Since 2006, online brokerage Redfin has worked to turn the real estate industry on its head — often to the chagrin of real estate agents and brokers. The basic model of Redfin (i.e. “real estate redefined”) is to take the power out of the hands of professionals, the traditional gatekeepers to real estate, and hand it over to buyers and sellers.
Of course, since practicing real estate involves being familiar with many laws and even more paperwork, licensed real estate agents will always be part of the industry. However, Redfin’s business model makes buyers and sellers do more of the legwork. For example, buyers do most of the searching for homes to tour and sellers set their own listing price, with help from online tools. Agents only become involved with “official” duties, like giving tours, helping with marketing and writing up offers. In turn, the transaction fee paid by the seller is 1.5% and around 2%-3% for the buyer, less than the standard 3% agent fee.
Unlike traditional brokerages whose agents operate on an independent contractor basis, Redfin agents are direct employees. Agents employed by Redfin accept a smaller fee in return for a number of benefits not offered by traditional brokerages. Redfin:
- refers clients directly to agents, so there’s no need for the agent to grow their own network;
- pays a steady salary, plus bonuses for good reviews;
- arranges appointments around the agent’s schedule, sends the agent client information and assists the agent with paperwork;
- provides health benefits, including dental and vision, life insurance, 401(k) plan, sick leave and plentiful vacation days; and
- covers all real estate fees and dues.
All of this sounds pretty great — real estate agents receive stability and clients save money. However, the consumer response to digitizing the homebuying experience has caused Redfin to change its model over time.
Prior to their current model, Redfin used to charge an even lower fee of 1%, leaving clients with even less access to agents. Then, Redfin executives realized their business wasn’t taking off because clients wanted more out of their agents. Clients demand a lot from their real estate agents, and the feedback Redfin received from their clients was that they were fully willing to pay more money in order to get more service. In response, Redfin hired more agents to provide a more traditional real estate experience, and increased their fees.
Real estate agents versus the digital age
The internet has forced powerhouses of the brick-and-mortar business era to evolve or perish. Just look at the extinction of stores like Borders and Radio Shack alongside the rise of Amazon.
Naturally, the founders of Redfin figured consumers were ready for a change in the way real estate transactions were conducted. That hasn’t proved to be the case.
In a recent interview with Vox, Redfin CEO Glenn Kelman said: “Redfin started life as a cult… But our goal has always been to become a religion.”
Make no mistake: Redfin is a successful brokerage — it now serves 70+ markets nationwide (including six in California) and has won numerous awards for innovation in the real estate industry. But has its business model become a religion? Not quite. This is due to two facts:
- Buying and selling real estate is complicated. It’s the biggest investment of a lifetime for each buyer and seller. Thus, clients are less likely to adopt a do-it-yourself attitude, and more likely to seek full assistance from the professionals.
- Real estate agents and brokers are by-and-large aggressive, go-getter professionals. The Redfin model doesn’t work for them.
Real estate agents rarely choose stability over the possibility of ever more and higher agent fees. Clients call at all hours and expect responses immediately. A salary and the occasional bonus simply aren’t enough motivation for the demands placed on the highest-performing agents, who expect a share of the profits they bring in.
These two facts of the profession are why Redfin has been forced to scale back its ambitions. Now, it operates as a hybrid do-it-yourself / traditional brokerage.
As reality slowly pulls Redfin back to earth and real estate trade unions everywhere say “We told you so,” this leads us to another question: Is the real estate industry immune to change?
Not immune — but resistant
Real estate agents operating before the mid-1990s remember using those unwieldy multiple listing service (MLS) books, which were basically the only way to access all the home listings in an area. This made agents the true gatekeepers to real estate — buyers needed professional help to buy a home and sellers depended on agents to get their listings in front of buyers.
Now, MLS books are a relic of the past. Homebuyers and sellers can view listings with a click of the button. But online listings aren’t putting agents out of a job — and neither is Redfin.
Listing services, brokerages, reviews — these are all aspects of the real estate industry adapting to consumer use of the internet. Now, agents don’t need to go out and apply to be Redfin employees to keep up with the changing times. But they ought to familiarize themselves with new real estate technology, as online online tech is increasingly the best way to reach clients.
Redfin mimics are slowing creeping into the real estate industry. SQFT is focused on do-it-yourself sellers, for sellers just shy of committing to a for sale by owner (FSBO) transaction. ZipRealty is a hybrid brokerage active in California.
Redfin’s carved out a working niche for itself, but its business model is not paving the way for a full-on revolution.
That’s not to say that Redfin and services like it aren’t suitable for some. Clients who are willing to go it on their own find Redfin to be a money-saving resource. For agents, it’s ideal for those craving more professional stability. But for everyone else — don’t worry. There are still plenty of clients eager to accept professional guidance in the traditional way. Sure, agents may find themselves doing business with Redfin employees as they continue their gradual expansion, but that’s all part of adapting to the digital age in real estate.
To be completely upfront I’m a Redfin agent and would like to clarify that there really isn’t any difference between a Redfin agent and a traditional agent as I’ve done both in the two highly competitive markets of the San Francisco Bay Area and also Southern California. We do everything a traditional agent does and to call Redfin a “do-it-yourself” model isn’t accurate at all. You mentioned that clients do much of the legwork but only mention searching for homes, well most people, somewhere in the 90%+ range use online real estate search engines to look for homes anyways. That being said, Redfin agents most definitely help with the search process it’s just the tools provided to us are so much better than what any other traditional brokerage can offer. The tools available to us allow us to automate the process instead of wasting time by logging into the local MLS everyday and scouring new listings.
You also mentioned the “occasional” bonus for “good reviews”. Redfin agents are reviewed on every closed transaction and those “occasional bonuses” account for about 2/3 of my income. Not only that but my bonus is directly affected by the client’s response on the survey, the higher the rating the higher the bonus. So our only incentive is to make the customer as happy as possible and make the transaction as seamless as we can because the bonus is what makes us sink or swim. Does the client have any say as to what a traditional agent will make on their transaction?
You again later in the article say that clients are less likely to adopt a do-it-yourself attitude, but again you fail to mention what it is that a Redfin client has to do that a client of a traditional agent does not, outside of doing some searching on the website. The offer process is exactly the same, we walk the client through the entire transaction, many markets have transaction coordinators that also are involved, we have dedicated “Deal Room” pages for our clients that allow them to follow the transaction timeline and keeps the buyer in the know and on track. I’m failing to see what the difference is outside of the fact that our clients use a superior website and have access to superior tools like the ability to set up multiple home tours right from our website, have access to the most up to date information from any real estate search portal, receive money back when they purchase using a Redfin agent, and generally are able to be involved in a much more streamlined process all while saving money.