turns away 75% of qualified applicants.
4. The state contribution to the department has declined 50% in three years.
5. Any tuition increase requires legislative approval, so the department can only reduce the quality of instruction and limit student growth. It is doing both.
6. Washington is 49th in bachelor’s degrees per capita.
7. The only recent local issue that united the entire technology community, and nearly every Seattle venture capital firm, was the effort to kill an initiative that would have funded math & science education with a new tax. At the time, I talked to many of the initiative’s opponents and understood their concern about the nature of the tax, but got their promise that the Seattle’ technology leaders would find another way to fund math & science education. We haven’t.

The same story is playing out all over America. Public schools are struggling to fulfill their basic mission in the 21st-century economy; Codeacademy and other private efforts are filling the gap, but not nearly enough.

We don’t want computer science, which used to be the avenue for radical social mobility, to become like playing the harpsichord: a skill only rich people can afford to master. States like ours, with no Stanford or Columbia or MIT nearby, need our public schools to turn out engineers that can compete with the best.

The technology community is incensed about SOPA and the need for immigration visas. Tom Friedman writes seemingly every week about ultra-high-speed internet access as the most important government initiative to speed innovation. Politicians talk about tax incentives to give small businesses the confidence to grow.

I agree on all points. I’ve always opposed SOPA, even when I thought the opposition was over-wrought.

I am in favor of immigration visas and, if we have the money, ultra-high-speed internet and tax incentives. But I just wish that websites would go black, boycotts would be organized, and Twitter avatars re-labeled over the most calamitous threat to America’s technology dominance, which is simply that we aren’t educating nearly enough people in technical disciplines. There aren’t many problems that money can solve, but this is one of them.

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.

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.

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.

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!