Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

121 responses to “Redfin Turning a Profit Even in Serious Down Market”

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  1. Greg Perry

    By The Tim @ 95:

    RE: Tyler @ 93 – You mention recent comps, which thanks to Zillow and Redfin are another important piece of the puzzle that until a few years ago were virtually inaccessible to the non-realtor (lowercase ‘r’ on purpose).

    Perhaps many of the “regulars” here might have some kind of understanding of “comps” and absorption ratios and other technical data. 95%+ don’t . A large segment of the buying population does not want to, or won’t devote their productive and leisure time to learn what the data means. I have no problem with the data being out there.

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  2. Greg Perry

    RE: deejayoh @ 97

    An attorney is an excellent source for law and contracts. But what will they know about economic and functional obsolescence, common consumer issues, relative value, value trends, and how the process works?

    One day over coffee, you would enjoy the story of the time the real estate attorney, who wrote the real estate handbook, and represented his son (buyer) in a transaction I had years ago. He knew the law, but was like a fish out of water on the process, and made some mistakes on the contract! He kept looking to me for guidance.

    Attorneys are very necessary in the world of real estate and are held to a higher standard of education and competence. There are great attorneys and crappy attorneys.

    Many real estate agents ARE attorneys and many agents have as much education and/or relevant work experience as an attorney, even though the entry bar to actually becoming an agent is lower. There are great agents and crappy agents.

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  3. David Losh

    RE: David McManus @ 83

    I read an article over the week end from last June that outlined the premise, which I agree with whole heartedly, that the Multiple Listing Services and National Association of Realtors hid the over supply of housing units from the public by just publishing recent sales data.

    The same thing is true today. What a property sells for or the number of units currently available doesn’t give you a true picture of supply or demand.

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  4. David Losh

    RE: Tyler @ 85

    I bought a house in Centralia from a Virtual Tour, I knew the area and location was good. What I didn’t know was the floor sloped away from the center of the house. A local Real Estate agent told me about the problem.

    A triplex I had an offer on in Aberdeen was a perfect fixer until closing. When the final lot line adjustment from subdividing one lot into two the seller’s property came up to within three inches of structure I had the offer on. The real deal kicker was that the seller had me sign a joint maintenance agreement for the drive way that ended up on his property, but I had no easement for.

    i really tried to use the long distance internet thing when it first started but it was frustrating.

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  5. Greg Perry

    By David Losh @ 103:

    RE: David McManus @ 83

    I read an article over the week end from last June that outlined the premise, which I agree with whole heartedly, that the Multiple Listing Services and National Association of Realtors hid the over supply of housing units from the public by just publishing recent sales data.

    The same thing is true today. What a property sells for or the number of units currently available doesn’t give you a true picture of supply or demand.

    What? How?

    As far as I can see, the reports this month are exactly the same (INFO) as the reports were 10 years ago, with the only real difference being they stopped using Active STI and now use a pending catagory. We’re coming up on YOY reporting since that change and the change was transparent and has been hashed over endlessly.

    Good grief. Conspiracies abound.

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  6. Tyler

    RE: David Losh @ 104

    David, lumping together a bad sight unseen story with virtual tours can make it sound bad, but buying anything without going there is probably a bad idea.

    Looking at the pictures put into the MLS database, it is common for pictures to be left out that would be deal-breakers for 90% of people. If as much disclosure was possible beforehand, then it would cut down on the manual labor for buyer’s agents of driving people from house to house.

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  7. johnnybigspenda

    I used Redfin for a couple of offers early this year. They were responsive enough. The big decisions like “what IS this place worth (to me)?” or “how much would it cost to gut the kitchen?” were not questions I would leave to ANY realitor. The transactional stuff and opening doors are perfect for places like Redfin since they do so many.

    I have friends who are agents and as much as I like them, I’ll be darned if I’m going to give them an extra $5-8K of my money when I’m the one who makes the final call on the BIG questions anyways. Agents today need to adjust their value proposition. They can do this by truly exceeding the services offered by Redfin or by reducing their price to match.

    Gone are the days where people ride around in the back of their agent”s car, look at 6 houses and then choose from one of them. There is so much more information that is available to the consumer now. (although the NAR still keeps a good amount of it for them selves. I am hopeful that the bottle has been uncorked though).

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  8. johnnybigspenda

    My last point is, this market is very conducive for a Redfin type transaction. Lots of time to make a decision and to shop around. Three years ago if you saw a house come on the market on Tuesday, you could be sure there would be 5 offers by Fri/Sat. Now buyers have time to submit offers, see if they stick, look at something else, come back to the original house, try again a month later… ect.

    When I bought my first house, I felt like my agent was trying to sell me the house constantly (my interests were definitely not perfectly aligned with his).. Even today, my agent friends (people who I would think are being honest with me) are constantly telling me how great of a time it is to buy. If you are shopping seriously today, the last thing you need is some guy convincing your wife that it IS worth it to offer another $20K to close the deal NOW. I will say that Redfin leaves you alone unless you are working with them on a deal… no one guilting you about the fact you’ve been shopping for 6 months and that they have spent a lot of time working with you.

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  9. anony

    By johnnybigspenda @ 108:

    If you are shopping seriously today, the last thing you need is some guy convincing your wife that it IS worth it to offer another $20K to close the deal NOW.

    Well said. That is one great reason to go with an advocate (Redfin) vs a salesperson (commissioned agent). The salaried guy doesn’t need to close the deal NOW to keep his beamer from getting repossessed.

    I wonder how many comments this thread has generated from agents (and real estate attorneys) trying to bash the competition. I’m guessing 65 out of 109 thus far.

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  10. David Losh

    RE: Greg Perry @ 105

    The article is on the Bloodhound blog with the link over on the side bar. I was going to go get it for the over supply post.

    The premise is actually very good. If you just look at sales data it will never show the bigger picture of over supply. Sales figures show what is going on today or at best six months in the past. It will never show you building permits, projects in progress, planned projects, or finished projects that may have been rented out.

    I’ll get the link and post it. It directly address opacity of the Real Estate market place to the transparency.

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  11. Ira Sacharoff

    johnnybigspenda said”. Agents today need to adjust their value proposition. They can do this by truly exceeding the services offered by Redfin or by reducing their price to match.”

    As I’ve mentioned before, I don’t have any problems with Redfin. If people looking to buy a home are prepared to do much of the work themselves, Redfin or 500 Realty or Findwell or a number of others would be great choice.

    But johnnybigspenda is right: The traditional real estate agent doesn’t have a good reputation. And I don’t think it’s a matter of the ease to which one can become an agent. I know several very highly educated real estate agents whom I wouldn’t trust in the least. I’ve even heard that there are dishonest attorneys out there.
    But I’m not positive that simply because someone is representing Redfin they are therefore honest. I know that the lack of commission would tend to keep the pushiness level down, but the few Redfin agents I’ve met have that “perky, positive” spin that many other agents also have.

    Redfin wants their agents to make sales, even if there is no commission involved, and especially because they are paying agent’s salaries. I don’t think Glen Kelman( Mr. Redfin) would tolerate it if he found out that one of his agents was talking his clients out of making offers.

    It may be preferable to being trapped in the back of a Mercedes driven by a Windermere or JLS agent telling you how cute and reasonably priced that last house was, and that you should make an offer.

    But make no mistake about it. Redfin is as much a part of the system as John L Scott. The agents may get paid a salary, but the brokerage itself still gets paid by commission, and it’s in their best interest for you to buy a house right now and for you to pay the most possible money they can get you to pay, but still feeling that they did good by you.

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  12. David Losh

    RE: Tyler @ 106

    I own a site that is disabled now called jetcityrealestate.com. It’s a beautiful thing with a plane flying behind the skyline of Seattle.

    Anyway I spent about a year wanting an online brokerage site. I really thought that this was the wave of the future. I’m just saying that there were problems and issues. I experimented with it myself. It is just a long ways between virtual tour, inspection, and title report to a closed sale.

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  13. Tyler

    RE: David Losh @ 112

    David, are you a licensed broker in WA state? Anyone know how much it costs a broker to to add a house to the MLS? We would like to start offering a MLS listing option for our FSBO site.

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  14. David Losh

    RE: Tyler @ 113

    Good domain name.

    To be a broker in the State of Washington you need to take the Broker Education Classes and show you have Real Estate experience working under another broker’s direction for two years. Each state is different, but essentially the same. You can take the lessons on line.

    You can offer a search option from a brokerage or have an agreement with a Brokerage to rent your site by domain name. You would or could link back to a brokerage that has a search and get paid by click.

    What my main Real Estate site does is offer all searches from all companies by having a link back to them.

    How do you get paid from your site?

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  15. anony

    RE: Ira Sacharoff @ 111 – Yes, Redfin as a company needs to close deals to make money, but the people you are working with have their personal interests aligned a lot better with their buyer clients than a traditional brokerage. A company strategy of aligning their interests with the customer’s says a lot.

    Somebody can correct me if I’m wrong, but it isn’t just technology that makes Redfin’s search site better. Haven’t the major brokerages strategically held back information from their web searches, such as other companies open houses, new listings, nearby sales, ect, to try to get people into their open houses and sales offices? As an aside, I started searching with Lake & Co before I learned about Redfin just because they were the only website I could find that showed new listings and past sales.

    My point, a company that believes profits will come from serving the customer better (as far as I can tell Redfin fits the bill) will do better by their customers than a company just trying to close deals, which tries to play games and withhold valuable information because they think they can get a few more easy marks in the door.

    I guess I would just trust Redfin more than I would a traditional agent, for the above reasons. That doesn’t imply a lot of trust, but it is something.

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  16. Kary L. Krismer

    By anony @ 109:

    By johnnybigspenda @ 108:
    If you are shopping seriously today, the last thing you need is some guy convincing your wife that it IS worth it to offer another $20K to close the deal NOW.

    Well said. That is one great reason to go with an advocate (Redfin) vs a salesperson (commissioned agent). The salaried guy doesn’t need to close the deal NOW to keep his beamer from getting repossessed..

    Yes, I’m sure Redfin agents don’t need to watch their stats to keep their jobs. Keeping on the deadwood is exactly why Redfin turned a profit last month.

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  17. Kary L. Krismer

    By Tyler @ 113:

    RE: David Losh @ 112

    David, are you a licensed broker in WA state? Anyone know how much it costs a broker to to add a house to the MLS? We would like to start offering a MLS listing option for our FSBO site.

    It doesn’t cost anything, but there are liability concerns.

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  18. johnnybigspenda

    RE: Kary L. Krismer @ 116

    Maybe its the physical separation or the inability of the Redfin agent to hypnotize you with their rascally eyes, but I feel more ‘in control’ when I talk on the phone and search using the internet. Kindof like walking into Video Only… the vultures there are trained to find ways to keep you from walking out the door without a 52″ LCD in you hand.

    I agree that Redfin wants to sell houses (obviously)…. but their agents (in my understanding) are paid based on customer satisfaction ratings. I think that is why the posting of agent reviews is so powerful. I am 100% sure of how traditional agents are paid… and that has nothing to do with my satisfaction. (although the good agents know that a happy customer is a customer for life and the value of that could be 5-10X of what they get from closing a deal once.) But, its hard to know if Joe Blow from JLS has happy customers or if they are a right fit for you. Best case, people are typically getting referred by their friends … how many times have you heard “oh, I know a GREAT agent… give Joe a call”.

    You can say that customers don’t know what’s best for them and those high ratings are from nicky new kids who don’t know the realestate game, but in the end, they are happy customers who perceived that they got good value from Redfin.

    Chacun son gout as they say.

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  19. Kary L. Krismer

    By johnnybigspenda @ 118:

    I am 100% sure of how traditional agents are paid… and that has nothing to do with my satisfaction. (although the good agents know that a happy customer is a customer for life and the value of that could be 5-10X of what they get from closing a deal once.) But, its hard to know if Joe Blow from JLS has happy customers or if they are a right fit for you. Best case, people are typically getting referred by their friends … how many times have you heard “oh, I know a GREAT agent… give Joe a call”.

    The first sentence is refuted by the rest of what you wrote. So thank you for saving me some time! ;-)

    There are agents that get most their business through advertising (including Internet), and there are agents who get most their business through referrals and contacts. The latter rely very heavily on customer satisfaction (and probably on average sell a much higher percentage of their listings).

    Rather than compensation affecting this, I’d think it would be more dependent on broker oversight, and Redfin probably does have the advantage there. There are some brokerages where you could be an agent for years, insult every potential client you come in contact with, and never close a transaction. That’s not going to happen at Redfin (or a lot of other brokerages).

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  20. Ira Sacharoff

    “I am curious to hear from Realtors how the internet has affected how they spend their time now with respect to generating clients, and how they spend time with their clients? ”

    The internet has allowed some brokerages and agents to dramatically reduce their costs. I take great advantage of this, and take it a step further. I can be myself to a greater degree, and don’t have to buy into the trappings in order to effectively serve clients. I don’t need a Mercedes, or a fancy office, or an expensive suit.

    Because of this, I choose not to generate a lot of clients. I can spend more time on research and sharing information, and have more time serving the clients I do have. It also allows me to rebate some of the commission.

    Yes, I still spend time showing houses, and yes, I still get startled looks when I suggest to some potential clients that , although they might get approved for a loan, they ‘d be cutting it way too close financially by buying right now, and would be wiser to continue renting for a while.

    I think that prior to the internet someone like me would not have been able to exist in the real estate world.

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  21. JustinN

    The thing I never understand about this argument is how black and white everything is. I am a traditional realtor, but have no huge beef with Redfin. For certain people this system may make perfect sense. Now that Redfin is arranging for the showings and not fooling the agent into showing up, I can’t see the big problem.

    About 90% of my clients are referrals, and I need them for the bulk of my business. I only get them from satisfied customers. The thing I don’t understand is why people don’t bother to interview a couple of agents and decide on one they like, or that a close friend has had a positive experience with. Instead, they believe seeing info on the internet is 100% of the story, and they need no help. Then they call on a sign, and deal with someone who is trying to sell their listing and has no interest in what is best for them. People usually don’t sign buyers agreements with agents, so why not work with one who can actually help you? Instead they end up dealing with a random from an ad or open house, who has no accountability to the person after the transaction. Would you listen to somebody giving you advice on a 400,000 purchase if they were a complete stranger who you never would hear from again? Then the answer is to paint the whole industry as snakes. There are bad people in every profession, and real estate is no exception.

    Every agent brings different value, and some very little. When somebody wins a multiple offer for their dream house, that is value. When you can provide advice on inspection issue and direction to reputable tradespeople to get these problems solved and keep the deal together, that is value. When an agent may contact another they are close with who does a lot of work in a particular subdivision to give them a heads up the minute they have a new listing on, and as a result the client sees this unit first, that is value. Negotiating the best price and the most favorable terms has value. If you show this value to your clients and help them get their dream house, they will be fanatics and send you may referrals.

    The thing that gets me is the idea that it works like on the TV shows. Realtor shows client 3 places, points out hardwood floors, client picks 2nd unit, realtor writes contract for 400K, realtor collects 10,000 dollars for 4 hours of work.

    Where is the show where you meet and give a 3 hour explanation and the people tell you how grateful they are, then you show them 25 properties where you have to meet the listing agent at, answer 2 or 3 emails and phone calls explaining things a day, write a lowball offer when a decent offer would have been accepted, and then the client calls and tells the agent in a guilty voice that they have to work with the wives aunt who they dont really know but is in real estate or the wives mom will be furious. Not many shows where the client wastes 30 hours of the agents time and they have nothing to show for it. This is a two way street. I will be the first to admit that not all commissions are earned, and that is why I do occasionally rebate, and discount the listing fee from people who are buying from me.

    Redfin is a great idea for the go getter who is looking in an area with many similar units, and an abundant supply. Many actually want the service because they have kids, jobs, etc, or having every advantage means the world to them. This is why the country is great, everyone has a choice.

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