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60 Minutes’ Redfin.com story delivers 400 hits in 60 minutes flat . . .

Who says the old media is dead? In the hour just ended, Redfin.com’s Real Estate Consumer’s Bill of Rights: A wolf in sheepskin clothing had over 400 hits from organic search. Just think what might happen if the NAR made reasoned arguments instead of trying to club reality into shape with legislation…

(This search is why we’re getting the traffic. As with Zillow.com, we are the highest-ranking discouraging words on the topic. It’s up to you to determine where the intellectual leadership of the real estate industry resides…)

More: real estate 2.x emerges from its Howard Hughes-like seclusion to comment.

Further notice: Well. That was pretty lame. You can see the video here. Wouldn’t it be cool if a reporter could ask an intelligent question? Wouldn’t it be cool if both sides of a story were actually presented? Even so, the bottom line is: Big deal.

Still more: I commented on the TechCrunch.com post, not that anyone other than insiders cares about accuracy on these issues.

My initial comment:

[Quoting Michael Arrington]> Redfin is doing their best to completely remove real estate agents and brokers from at least half of a home sale.

This is incorrect. Redfin’s cost “savings” consists of pushing the cost of buyer representation off to the listing agent and the buyer. It “saves” money by not doing the work the buyer’s agent’s commission is intended to compensate. The net consequence, if no other changes are made in the real estate industry, is that sellers and listing agents are likely to change the way they provide for the buyer’s agent’s compensation. Redfin.com has never turned a profit, and, if its business model actually gets traction, the money it “rebates” will no longer be available to it.

This was Arrington’s response:

Greg – the fact is that the real estate market is seriously screwed up and needs to be disrupted. Agents are overpaid and often do little more than underprice a house to ensure a quick sale. The model needs to change, and Redfin is changing it. Good for them.

That rejoinder is devoid of any actual response to what I had said, but people are rarely objective about their own betes noir. My own riposte did not make the TechCrunch cut-off on comments [no, that can't be right; there are comments posted after this failed to appear], but here it is for posterity:

> the fact is that the real estate market is seriously screwed up

I agree.

> and needs to be disrupted

I agree.

> Agents are overpaid and often do little more than underprice a house to ensure a quick sale.

Sellers set prices, not Realtors. In any case, Redfin does far more business on the buyer’s side than on the seller’s side.

> The model needs to change,

I agree. The ideal change would be to divorce the Buyer’s Agent’s commission from the Listing Agent’s commission. If this were done, Redfin would go belly up overnight, since its business model consists of rebating commissions it does not expend the effort to earn.

> and Redfin is changing it.

And that is completely false. Redfin discovered a way to betray, Tragedy of the Commons-style, the cooperative compensation model of the MLS system. That betrayal may work for it in the short run — although the company has yet to turn a profit — but if the betrayal persists, then the cooperative compensation model of the MLS system will be changed — to the detriment of all home buyers.

This is important: Actual reform in the way real estate commissions are paid would destroy Redfin.com. It exists by means of exploiting the contradictions in the real estate industry it makes a point of decrying in public.

If you want to explore this in detail, I know a lot about it.

I’m not holding my breath. Even so, that’s the best short statement I’ve ever done of the Redfin contradiction.

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  • 26 comments

    26 Comments so far

    1. Redfin on 60 Minutes « real estate 2.x May 13th, 2007 6:04 pm

      [...] I had to come out of retirement seclusion for this one… [...]

    2. Austin Realtor's Wife May 13th, 2007 6:22 pm

      To pirate my own comment on Kris’ article on the 60 minutes piece,

      “Now this is what I call NEWS!!! 60 minutes is still on the air? I thought that died with my schizophrenic great grandmother two decades ago! Has Stahl been stuffed and stood up by the jukebox? I’m seriously in shock. Tell me you’re joking, Kris- 60 minutes is still on the air? HA! Talk about a news story!

      Sidenote: I love that NAR and everyone else is giving Redfin creedence by even issuing talking points- who cares? McDiscounts are out there and even the DOJ is promoting them (talk about geriatric ignorance)! The value Realtors will survive long after we blink and the McDiscounts are gone because NO ONE likes paying money (to Redfin, etc) to get nothing in return (other than having to complete a Real Estate transaction on their own- they should have to buy themselves E&O Insurance!).”

    3. Todd Tarson May 13th, 2007 6:40 pm

      Wow… I disagreed with everyone interviewed at some point along the way during that segment.

      I can’t wait to get to DC tomorrow!!

    4. Edward Streightiff May 13th, 2007 8:38 pm

      I think Redfin is a company that has little value in the long run. It is generic and offers little nothing beyond a generic database. Its biggest problem is that it will turn out to be UBID not EBay.

      The creation of data requires expertise, time, money and credibility. Red fin doesn’t have the expertise to define a value in any unique market. Every market is unique, We all know if your house is a block one way or another 20% or 50% difference is common.

      Red fin seems to value their time as a factor of volume. They make their money by getting the largest amount of listings not the best. Their credibility has no relationship to the product they represent. They will list anything at any price for anyone. They have no credibility.

      The future will bring changes. EBay has brought changes. I still won’t buy a used pair of shoes from EBAY but some people will. How many people will buy a used house from redfin with no credibility?

      I can see a data process in the future that will change the commodity style housing, but not the unique home. In a standard subdivision I can see a data set that an eBay could use.Click here to get three market appraisals of your house. Click here to stage your house. Click here to list your house. If this data set hits the market along with all of the MLS listings, things will change. A standard Realtor will have to follow suit. Why not.

      Keeping process and information away from people never works. If you want to hide something, then most people will want to find out even more.

      Years ago I hid my process from other people. My process worked and I thought it was unique. I learned that I can tell anyone exactly how I am successful because I know they can’t or won’t do it. I am sure as the changes get absorbed I will adapt and be successful.

      The biggest losers here will be the people who can’t change. I plan on adapting in the micro market based on the generic macro changes.

      Good luck

    5. Tim May 13th, 2007 8:44 pm

      The ideals of traditional journalism (e.g. balanced reporting, investigative integrity and the application of critical thought) took a big hit tonight with the shoddy reporting of Leslie Stahl and the entire 60 Minutes news team. It’s ironic how many of these so-called ‘professional’ journalists decry the rise of the citizen reporter–or blogger–as being a danger to the news gathering and reporting process that they say threatens to cheapen the value and quality of the news being delivered to consumers.

      On the contrary, some of the best reporting I have seen as of late has come not from the minds, mouths and pens of million-dollar salaried “celebrity” journalist, but from people like the founder of this blog who do it not so much for the fortune, fame or glory, but for the love of the game.

      By the way, if I ever hired a real estate professional who delivered the abysmal level of service provided by Ms. Stahl in her reporting, I’d expect two-thirds of my money back, too.

    6. Doug Trudeau May 13th, 2007 9:54 pm

      Gregg,

      I watched the 60 Minute report and couldn’t resist writing about it. I linked to your Redfin.com’s Real Estate Consumer’s Bill of Rights: A wolf in sheepskin clothing back in April to mine. Hope you don’t mind.

      When I need a little history you’re proving to be a good source.

    7. Ted Stevenson May 13th, 2007 9:56 pm

      For some interesting context, check out the debate that started it all on real estate video site WellcomeMat.com. Redfin CEO Glenn Kelman and Realtor CEO Allan Daulton go head to head at the 2007 NY Inman Connect Conference. The same panel 6o minutes taped for this show BUT in its entirety.

    8. [...] karim May 13, 2007 Permalink Trackbacks 0 No not what you are thinking – not social, ethnic, or racial discrimination. Redfindiscriminates on price. PRICE! The 60 minutes piece was a yawn for me personally but it does give Americans the right to start to push back. See the posts and comments at TechCrunch, Redfin, Inman, BloodHound for an early read. Whether it becomes a consumer zeitgeist or fades will be seen but the open question is this: will price variation become mainstream in american residential real estate? There is an old economic idea called price discrimination that is popular with every micro-econ 101 student, and their professors, that says you reach more customers and make more money by offering variation in pricing. Its sort of definitional for anyone who believes in supply and demand. It works like this: when you go to see a baseball game, there are a 100 variations in pricing to meet everyones needs and to tap into every possible cross section of demand. For example, there are ticket prices for corporations who entertain in luxury boxes and ticket prices for those who mostly prefer a beer and some sun in the bleechers. Ticket prices for season holders and ticket prices for last minute shoppers. In short, EVERYONE can have their demand met for baseball. A small example with the mighty SF Giants here. What would happen if every ticket was the same price? Mayhem and lost profits. Some people willing to pay more for MLB tickets will transfer their money to an underground marketplace that will use price discovery to allocate tickets. Meanwhile, people at lower price points will be shut out resulting in further lost revenues to MLB. Thats why we have pricing variation. Its better for everyone because everyone gets an allocation and the business folks maximize their revenues. People might argue that the price variation exists is in the underlying house price and not in the intermediary execution price (brokers & agents). If that were true, then why did trading volume in financial markets explode when electronic execution came into acceptance? (For a slightly more technical explanation {very slightly!}, see my earlier post here). [...]

    9. Greg Swann May 13th, 2007 10:23 pm

      > Hope you don’t mind.

      ;) Feel free.

      I may have said this before, but your weblog is gorgeous.

    10. Burress May 13th, 2007 10:24 pm

      Okay, reading your comment, if you divorced the buyer agent’s commission from the listing agent’s agreement with the seller, wouldn’t more prospective buyers then be more than likely to use the selling agent as their agent as well?

      Or won’t we perhaps see a large number of listing agents increasing their so-called “normal brokerage fee” of 2.5-3% to a much large percentage and offer part of that back?

      By the way, in real estate school we had to do a skit involving agency – explain duel agency, etc. I always said a buyer and seller who were using the same agent was like being in court where the lawyer is representing both parties and can’t say a flipping word!

    11. Greg Swann May 13th, 2007 10:31 pm

      > if you divorced the buyer agent’s commission from the listing agent’s agreement with the seller, wouldn’t more prospective buyers then be more than likely to use the selling agent as their agent as well?

      I have written a ton on this subject. You can start here, if you’re interested. There’s probably more.

    12. A Night to Remember at Redfin May 13th, 2007 10:46 pm

      [...] Redfin Blog; TechCrunch; Texas Discount Realty; Bloodhound Blog; Housing Panic; LA Land Permalink RelatedPosts: [...]

    13. Morgan Brown May 13th, 2007 11:21 pm

      I posted my take over at blownmortgage.com but the bottom line is this: there are discounters and there is full-service. It’s in every industry from groceries and produce to lawyers and accountants. There are people who want cheap and there are people who want full service.

      Realtor’s should stop defending the 3% a side commission as birth rite, start delivering knock-your-socks-off service and create value for your client. That will silence any questions about your price. Ask Tiffany, Nordstrom, Mercedes or Alan Dershowitz.

    14. Doug Trudeau May 14th, 2007 6:34 am

      Thanks for the comments. I’ll be back frequently. I am working hard and getting better each day at blogging. Not bad considering six weeks ago if you said blog, I would have replied, “Huh?”

      This topic has really drawn a lot of attention. It even resurrected a laundry list of past blogs.

    15. [...] Redfin would be fine if the seller didn’t pay the buyer-broker fee. [...]

    16. P.J. Dean May 14th, 2007 9:35 am

      If not for the 60 minutes icon in the corner of the screen, I would have sworn that was an infomercial. What a steaming pile of journalistic crap that was!

      What’s even more shameful is how the full service constituency is represented. At one point Leslie Stahl dished up a 40mph fastball opportunity to the only full service agent interviewed by asking how we justify what we are paid. To which the response of the pathetically comatose woman was “uhhh, I don’t know how to answer that”.

      Defending ourselves and the industry is nothing new and I highly doubt that competent, full service agents will ever be replaced but it really hurts when we make ourselves look that stupid.

    17. Greg Swann May 14th, 2007 9:41 am

      > it really hurts when we make ourselves look that stupid.

      Surely they filmed many agents and picked the worst performance for the broadcast. Marlow Harris is in that market, and she can eat Redfin for lunch. As with all Redfin coverage, the reporter’s biases smothered the facts.

    18. [...] 60 Minutes’ Redfin.com story delivers 400 hits in 60 minutes flat . . . Bloodhound Blog [...]

    19. P.J. Dean May 14th, 2007 10:32 am

      Greg,
      you are giving 60 minutes way too much credit in suggesting that they actually went through the journalistic motions of taking time to interview a variety of full service agents in order to cherry pick the dud that they did.

      I’m guessing that they knew exactly what they were going to get in her and that the biases run at much higher network levels than just Leslie Stahl (who would be much better suited selling an in-shell egg scrambler at 3am on the home shopping network)

    20. Dave Marron May 14th, 2007 10:59 am

      I worked for an online real estate firm from 1999-2003, then sold for traditional brands. In 1999, we charted the course that Redfin is following. I like new business models and I enjoy following the Redfin story. Here are my quick thoughts on Redfin’s model:

      The rebate/discount is way too big. In 1999, the company I was with gave rebates of up to 50% of their commission. Then they reduced it to 33%, then to 25%, then to 20%. It’s easy to pay rebates, but very difficult to run a profitable business with a discount model. Prediction: Redfin will eventually lower the rebate and increase the cost for listings.

      Expansion is always harder than you think. Glen Kelman told 60 Minutes that they hope to be in “all major markets by the end of 2008.” Unless you have an army of programmers and people who can schmooze the MLS’, you won’t make that goal. Redfin is currently in seven (going on nine) markets. zipRealty is embarking on their biggest expansion in years. They plan to open just six markets this year. Prediction: Redfin can open another ten markets with very minimal local coverage by 12/31/08.

      Minimal service means maximum liability. In my experience, getting into contract is really the easy part. Getting a contract to close is tough. Something ALWAYS comes up. Recommending and attending inspections is one of the most important duties of an agent. One lawsuit from a disgruntled home buyer could severely hamper this company. It’s going to happen. It happens to all real estate companies. However, Redfin’s do-it-yourself model will make it tough to defend a negligence case. Prediction: A home buyer will find out that his new home needs a new foundation and sue Redfin. Redfin will lose the case.

      I’d like to see Redfin succeed. But, it’s hard to watch a company repeat the mistakes of its predecessors.

      One other note – 60 Minutes made it look like eRealty failed because they were blocked from the MLS. They weren’t blocked from all MLS’. I think it was just one. They failed because of poor execution.

    21. [...] ilk can only be successful by playing unfair. The moral of this story is that both were wrong. Permalink RelatedPosts: [...]

    22. Paul Jablonecki May 20th, 2007 10:26 am

      Competition has always been good for the business. My opinion is to go with a professional the best you can afford. I have had deals with discounters and found most of the time the full service company ends up doing all the work, but on the upside you feel good getting it done, if you’re a hard worker pat yourself on the back and be happy with your service to your clients, this is a great business and we must keep positive attitudes with whatever comes next.

    23. Chris Michaud May 23rd, 2007 1:56 pm

      I missed the RedFin story, but then again, I miss a lot of 60 Minutes. Good for them. That’s what “buzz marketing” is about. REALTORS could learn a few things from them. However, as many of us know, they are not quick learners.

      OK, one-size-fits-all doesn’t work very well for nearly any kind of product or service. Even in the most commoditized product or service, there is some play in pricing as Wal-Mart has taught us all. Generally, the less competitive the market the more costly it is.

      What no one seems to be addressing here from what I can tell are the wasted dollars expended on inventory that DOESN’T SELL. That’s where much of the problem is. Take away the “listing risk” for the unsolds and commissions would be substantially lower – 50% plus in manmy parts of the country right now in my estimation. If it takes 2 listings to sell one, that means marketing costs are twice as much as they need to be.

      Have the seller take on the risk, and prices would be much lower even on a contingent commission basis. Give them some REAL Options(TM) like hourly rates and fee-for-service options, and you can reduce it even more on average. Remember the average REALTOR agent is only grossing about $37,000. By the time they take out expenses, taxes, retirement and health care bennies, and many wind up making about the minimum wage – if you figure the hours they put in. So the bar is not very high on the hourly rate side, if that’s the direction you want to head. So, the seller’s side of the transaction can be rather easily addressed.

      What is only beginning to be addressed is the “unbundling” of buyer’s services within the transaction. As you know, the existing model has granted buyers’ services for free in most traditional offices, and that’s what the market is used to. Of course – the services really have never been free, they are part of the commission paid by the seller.

      This is another area whre REALTORS could have lead the pack rather than fallen behind it. Buyer’s Agency in most offices is a legal term d’art. Exclusive Buyer Agreements aren’t worth the paper they’re written on for most agencies regarding compensation that’s not provided by the seller. When Buyer agency was first introduced in the late 80′s and early 90′s as part of most stae’s licensing law, I thought it was a very good idea and still do. It also offered the opportunity to break off the buyer-side of the transaction into something that buyers would become responsible for.

      The industry took the easy way out. As one of my favorite mentors (Floyd Wickman) nused to say: “give people the option to fail, and they WILL 70% of the time.”

      Much has been touted by the “new model” fee structures, but I find many of them are simple discounters, commoditizing their service by reducing overhead and services to get to “cost.” I think pricing needs to be dependent on rate of sale and cost of goods sold, rather than WAG-ing it.

    24. Frank Wells June 1st, 2007 9:04 am

      I think we all realize that the current commission fee’s are just not fair. Should a seller in Califoria have to pay more for the same service than a seller in say Idaho just because his property has a higher value? Absolutely not.

      I just spent $35K on real estate agent fees alone to sell my home. The selling agent had invested all of maybe 20 hours service and the buyers agent not much more. That’s more than $800.00 per hour. For that kind of money I would expect them to be performing Open Heart Surgery…

      As far as I am concerned, anything Redfin can do to shake up the current Real Estate industry is a good thing. There needs to be some kind of a cap to limit the fee.

    25. Charles Richey July 1st, 2007 5:22 pm

      One thing they failed to mention about E-realty but did post on their website as “an oversight”. E-realty was bought by Prudential and their software system is being used and offered to Prudential Agents. We use it. I find it hard to believe that that fact was overlooked for the story but made it the next day to the website. Could it be any more slanted and ridiculous? If they had awards for the best commercials disguised as something else I think this piece would win.

    26. Seattle Real Estate News September 11th, 2007 1:19 pm

      Redfin vs. Deborah Arends UPDATE…

      Remember all of the hullabaloo back in May regarding the 60 Minutes piece about the changes the internet is bringing to the real estate industry and how Redfin is an innovator and one of the driving forces and champions behind……