I’ve been ruminating on the 60 Minutes story thinking about how much of the story was wishful thinking and how much was fact.

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

• Redfin’s Corporate Blog

Here are some similar articles where I discuss this topic:

• Why I can’t justify high commissions

• What should be in a market analysis

• Think before making your first offer

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