Redfin cops another $12 million, raising investors’ stake in the discount realty.bot to $40,000 per closed transaction
By: Greg Swann,
Phoenix Real Estate,
Post Archive,
RSS FeedPosted: Tuesday, July 17th, 2007, 11:53 pm MST
Category: Disintermediation, Marketing, Real Estate, Redfin.com, Technology
Redfin has raised an additional $12 million in venture funding, money that the Seattle discount real estate broker will use to enhance its Web site and expand into new markets.First up for Redfin are the Washington D.C and Baltimore areas, which are being unveiled today. Next on the agenda are Sacramento and Chicago, which the company hopes to open later this year. Redfin, which refunds two thirds of its commission to home buyers and offers a flat listing fee of $3,000 to sellers, already operates in Seattle, San Francisco, Boston, San Diego, Orange County and Los Angeles. Since its launch 17 months ago, more than 500 homes — valued at more than $350 million — have been bought and sold through Redfin.
To put things into perspective, Russell Shaw’s team of around ten people sold approximately 600 houses in the same span of time. With a head-count of 75 people — so far — and a capital investment of $40,000 cash-American per closed transaction, Redfin.com is somewhat less efficient.
But: Pay no attention to the man behind the curtain! Redfin will be profitable any day now. Scout’s honor!
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It doesn’t seem to take much these days to get VC firms to throw millions at you… Maybe I should propose a real estate site with a Google Maps mashup including the location of car dealerships so people can buy their next car to commute with? I’ll make billions!
“To put things into perspective, Russell Shaw’s team of around ten people sold approximately 600 houses in the same span of time. With a head-count of 75 people — so far — and a capital investment of $40,000 cash-American per closed transaction, Redfin.com is somewhat less efficient.”
Puts things into perspective indeed… Russell has a larger marketing budget than I do, but it sure as hell ain’t $40K/home!
[...] Others Opine: Bloodhound, Inman (subscription req'd soon), Redfin blog, CondoDomain, [...]
It’s pretty silly to compare a new, nationwide, highly capitalized startup like Redfin with a smaller, local, going concern like Shaw’s. It’s doubly silly to talk about how much money they’ve spent to sell each home by calculating homes sold versus the entire amount of money spent building the business, developing the tools and ramping up.
In the early years of Amazon.com, there were a lot of people making the same points, crowing about how much money they were losing and how they’d never make their investment back. I’m sure more than a few people made the point that their corner bookstore made more profit than Amazon. I’m sure that was a real knee slapper back in 1997.
Since the first round ($8M) financed the first 500 transactions (and probably has some headroom), isn’t it a max. of $16000 per transaction for the first 500?
Sorry, I was a Math tutor – old habits die hard.
Okayfine. A gross volume of $350 million divided by 500 houses times 3% commission of which Redfin retains one third leaves a net inflow of $7,000 per house, charged against a capital investment of $16,000 per house. This only burns $4.5 million. Your mileage may vary.
Here’s the cute part: Redfin will kick and scream like the big baby they put in the CEO’s office, but its default on agency will result in enduring changes in the co-brokerage fee. Either commissions will be divorced, or listing brokers will start to offer the co-broke in the form of 3/1 — three percent if you work with “your” buyer, one percent if I do. The latter is already happening around the country. Redfin trickily exploits a contradiction its own trickiness will eliminate.
This whole conversation about Redfin is better than Ambien.
Chuch – Your point comparing Amazon to Redfin is a little off in my opinion. I agree with you about the premature judgment of Amazon’s model. That said, I took a listing from a FSBO in my first six hours of business, when I was 61 days past my 18th birthday.
And with all the funding and time Redfin’s had, they can’t do any more business then they have so far?
It’s like comparing Starbuck’s to the local neighborhood kids’ lemonade stand.
[...] The coverage of this event has been predictable: Techcruch claims that Redfin’s goal is to “completely remove real estate agents and brokers from at least half of a home sale” (in which case they would immediately go bankrupt, since in most states you can only claim compensation for representing somebody in a real estate transaction if you’re a licensed agent.) The Bloodhound notes that this brings investors’ stake in the company to around $40,000 per transaction, while the indefatigable Kris Berg compares Glenn Kelman to those infamous Internet scammers (”419′ers” being the technical term) promising untold riches. While both Kris and I have met Glenn Kelman, we clearly have different opinions about him. Say what you will about Redfin’s disruptions of our staid industry, but I’m thinking their business model may just have fins — er, legs — and that we castigate them to our own potential future peril. Besides, even if he tries, Glenn Kelman doesn’t have nearly the right accent to be a true 419′er. I, on the other hand…(ask me at Inman.) [...]
[...] They just closed a $12 Million series C round led by Draper Fisher Jurvetson, giving them close to $20 Million is total financing to date. Techcrunch reports the company is gearing up for war. Marlow Harris at 360Digest and Greg at BloodhoundBlog, on the other hand, posit the investment is needed just to keep the company afloat. [...]
I’m not going to try to imagine where Redfin will be in a few years, but I take issue with your point Chuchundra. As I understand it, Amazon’s cumulative “profit” so far is over negative $2 billion (http://en.wikipedia.org/wiki/Amazon.com).
Don’t get me wrong, I love Amazon, but that’s nothing to brag about. And no one is giving out that kind of money anymore. I think (hope?) Redfin has a little more sense than that.
Galen, you make my point for me. Thank you.
The fact that someone would actually bring up Amazon’s $2B deficit as some sort of knock against the company shows how little most people understand about the corporate world.
Building a large company, internet or bricks and mortar, from a standing start is a large, difficult and risky process. Attaining profitability in the ninth year of operation is a pretty good achievement. Doing it while building an internationally known brand, a world wide distribution network and revenues of ten billion dollars a year? That’s damn good.
Amazon is two billion in the hole. Their market cap is 30 billion.
I don’t know what the future of Redfin is. I don’t know if they’re going to be the Amazon of the real estate world or just another Pets.Com. What I do know is that judging them, at this stage of the game, based on how much they’ve spent and how much they’ve made from that is just silly.
Chuchundra, I think bringing up the amount of Redfin’s funding is sillier than bringing up Amazon’s deficit, but not if you don’t believe their business model can make sense.
Admittedly, many companies never make all their money back, but we just don’t see many bets like the one people made on Amazon back in the 90s. Amazon is a very successful company that has made many of it’s investors money… from other investors. If they hadn’t received so much cash to begin with (much, much more than $12 million), they wouldn’t be with us today.
If Redfin is right, and I would imagine they are, that this is their last round of funding, then they’re all set. But if they’re like Amazon and they need more cash infusions year after year, I don’t think investors are going to give it to them.
I didn’t mean to get into the specifics of Amazon, I just thought it was a bad comparison. No one is going to finance Redfin (or anyone else) to one tenth of Amazon’s financing while they take Amazon-sized losses in this post dot-com bubble world.
[...] Good Grief, everyone took two Redfin pills and called themselves in the morning. Though my favorite of the bunch was Jonathan Dalton who announced Dalton’s Arizona Homes Secures $8.25 in Capital – Expansion in the Works The shady one didn’t disclose where the $8.25 came from though. Required Reading. [...]
Note to VC guys- We just checked Redfin’s progress in San Diego. They opened their “office” here in February. For the record, SANDICOR, our local MLS reveals (drum roll) 5 closed escrows (that’s almost, but not quite, 1 closed escrow per month according to my old HP 12C calculator). Even better news: There’s one more escrow Pending!! Of course, this does not pick up any closed escrows for new homes, which I’m certain will substantially boost the progress reports to their investors.
I hope those old line real estate firms in Washington D.C. and Baltimore are ready to defend themselves against this veritable real estate tsunami.
[...] I read with interest (and amusement) Kris Berg’s commentary on the most recent donation of $12 million handout to Redfin. They’re certainly going to need it to support their strategy of “investing” approximately $40,000 per transaction. [...]
>Either commissions will be divorced, or listing brokers will start to offer the co-broke in the form of 3/1 — three percent if you work with “your” buyer, one percent if I do. The latter is already happening around the country. Redfin trickily exploits a contradiction its own trickiness will eliminate.
One more reason Redfin should love San Diego. Conditional offers of compensation are forbidden by our MLS, leaving divorce of commissions to be the only viable response.
[...] Make no mistake. Despite the hype, Redfin is struggling by nearly any measure. For all the bold talk of expansion into additional markets, progress has been extremely slow. Greg compared the total sales for Redfin to those of local real estate god Russell Shaw. It’s no contest. True, Russell has been doing this longer than Redfin but he also hasn’t had the benefit of $20 million in venture capital (though his ever-present face on my television makes me think he does have a printing press stowed away.) [...]
Conditional offers of compensation are forbidden by our MLS.
Houston MLS as well. What if the listing broker were to unconditionally offer a low co-op with a bonus offer to be discussed before contract? Something like: “additional bonus may be available”?
If Redfin does re-do real estate online…there will be
tons of companies ready to jump onto the same business model. Even if they are not successful, there are companies ready to jump right in line and take over from where redfin fails. So, even if the market gets flooded with redfin clones, redfin will succeed in their ultimate goal…to change real estate
I would model my practices with buyers just like Redfin does, The only problem is the SF MLS will not give me creative control and access to the data to create a home search like redfin, which is very possible with todays technology.
And Redfin says……
we've secured an additional $12 million in financing. Really… and for what purpose? Redfin's…
[...] There goes the neighborhood. A Redfin sign is on my street! July 21, 2007 Redfin got another $12 million in spending money from its venture capital masters this week. A lot of noise, speculation and jokes have been made in the old RE.net blogosphere about the old Redfiners this week. [...]
Deja vu! Do people not remember eRealty and ZipRealty?
eRealty was Sub-quired (acquired, but not in the good profitable way) and ZipRealty was discount focused, but has since dropped that since they found that people don’t come to them for discounts.
I have no problem with discounting, as I like saying:
“I used to discount… until I got good”
Now the big questions is, if there was a new Amazon.com that was selling cameras for 50% off (like 50%OffCameras.com ) and it was VC backed and losing money on each deal, you MIGHT buy from them wouldn’t you?
So the question is does Redfin help or hurt the customer? I’m not sure yet.
I turned 67 on the 29th of August 2007.
I have been a Licensed Florida Real Estate agent since 1969. I obtained my Brokers License in 1972.
I have seen many minor changes in the real estate industry in the last 37 years. I am also an Active Selling Real Estate Broker who is in the Trenches quite often but then at times looking from a hill down upon the Forest.
I find that the Real Estate Industry is like the Wheel, You think you can re-invent it.
When there is a Strong Real Estate Market Spike as we encountered in 1957 and in 1968 and in 1976 and then in 1986 and again in 2005.
I have observed an intresting phenomanom.
this phenomanom seems to apear during Hot Real Estate Market Years.
They seem to be controled by some one who wants to reinvent the Real Estate Market and a common statement is ” Real Estate Will Never Be Done The Same ”
The meaning always leads to a Less commision charged to the seller. The norm has been 10% for Land 6-7% for Homes and 10 % for Commercial Properties.This has been more or less the same for at least 75 years.
Have you ever seen a Dog Chase His Tale?
This dog will always end right back where it was 75 Years ago.
a message from one with hind site and its 20-20
Larry T. Giddens
Realtor
A Native Floridian
Selling Florida Real Estate
for over 35 years.
Say, Larry, just what does that 6-7% get me, a home seller?
A few uninformative ads in a magazine, somebody to sit at open houses, and faxing reams of paperwork around.
So if I choose to ditch the ads, sit at the open house myself, and pay a $3000 flat fee for the paperwork I’m some kind of revolutionary?
This post is all about redfin but I believe many are missing the real point here. That is that the consumer is dictating the rules now. With the advent of the Internet consumers have quickly become much more savvy in their home purchase than they were 10, 15, 20 years ago.
The bottom line to me is that business has changed more in the last ten years than in the last 50 but the transaction model for real estate has not? It is anti competitive in nature and that is why the DOJ levied suit against NAR.
I am a Broker in Charleston, South Carolina delivering full service Brokerage services at significant savings to consumers via rebates.
I invite your feedback. For those interested we are currently licensing a joint venture opportunity.
http://www.rehava.com