In 2004, Redfin promised to shake up the real estate industry by providing brokerage services to buyers and sellers at a discounted price. Fifteen years of growth later, and it’s finally beginning to live up to its promise. Its big move? Spending its built-up equity on expanding into new services to simplify and streamline the buying and selling process.
Redfin Now attempts to streamline the selling process by purchasing homes directly from home sellers. It gives sellers the convenience of a quick and painless closing process without the extra effort required to stage, show and field offers from traditional buyers. It also gives sellers the ease to close on their preferred timeline, in as little as a week from Redfin’s offer to purchase.
In exchange, the seller gets paid a lower price than they would probably receive if they sold their home with a typical agent on the multiple listing service (MLS). They also pay a 7% brokerage fee, compared to the typical 6% fee. Still, for a seller with plenty of equity or in a hurry to move, the convenience may be worth it.
Somewhere in between a regular home sale and Redfin Now, Redfin Concierge improves and stages the client’s home before listing it for sale. In exchange, they charge a 2% listing fee instead of the 1% fee offered in approved markets, which currently include San Francisco and Los Angeles in California.
Zillow is also shaking things up, expanding services to become something close to a full-service brokerage.
The majority of Zillow’s revenue currently comes from marketing services it offers agents (its Premiere Agents program). But it plans to change all of that — dramatically. Its three-to-five-year growth projection has over 90% of its revenue coming from its new services to buy and sell homes.
Similar to Redfin Now, Zillow Offers is a relatively new service which allows home sellers to sell their home directly to Zillow for a slightly lower price, skipping the hassles of staging and showing their home. In California, the service began operating in Riverside in March 2019 and in May 2019 expanded to Los Angeles, Sacramento and San Diego.
While Zillow Offers is taking business away from agents in these areas (unless they work for Zillow), it is making some concessions to agents who use their Premiere Agents marketing program. If a seller contacts Zillow about the program but ultimately decides to go through the traditional selling process, Zillow will send that lead to their local Premiere Agents.
Another new service Zillow is testing out is Zillow Mortgage, which officially opened for business at the end of 2018. This new program is different from its previous service which helped buyers compare mortgage rates from different lenders who advertised on their site. Now, buyers can find their home on Zillow and go directly through the company to secure financing.
Redfin Mortgage offers a similar service, allowing buyers to get financing directly through Redfin. This is particularly useful for buyers already using Redfin to make their purchase, as the online dashboard (the Redfin Deal Room) displays all aspects of the transaction. To attract customers as it continues to grow, Redfin Mortgage also offers some discounts and lower rates. However, like Zillow Mortgage, high loan volume and the lack of personal connection with a local lender or mortgage broker may make buyers wary of putting their trust in Redfin Mortgage.
Redfin’s title company, Title Forward, rounds out its buyer services, offering buyers the peace of mind that each service will work together seamlessly on the same interface.
Perhaps the best thing Redfin can offer its clients who choose to use its mortgage and title company on top of its brokerage services? A fully digital closing — in some states. This service is still not available in California but is currently available in nine other states.
Full-service brokerages are not a new thing
The self-imposed mandate of tech companies is to take something that is outdated, needlessly complicated or cumbersome to consumers, and cut it down, make it flashier and induce purchases by making it less costly to consumers. This is profitable to tech companies since the technology can handle huge volumes.
In the case of real estate, Zillow takes a product that already exists — essentially boiling down to MLS data — and re-packages and re-sells it in exciting new ways. Redfin took this a step further by offering simplified brokerage services at a discount rate. But both companies are now stepping out of their areas of expertise to mimic the full-service brokerage model.
Full-service brokerages have existed for almost as long as the industry, as brokers offer multiple services that they own or co-own in the same office. But the main difference between those full-service brokers and what Zillow and Redfin are doing is simply the technology involved.
So, how worried ought real estate professionals be about Zillow and Redfin’s expanded services?
The vast majority of buyers and sellers who choose to use Zillow’s and Redfin’s services will be looking for convenience over value. Most clients still want the personal touch of locally known and trusted experts guiding their transaction to a close. Still, it’s important for agents, brokers, and now lenders and title companies, to familiarize themselves with these online brokerage services to remain competitive.