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If Bill Clinton ran Redfin.com . . .

Of the two “innovative” cowbird brokerages discussed in this morning’s New York Times, the stronger of the two is BuySideInc.com. They’re rebating even more of the buyer’s agent’s commission than is Redfin.com, but their actual profit center is in originating the loan — a well-understood, fast, cheap, office-job function. Even this is not without complicating factors, especially RESPA. But in pure dollars, BuySideInc.com will make more money per buyer than Redfin.com.

But if Redfin.com really wanted to isolate traditional listing agents, they would triangulate Clinton-style. Instead of giving two-thirds of the buyer’s agent’s commission to the buyer, they would give one-third each to both the buyer and the seller. That way, the seller would regard Redfin.com not just as another source of buyers but as a potential small windfall at close of escrow. The interests of buyer, seller, and Redfin.com would coincide, at least to that extent, and the listing agent would feel a very strong pressure to get his own ass on board.

I still think Redfin.com is not earning its commissions, using the standards of procuring cause that would apply to any other brokerage, but a strategy like this would be much more effective, in the long run, at getting away with it than whining to the New York Times

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  • 5 comments

    5 Comments so far

    1. Glenn Kelman September 4th, 2006 4:15 pm

      Thanks for this thoughtful comment Greg. Many Redfin customers decide to refund part of the commission to the seller, but this is their choice: the money we refund is theirs, so the choice is theirs. Regards, Glenn

    2. Greg Swann September 4th, 2006 5:54 pm

      There we go! Truliamazing, times two!

      > the money we refund is theirs, so the choice is theirs.

      I agree with this, of course, but I wonder if you would be willing to address the larger issues I have raised here and here (and elsewhere for that matter).

      I believe as an Arizona State licensed real estate broker that Redfin.com’s (and BuySideInc.com’s) policy of sending buyers unattended to listed homes is an abandonment of agency, a clear break in the chain of representation. Your company in particular has proved very successful at portraying reluctant listing agents as the bad guys, but, in fact, I believe that cooperative effort is the reason that listing agents recommend that sellers provide compensation for cooperating brokers. You are certainly free to do as you choose with your earned commissions, but my argument would be that you have not earned them by any standard of procuring cause that would be applied to any other real estate brokerage. Can you defend your company’s representation of its clients and therefore defend its having earned the commissions it has disbursed?

      Another way of asking the same queston: How much commission would Redfin.com have earned if it sent a client unattended to a new home subdivision?

      All that having been said, I think you will get away with what you are doing. But if you do, it seems very reasonable that listing agents will either stop offering co-broke commissions altogether or will condition those commissions on true cooperative effort. No doubt the New York Times will deem this unfair, but in fact the sales price of the home will be lower than it would have been if compensation for a buyer’s agent were to be included in the price. The problem with this is — and the reason that, even in the age of buyer brokerage, sellers and not buyers set aside the funds to compensate the agents — is that very often buyers either have no cash or insufficient cash to pay for their own representation out of pocket. It is completely correct to say that compensation for the agents is a sleight of hand effected with the conviviance of the lender, but it is unlikely that lenders will roll the buyer’s agent’s compensation into the loan as a separate line item. The net consequence, in the long run, would be that many buyers will have no representation at all. Do you dispute this?

      My take, Mr. Kelman — and I think you have a lot of guts for speaking up here — is that you have identified the critical weakness in the so-called “culture of cooperation.” By diverting the costs, the liability (and as Marlow Harris point out, the physical risks) of buyer representation to the listing agent, you generate a cost savings on your end that you can pass along to the buyer. Unfortunately, by diverting those costs to the listing agent — most especially the doubled legal liability — you induce listing agents to withhold offers of cooperation. The ultimate Tragedy of the Commons is not that one cow (or one cowbird) overgrazes the land, but that the Commons is sold and enclosed by walls. This may not actually net out to be a bad thing overall, but it’s a bad thing for buyers, who need conscientious representation more than sellers do.

      If you think I’m wrong, I would be grateful to hear why. I’m not just saying that; almost everything I know I learned by being wrong.

      > Many Redfin customers decide to refund part of the commission to the seller

      This I don’t actually believe. I have seen sellers and buyers to some amazingly nice things for each other, but I have never seen them concede non-negotiated funds in either direction. If you like, someday I’ll buy you a drink and you can try to persuade me that this really happens.

    3. [...] Glenn Kelman, chief executive and broker of Redfin.com posted a comment to one of my entries about that company. I replied to him there, but I’m posting the exchange here, as well, frankly because I consider it Big News. [...]

    4. Greg Swann re: Redfin « Sunny Spot Realty September 4th, 2006 8:49 pm

      [...] Glenn Kelman, chief executive and broker of Redfin.com, posted a comment to one of my entries about that company. I replied to him there, but I’m posting the exchange here, as well, frankly because I consider it Big News. [...]

    5. Nathan September 5th, 2006 6:45 pm

      Greg,
      Let me start buy telling you I’m a real estate broker in Florida. The article in the Times on Redfin is quiet interesting,one thing that was not brought up is Redfin real estate liability to the seller or buyer if there is a problem. In Florida we have different agency hats we wear by law. IE: sellers agent, transaction agent, No agency.Long& short,their client needs to understand that under Florda law the client has no recorse to sue if Redfin has a “No representation” brokerage,because there just selling information and a listing service.

      I have look into setting up an agency like Redfin, but on a local scale. I would take their fees if I had no liability. just enter the data.

      I like to see new systems brake down these “good old boy” clubs. I think some crack are forming, but it takes time.

      Regards,

      Nathan