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!
Technorati Tags: disintermediation, real estate, real estate marketing, Redfin.com
J. Ferris says:
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!
July 18, 2007 — 12:39 am
Jay Thompson says:
“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!
July 18, 2007 — 6:53 am
Chuchundra says:
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.
July 18, 2007 — 8:28 am
David G says:
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.
July 18, 2007 — 8:37 am
Greg Swann says:
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.
July 18, 2007 — 9:05 am
Jeff Brown says:
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. 🙂
July 18, 2007 — 9:38 am
Galen says:
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.
July 18, 2007 — 2:17 pm
Chuchundra says:
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.
July 18, 2007 — 3:22 pm
Galen says:
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.
July 18, 2007 — 3:39 pm
Steve Berg says:
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.
July 18, 2007 — 7:09 pm
Kris Berg says:
>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.
July 19, 2007 — 6:40 am
Thomas Johnson says:
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”?
July 19, 2007 — 9:59 am
Trang - The Legacy Group says:
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.
July 19, 2007 — 12:12 pm
Frank Borges LL0SA- BLOG.FranklyRealty.com says:
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.
July 23, 2007 — 8:02 am
Larry T. Giddens says:
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.
September 29, 2007 — 9:43 am
Travis Finucane says:
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?
October 17, 2007 — 3:07 am
Steve deGuzman says:
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
April 27, 2008 — 8:16 am