Redfin.com has news this midnight, but it’s the sort of thing I would normally ignore: It’s basically the kind of rah-rah-for-us stuff I leave for the vendor cheerleaders and the mainstream media. But: I gave Redfin a lot of grief last year when they made a similar announcement, so today I’ll give them a bit of their own back:
Online real estate broker Redfin Corporation today published an analysis of the last 12 months’ public real estate records in Seattle and the San Francisco Bay Area that shows its buyers and their Redfin agents negotiated a better price than buyers who used other brokerages. Redfin’s average negotiating advantage was $5,048. The company also reported a 95 percent customer satisfaction rate for users of its home-buying service, and an average commission refund of $10,520.
This is the actual news, which you will not find in any news source: Redfin beat the field for the second year in a row. Is it plausible that particular agents beat Redfin? Not just plausible, highly probable. I don’t know of any teams of buyer’s agents like the kind of team Russell Shaw runs for listing agents, but a team like that would be much more useful for comparison purposes than the entire field of Realtors in three MLS systems. But give Redfin its due: The company deploys the kind of task specialization common to every sort of business except residential real estate brokerage. It’s very hard to resist the idea that specialist negotiators, more often than not, could out-dicker ordinary jack-of-all-trades Realtors.
And all of that is caviling, and wasted caviling at that. Stand in awe as Redfin.com CEO Glenn Kelman illustrates the high art of PR triangulation:
“Why do Redfin customers consistently tend to negotiate a better price, in different markets and different market conditions?” said Redfin CEO Glenn Kelman. “Last year, we concluded it was because of our agents, whom we pay bonuses based on customer satisfaction rather than commissions. Others argued that it was because of our deal-savvy customers, who benefit from Redfin’s transparency to take a more active role in the deal. Today, we think it’s both: great agents paid to focus on customer satisfaction and more-engaged customers. Statisticians call this selection bias. We call it a partnership. Customers have more skin in the game, so they are a huge asset in our efforts to negotiate a good result.”
It’s two– two– two mints in one!
So: Let me give them their moment. It won’t be denied, in any case, and — what the hell? — I owe it to them. Are Redfin clients harder nosed than the run of humanity? Are their negotiators better hagglers? Are many Realtors stoopid, sloppy, lazy or pre-occupied? Could all of these things be true? Whatever. Redfin.com can demonstrate that it beats the field in three MLS systems in two major markets — and they have voluminous supporting docs to back up their claims. Considering that the company is also rebating major ducats back to its buyers, I have to rate this — caviling and caveats be damned — a nice win for consumers.
Elsewhere: John Cook, Michael Arrington, Glenn Kelman.
Technorati Tags: disintermediation, real estate, real estate marketing, Redfin.com, technology
Thomas Johnson says:
Aren’t the consumers just reaping benefit from the VC pile of cash at Redfin? With housing prices down 11% (per the headline this AM), I guess Redfin’s investors have reduced their stake to $35600 per closed transaction down from $40,000. What’s the profit per transaction again?
March 25, 2008 — 7:18 am
Sean Purcell says:
Greg,
Ah… the old “rip and compliment” 🙂
…I have to rate this — caviling and caveats be damned — a nice win for consumers.
I agree… if it is true. I linked back and read the report Redfin created. They list their total transacions for each county, but they do not reference the total number of transaction or what percentage Redfin constitutes. This is very important to the discussion.
The only place they do mention this number is in reference to San Mateo where they felt that, at .25% of the total volume, they were statistically insignificant. How very big of them.
They may have been significant in the three counties they laud, but that information is glaring by its ommission. Mark Twain once said: “There are liars, damn liars and statisticians…”
March 25, 2008 — 12:18 pm
Dave Phillips says:
Greg,
Serious question… Since the buyer is involved in the negotiation and the buyer gets a rebate of the commission, do buyers have less of an incentive to want a lower price (e.g., the higher the price the more cash I have in my pocket)?
I’m not familiar with Redfin, so please consider this a question and not a dig on Redfin. I kinda like what I do know about them, but ignorance may be bliss.
March 25, 2008 — 12:46 pm
Craig Tone says:
Redfin does mortgages too. Did you see the 60 minutes spot?
March 25, 2008 — 1:49 pm
Greg Swann says:
> Since the buyer is involved in the negotiation and the buyer gets a rebate of the commission, do buyers have less of an incentive to want a lower price (e.g., the higher the price the more cash I have in my pocket)?
It’s a good question.
Redfin tends to sell at the high end, so let’s buy a million-dollar house.
If the buyer’s agent’s commission is 3%, the buyer would get a $20,000 rebate at the list price, netting out to $980,000 out of pocket.
If the buyer and Redfin in concert were able to talk the price down to $950,000, the rebate would be reduced to $19,000, netting out to $931,000 out of pocket — a much better deal for the buyer.
Both of those presume an all-cash transaction, the simplest kind of Realtor math. In both cases (in Arizona), the buyer would probably pay around 1% extra out of pocket for closing costs, increasing the net to around $990,000 and $940,000, respectively.
The Redfin rebate certainly sweetens the pot, but the marginal rebate cost of haggling the price down is only two cents on the dollar. Negotiating hard is worth a lot more.
March 25, 2008 — 1:50 pm
Brian K says:
Sean –
In all of King County Washington, i.e. Seattle, from 2-1-07 to 1/31/08 Redfin did 497 out of 33,122 total sales or 1.5%.
March 25, 2008 — 2:08 pm
Sean Purcell says:
Thank you Brian.
I no longer remember how to do regressions, but the smell test tells me that 1.5% of total transactions is not a large enough pool from which to generate valid conclusions.
The exciting world of statistics
Let’s assume, for argument’s sake, that King County’s 1.5% is enough. In comparison to King County’s 497 transactions, San Francisco’s 31 and Santa Clara’s 36 would appear to be even less valid. Now in King County the average savings was less than half a percent (.00498). So without the other counties’ oversized (and probably skewed) results, we are looking at this announcement from Redfin:
Redfin agents, on average, negotiated a price savings of $2000 on a $500,000 home in the 1.5% of transactions in which we were involved.
Again I point out that the other 98.5% of the transactions had a real mix of agent quality and it is dubious to lump them all together as a representative level of negotiating skills for the rest of the field. Personally, I would risk the $2000 on the services of a full time, full service agent.
Where’s the champagne? 🙂
March 25, 2008 — 3:46 pm
Thomas Johnson says:
Redfin does mortgages too.
Craig: Your comment just rang a bell for me, regarding the total net benefit of a Redfin relationship. If there is a mortgage involved in the transaction, seller paid closing costs will skew list price vs sales price statistics in the MLS. If Redfin is operating at the higher end of the sales price universe in these markets, they are going to pick up a greater number of cash sales vis a vis the lower end where more sales are financed.
If the MLS as a whole is selling at 97% list to sales, it is wholly possible that the lower end of the market could approach 100% list to sales because the seller is paying closing costs for the buyer. We often see list to sales ratios greater than 100% in starter home markets because first time buyers are strapped for cash.
In HARMLS, reported closed sales prices are not adjusted for seller paid closing costs or repair allowances. Perhaps the MLS where Redfin operates has adjusted those numbers.
Judging by raw numbers creative Realtors that are getting the job done could be incorrectly judged as under performing if just list price/sales price is analyzed without adjusting for seller paid costs and allowances. A buyer’s agent that is able to get a 6% seller’s contribution and brings in the sales price at full list price because that’s what his buyer needed, is out performing Redfin’s salaried negotiator (William Shatner maybe?) by a factor of 2( 1% Redfin mojo + 2% rebate). None of this would be reflected in the MLS numbers.
Now, regarding the rebates. Are these cash payments reflected on the HUD-1, and is Redfin issuing their clients a 1099? Then, there must be an income tax adjustment, unless Redfin is paying the tax bill for their clients as well. If a 2% rebate is being sent to the buyers’ side of the HUD-1, that could disadvantage a buyer getting a mortgage from getting a full GSE allowable 6% from the seller, and leaves 2% that could have been had on the table.
Redfin certainly is schooling us on how to spin numbers. Maybe they can help Hilary find some extra delegates!
March 25, 2008 — 5:39 pm
Caleb Mardini says:
Actually the study is misleading and flawed. The comparisons do not account for concessions made that aren’t reflected in home prices.
Most of the deals I’ve seen have the concessions bundled into the home price, such as a loan credit for they buyer, or to pay for some specific property upgrade.
I could be wrong but it appears that either the study is intentionally misleading, or the company doesn’t understand how typical real estate negotiations work.
March 26, 2008 — 4:43 pm
Miss Marlow says:
From my experience with the company and from what I’ve heard from other agents and escrow officers, Redfin is often prohibited from making cash rebates to its buyers. Instead, they have to use the refund to pay the buyers closing costs and the rest, if any, would come right off the sales price.
The NWMLS shows source of financing and most of Redfin’s sales involve mortage financing.
Therefore, I assume that the reason their offers close for less is that this is the only way the bank is allowing Redfin to “refund” the money: take it off the sales price.
March 27, 2008 — 1:22 am
Craig Tone says:
“Therefore, I assume that the reason their offers close for less is that this is the only way the bank is allowing Redfin to “refund” the money: take it off the sales price.”
That makes sense.
There’s the Redfin Spin.
March 27, 2008 — 2:31 pm
Donald DeSantis says:
Miss Marlow,
To the contrary, it is extremely rare that Redfin reduces the commission and lowers the sales price by a corresponding amount. Surely you must remember that from last year: http://blog.redfin.com/blog/2007/03/ok_we_can_be_moved_01.html
April 3, 2008 — 2:18 pm