I wonder how much Redfin.com just saved in advertising by getting their side of the story pitched on 60 Minutes. I think the casual observer would have been quite taken in by the story. It was a strong example of yellow journalism at its best for students out there. You start with the premise, “Realtors make too much and do very little,” and build that into a story. It’s a shame that it was so one-sided. I agree that the real estate industry as a whole needs to be disrupted. Many agents do very little for the money they make. But there are other agents that earned every penny of their 6%-7% commissions. Their clients would swear by it. Change is coming to the industry, but it won’t be Redfin that makes it through the change. To all you VC’s out there that are all caught up in the hype of Redfin, you should take a break. The business is more expensive than you think. There is much more overhead than you are observing. One in every 86 adults is a Realtor. That’s a lot of competition. While everyone agrees that the Internet is changing how real estate is transacted, the Internet is not the method most people use to choose their agents. Whatever the case, the 60 Minutes story was misleading to consumers.
Here’s my observations on the story.
1. Does Redfin deserve a commission at all? They don’t do enough to earn 33% of the commission. The money they’re rebating to the buyer is the buyer’s money. Why not just knock it off the price? Do they even show the home to the buyer or do they encourage the buyer to meet the listing agent at the home? After the buyers have taken advantage of the listing agent, why should they involve Redfin? They aren’t knowledgable local experts; they’re just filling out forms. I don’t see how working with Redfin.com has any value to the consumer. Buyers are the only ones showing up with any money. They ultimately are the ones paying for the broker’s services. If you’re paying anything for a buyer’s agent, I hope you’re getting at least a level of service that can inform you what the true value of a property is. I’m not talking about referencing local sales and checking the Zestimate. I’m talking about the art of pricing.
2. Realtor commissions are not fixed at 6% as Leslie Stahl would have you believe. They vary all over the country. There are a wide range of service options currently available to the consumer. My brokerage model is based on the idea that if you offer full service for less, you’ll spend less money on acquiring more business, because you’ll benefit from the referrals of your past clients. We actually do the whole listing side of the sale for 1% of the sales price. That includes all the things traditional brokers would be expected to do. There are other models that attempt to offer less service in various forms but I have yet to see one successful, profitable business model. If it was out there, I’d be in it. HQHomes of Denver is one of the few profitable discount models in Denver. When the Help-U-Sell’s and Assist to Sell’s are failing, we are still growing. It’s not perfect yet but there’s no discounting service. The agents make money, we save our clients money and we do everything you would expect of a full service company. At the least, my clients can be assured that I handle more sides of a transaction a year than 95% of the brokers in Denver. The consumer can have expertise and save money without having to lower their expectations.
3. I cringe at the term “discounters”. It’s an offensive label. I’m a full service broker. I might not hold a costume-themed open house with men on stilts, party favors and clowns but I do hold open houses if I think it could help sell the home. How about calling us “industry pioneers”?
4. Reduced levels of service are currently available to the consumer. But that doesn’t mean it’s a good idea. Unfortunately, in any market buyers and sellers should be working with agents that have a firm grasp of value. That’s where most of these limited services fall apart. The agents at a place like Redfin don’t know anything about the local markets. Most homes in Denver are overpriced by as much as 20%. Will Redfin be able to show their clients when a home is overpriced and when they’re not? If they tried, how could they possibly be right without actually going there?
5. The value of service will vary depending on the type and quality of service provided. On a million dollar home, paying $60,000 for commissions might seem like a lot but really that depends. If your million dollar home would only fetch $850,000 as a FSBO (limited exposure), $900,000 with a limited service listing agent and you could possibly get $1.1 million for it listed with a full service agent. At which level of service did the agent earn his $60,000? That being said, as a buyer’s agent on the same million dollar home, if I let you write an offer for a home $1,050,000 when you could easily have got the house for $950,000 with an agent that actually knew the market, did I earn my $10,000? (33% of a 3% commission). If all I did was show you a picture on my website, you filled out an online form for the offer, I made a phone call and faxed over your offer, did I even earn $10,000? Just because you save money doesn’t mean you get a good value. You can’t automatically assume that saving money means you got a good deal.
To those that have read this, here’s what some other good folks have to say.
- 60 Minutes’ Redfin.com story delivers 400 hits in 60 minutes flat . . . Bloodhound Blog
-
Redfin On 60 Minutes Tonight – Real Estate Market Disruption TechCrunch.com
Here are some similar articles where I discuss this topic:
Technorati Tags: Redfin, commissions, “60_Minutes”, discount, brokers
2 Comments
As a recent home owner, I’m going to be up front and say that I don’t agree with your stance, but you’re obviously entitled to your opinion. We stand on opposite sides because we both have different agendas.
However, I really take issue with point #5. You’re implying that a home will sell more depending on how involved of an agent a seller hires. I hear this often, but I’m guessing it’s a myth perpetuated by the industry and the agents themselves. Where’s the proof in that statement? If you can show us statistics to back it up, then I’ll the argument a little more credit, but I’m guessing the amount of “value” you place on being a full service agent doesn’t have as much influence as you imply.
Dave, Thanks for your comment.
I don’t think you understand my point. My point is that an agent earns their commission based of the value they deliver. If an agent doesn’t deliver any value, then they didn’t “earn” their commission. Redfin will gladly show you a home and give you some of your money back when you buy it, but that in itself doesn’t mean the buyer got a good deal. Does it?
From my experience, homes that have limited service agents sell for less. Of course, that’s difficult to prove because it could just be the demographic that the service appeals to. I’ll check into the statistic for that and post it when I get it figured. It’s really not that much of a stretch is it. Just like the average home price of a FSBO is about $30,000 less than a home that gets listed on the MLS, at least according to the National Association of Realtors Profile of Buyer’s and Seller’s 2005.
It just makes sense that when you bring increased exposure to a property, you get more traffic, sell faster and usually for more.
It also makes sense that the more value in the form of time and experience your agent brings to the table, the more likely you will net more. I know that from experience. I take advantage of the naivety of other agents every day. Inexperienced agents aren’t helping their clients and it’s debatable whether they have added value to their client’s position.
Selling homes isn’t easy in this market. Maybe before or where you live it is but for most people they just don’t have the experience or the ability to stop viewing their house as their home, and start viewing it as an asset to be bought or sold for the best value within the constraints of time and possibilty.
Just having it listed in the MLS doesn’t sell a home. There’s a lot more involved. Notice though I said full service in the article, not full commission. I am an agent that most people would consider a discount agent but unlike the Redfins and Help-U-Sell’s of the world, I don’t discount my service.