Last week Peter Coy at BusinessWeek made a point of asking Redfin’s Glenn Kelman a real estate question. Kelman’s answer wasn’t awful, but it wasn’t great. (The negotiation advantage for unsold spec home occurs once a quarter, not just once a fiscal year.) But it was funny to me, because of this: Why would anyone expect Kelman to know about real estate in the trenches? He’s not like RE/Max’s Dave Liniger, an ex-grunt with a corner office. He’s a corporate guy, a veteran of securitized start-ups.
And that is a completely different world. Kelman provides a pretty candid peek into that world today at Guy Kawasaki’s weblog, a run-down on Redfin’s budgeting process and how things worked out in real life. There is a more corporate take on similar material at Redfin’s blog. Joel Burslem remarked briefly on these posts, and Sandy Kaduce provides a thoughtful analysis at the Seattle Post-Intelligencer‘s real estate weblog.
BloodhoundRealty.com runs out of a 300sf room in our home, and, especially, the passenger cabins of our cars. Glenn Kelman lives in a world I know nothing about. I find the idea of salaried agents interesting — by which I mean exotic — and I could see a benefit to a coordinated, centralized back-office operation, although this might introduce licensing problems across state lines (another good reason to do away with licensing). In any case, I am grateful to everyone who fingered these posts by email, but I don’t think I have anything to add to the discussion.
In comments here yesterday, Kelman said, “At Redfin, we would prefer it if both buyers’ agents and sellers’ agents each charged a fee.” That would be much easier to effect if the commissions were divorced, a topic I definitely am interested in taking up again — and again.
In the meantime, give a look to Kelman’s post at Guy Kawasaki’s blog. It’s a fascinating glimpse into a side of real estate most of us don’t have to think about.
Technorati Tags: blogging, real estate, real estate marketing, Redfin.com
Brian Brady says:
I’m surpisingly rooting for Glenn.
October 1, 2007 — 10:36 pm
Agent Scoreboard says:
wtf?
Those are the most bizarre set of metrics I’ve seen in my life. I’ve built and sold two technology companies, and never thought of a metric of rent per employee? There is not one metric there that I would think to run a business on.
I remember I met carl karcher once at a YPO event, he told me and some other people at the table on how he grew his business, he bought one hot dog cart, made it profitable, then he made it more profitable, then he bought another hot dog cart. He said he didn’t borrow a dollar from the bank until he had 14 stores and was generating about $2M in 1950s revenue. He said keep a card in his wallet with the weekly revenue and payroll numbers, his “golden ratio” for almost 40 years.
Glenn’s outline seems like a recipe for failure. Most of their $$ are tied up in human capital, lots of it focused, it would seem on building technology, which is amazing, I can’t imagine what they are building? Most of the systems to run any kind of real estate company already exist.
I’m all for choice in real estate but I don’t see how you scale and gain market share on that model… real estate its a numbers game, 1000 agents in a market beats 100 any day, even if only 100 out of a 1000 are making any money the other 900 are talking about your brand.
The math is hard to comprehend; some metrics I would be focusing on are the acquisition cost of a client, revenue/expense per transaction, and revenue/ebit per employee. That’s just me.
Wow if the fin’s aspiration is to be @ $100M and go public, I can’t believe a VC would go for that, what could be the multiple on that? Lets say they hit a homerun and can do 5% net on that, @ 40x that’s only $200M. Just seems very unlikely, since ZIPR cant do that with 2x the revenue per transaction.
The only thing I could say is perfect your hot dog cart in one market, make money and buy another.
October 1, 2007 — 11:40 pm
Thomas Johnson says:
I may be stoopid, but this looks like voodoo economics to me. Redfin’s goal is 100 million in GCI(gross commission income) which implies 2.8 billion of transactions if they were a 1099 broker(traditional?), using Cendant’s 2.8% commission to gross rough rule of thumb for acquisitions.
Redfin charges 1% on the buy side and a flat fee on the listing side. In their high cost markets, maybe .5% or less for a listing. Can Redfin transact 8-12 billion in annual real estate transactions to hit that 100 mill. revenue goal? Or, am I missing another heretofore disclosed revenue source that is non-real estate related?
How does Redfin motivate a salaried agent to crank those kind of volumes with less than 1% commission revenue available to pay the agents plus all the corporate overhead?
October 2, 2007 — 12:49 am
Agent Scoreboard says:
Tom… your math is wrong… its 3.6B = 100M in GCI @ 2.8% but your point is valid.
Its even weirder if you do the math the other way. In RFs example on their website they have a $500k home and their gross commission is $5k, 1% (sell side is only $3k, so lets assume the best) they would have to sell 20K 500k homes @ 5K a pop to get to 100M thats about 1600 units a month. If there is roughly 5M transactions a year in the us that about .5% US market share. Wow, talk about keeping your market share projections realistic. Help-U-Sell, Assist-2-Sell and all the other flat fee guys rolled in a ball only have about 5% of the market after 30 years and 2000 offices.
Their going to do with “good seo”? Does this this not make sense to anyone else?
October 2, 2007 — 8:41 am
Sandy says:
Hey–my first ever link from the Bloodhound! Cool!
October 2, 2007 — 8:03 pm
Thomas Johnson says:
Tom… your math is wrong… its 3.6B = 100M in GCI @ 2.8% but your point is valid.
Damn! My calculator only has a 6% button.;-)
October 2, 2007 — 10:49 pm
Glenn Kelman says:
Hey Greg, yes! It’s true that Peter caught me off guard. Developers report numbers quarterly, but it seems like the effect is most pronounced in the 4th quarter, a year-end and a quarter-end. I was thinking at the time, WWGD? What would you have said?
As for our model, I agree that taking on staff in advance of revenues is not for the faint of heart. It puts an awful lot of pressure on us to grow very quickly.
October 4, 2007 — 11:57 am