Seattle based Redfin markets itself as the “next generation of real estate brokerage.” Touting low commissions for agents and high tech solutions for consumers, Redfin is already gaining traction among investors who have kicked up its market value to over $2B with only 26,000 deals under its belt.
What makes Redfin different from “traditional” brokerage firms?
- Their agents are employees, not independent contractors as are agents with traditional brokerages.
- Redfin uses its site and app to attract clients.
- Website referrals are directed to “lead agents” based on their location and workload.
- Redfin pays the lead agent a salary, usually 1/4 of their pay, plus a bonus based upon customer satisfaction, transaction value, benefits, expense reimbursement.
- The lead agent works with the client and negotiates the deal for the client with help from others who might handle showings, marketing, photography, inspections, closing paperwork.
- If no Redfin agent is available to work with the client due to that agent not serving a specific area or having an overbooked work load, Redfin refers that client to outside partner agents from other firms who then rebate part of the commission back to Redfin.
- Redfin’s minimum home valuation is $600,000.
- When representing sellers, Redfin charges 1-1.5% of the sales price and recommends that the seller pay the buyer’s agent the usual 2.5-3% commission.
- When representing buyers, Redfin collects the usual 2.5-3% commission from the seller but then refunds part of that commission to the buyer. Average refunds that go to buyers is $3,500.
Other discount brokers such as Reali, a San Mateo based firm operating only in the San Francisco Bay area, and Open Listings, a CA based firm operating in San Francisco and Los Angeles that represents buyers only, utilize technology as does Redfin in order to lower costs. However, at this point anyway, Redfin is winning the real estate technology contest.
Geoff McIntosh, a Long Beach based broker and 2017 president of the California Association of Realtors, said, “Redfin has arguably the best technology package on the market. But, when clients are actually ready to buy after using Redfin’s technology to find a home…most people want more local market expertise…someone’s who’s been through the process a bunch of times…a skilled negotiator.”
Brandon Dobell, an analyst with William Blair, thinks that companies like Redfin will “…change the landscape for brokers.” Dobell goes on to say that “…the only agents who can avoid embracing technology wholeheartedly are the ones who’ve been around for a very long time and who get their business from repeat customers and referrals…people who embrace technology or work with firms that have the wherewithal to invest in technology will end up doing all the business.”
And then, for Redfin and every other traditional and non-traditional brokerage firm, what happens if Amazon decides to go into the real estate business?