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Redfin and the antics of the INTx crowd . . .

By my lights, one of the most interesting bits of news to come out of Inman Connect was Redfin’s announcement that they plan to swim into Boston Harbor. Washington State has reasonably normal wild-West real estate laws, as does California. The natural leap, in terms of maintaining a decent level of sanity over legal compliance, would be to migrate to nearby states — Nevada and Arizona leap to mind.

There is a problem with this idea, though. The median home price in Phoenix is around $260,000. In Las Vegas, the median is around $300,000. If Redfin proposes to give back two-thirds of a $9,000 commission, there is a word for what’s left: Doodly.

Unlike a true bottom-feeder, Redfin has encysted itself with a boatload of dead-heading barnacles. This is why it keeps trying to grow into luxury markets: The company needs one third of a bigger commission bite even to make a pretense at covering its inflated payroll.

Kris Berg points out today that this is a less than brilliant strategy, inasmuch as buyers and sellers of luxury homes are busy people who have the money to pay for the kind of roll-out-the-red-carpet service they have come to expect. “We do nothing for less” is not a winning value proposition, generally speaking, among prosperous people.

There is an exception to this rule, however. Kris hints at it by suggesting that younger people might be attracted to Redfin. They might, but few of them are buying or selling at the $500,000 level and above. Redfin actually sends a stronger hint by announcing their plans to jump to Boston.

A couple of months ago, I was on the phone with Galen Ward. He suggested to me that, while Redfin’s approach to the marketplace was only popular with hi-tech Seattlites for now, eventually they would be seen as early-adopters and the business model would meet broad acceptance in the marketplace. This is a colorable proposition, I suppose.

Just after Inman, I mentioned on Rain City Guide that I thought Move, Inc’s. Alan Dalton had mopped up Redfin’s Glenn Kelman in their debate. The example I offered was this: If you buy a $1,000,000 home with Redfin, they will rebate $20,000 to you. If you buy with a full-service Realtor, you may not get a commission rebate, but your agent may negotiate a $50,000 or $100,000 savings on the purchase price.

There is no way to know this with respect to a hypothetical example, but since Redfin is not doing anything that a full-service Realtor would see as the duties of agency, it seems plausible to me that the Redfin value proposition is awful, compared to full-service real estate. And note that we are not even taking account of all the other tasks a full-service Realtor will undertake that Redfin seeks to avoid. Redfin may be “paying” you $20,000 to take care of yourself, but this assumes that you know how to take care of yourself. In a difficult transaction, a full-service Realtor is often the difference between the deal collapsing or closing.

The interesting thing, to me, was that people couldn’t see the difference. A two percent rebate really isn’t a lot of money, where a dedicated, hard-working Realtor can deliver far more than two percent in value to a real estate transaction.

All of this got me thinking about the INTJ and INTP personality profiles in the Myers-Briggs personality assessment. INTJ is introverted, intuitive, thinking, judging. INTP is introverted, intuitive, thinking, perceiving. It’s unfair to stereotype people, but INTJs are often found in software engineering jobs. INTPs are often mathematicians. INTJs and INTPs represent a very small part of the total population, but a very large part of the inventive and creative functions of a free-market economy. The poster child for the INTx corner of the personality matrix is Bill Gates.

But: All purposive human behavior is chosen. People who test out as INTx are gifted by nature with strong analytical and mathematical skills, but the social ineptitude we associate with “nerds” is learned behavior. INTx children are rejected by more-extroverted children at the same time as they tend to gravitate to children who exhibit a similar kind of awkward genius. Human social organization is always about inclusion and exclusion, but, by excluding more socially-adept people from their sphere of influence, INTx children tend to self-reinforce their social ineptitude. This is a correctable nuisance, but, in the normal course of human affairs, most people do not stray very far from their comfortable habits of mind.

I think Redfin’s business model is built to appeal to INTx personalities. Yes, as Galen Ward says, tech types love it. But, no, they are not the leading edge of a wave. Instead, they are the only people for whom $20,000 in the hand is more impressive than a potential for $50,000 or $100,000 in the bush — or more impressive than having the whole complicated mess taken care of by someone else.

And by announcing their intention to go to Boston, I think Redfin is making plain that they know their ideal client is an INTx. They need to operate in cities where homes sell for a lot of money. But they also need to locate in cities where a significant proportion of high-income people are INTJs or INTPs. The real estate laws could not be more radically different, at the opposite ends of the I-90. But, in terms of personalities, the region inside the I-495 Beltway looks a whole lot like Bellingham.

And thinking about it that way, Redfin might actually work. It’s a boutique brokerage, no matter how many offices they open. Dave Liniger can rest easy. But there’s a niche-marketer for every niche, and this just might be theirs.

Disclosures: I. Just because I write about Redfin or Zillow or whatever, this doesn’t imply that I hate or fear them. I write about what is interesting to me. I realized earlier this month that Redfin must be consciously marketing to INTJs and INTPs, and I thought that was intriguing.

II. I wrote at length in the last quarter of 2006 about a flat-fee buyer’s agency business model. We have officially abandoned this. Why? Because, whether or not INTx personalities care, no one else does. Buyers simply do not believe they are paying commissions — no matter how much we try to explain that they are — so they are supremely indifferent to commission rebates. Instead of marketing rebated commissions, we have gone back to using our sales commission to solve problems as they arise. I will write more about this later.

III. Cathy tests out as an INTP. I come up as an ISTP. In comments, feel free to expose your Myers-Briggs profile.

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  • 26 comments

    26 Comments so far

    1. Ray Nellum January 30th, 2007 4:31 pm

      Blogging…Can It Change Your Real Estate Business?

      We in the Real Estate Industry have used: newspapers, open houses, newsletters, real estate magazines,

    2. Kris Berg January 30th, 2007 5:13 pm

      ESTP – I guess you won’t be having me to dinner any time soon.

    3. Kris Berg January 30th, 2007 5:18 pm

      G- By the way, sounds like you might have missed the link I threw in to Steve’s article shortly posting. He is right there with you in your belief that the business plan, in large part, is about following the money.

    4. Greg Swann January 30th, 2007 5:25 pm

      > ESTP – I guess you won’t be having me to dinner any time soon.

      I’m right on the border of being an ESTJ, which makes much more sense to me. I’m a solid 3 on the Enneagram.

      > By the way, sounds like you might have missed the link I threw in to Steve’s article shortly posting. He is right there with you in your belief that the business plan, in large part, is about following the money.

      I saw it afterward. Right on the money, as it were.

    5. Galen January 30th, 2007 6:31 pm

      Greg, did I really say that so specifically? Perhaps I was playing devil’s advocate.

      I really do believe that the new techie things that techie geeks find interesting (blogs) or annoying (spam) often “trickle down” to the less techie geeks in time, although some things (Segways) never make the leap.

      In the case of commission discounters, I believe there is definitely a piece of the pie for them (Zip et al). The problem with commission discounters is that they end up discounting too much in the way of service and choice. In the case of service discounters, the pie may be considerably smaller.

    6. Greg Swann January 30th, 2007 6:41 pm

      > Greg, did I really say that so specifically? Perhaps I was playing devil’s advocate.

      That’s always the curse of wetware memory. By now, I would have immortalized your every word on my 2GB phone.

    7. CJ, Broker in L A, CA January 30th, 2007 7:41 pm

      There’s a Myers-Briggs test here: http://www.humanmetrics.com/cgi-win/JTypes1.htm – in case anyone’s looking. (I hate having to choose between yes/no answers on these things! I need “sometimes”, “maybe”, and if “x” then “z”)

      I wasn’t sure what to think about scoring as INTJ — but I’m pleased to find that is the same category as Ayn Rand http://keirsey.com/personality/nt.html

    8. Greg Swann January 30th, 2007 7:56 pm

      > There’s a Myers-Briggs test here: http://www.humanmetrics.com/cgi-win/JTypes1.htm – in case anyone’s looking.

      I got INTJ on that one, too. The one I cited in the post uses a 1-5 scale, which helps with the gray areas.

    9. Peter Comitini January 30th, 2007 8:49 pm

      All this is fun (I’m a ENFP on the survey), but it really is sort of beside the point. IMHO, luxury clients understand what it takes to make money and motivate the marketplace. They are very willing to pay for higher levels of service, if the value proposition is clear. Full service real estate firms and their trade organizations, need to to a much better job at that. How can full service brokers raise the bar on service to customers is the real question. Get Redfin and the others, to jump over that bar, instead of lowering it to theirs.

      The attempts to dis-intermediate brokers has been going on since the 1990s when I was a tech consultant myself. I went in the other direction. After the tech bubble burst, I found that real estate investment and full service brokerage paid a lot better than enthusiastically selling unproven business models to venture capitalists. They tire pretty quickly, especially on mediocre returns. If I were an investor in Redfin I might wake up one day and realize that it is really my money that’s being rebated, and we are destined to be a niche player, if we survive. It’s hard to understand how a business model that appeals to the bottom feeders, and is based solely on reducing it’s own profits, will ever succeed. It’s a hard sell on Wall Street.

      also see http://www.comitini.com/2006/09/i_sell_real_estate_now.php

    10. Switters January 30th, 2007 11:55 pm

      Greg,

      Does anyone actually have any figures via the MLS proving that Redfin buyers are paying more/less for homes compared to buyers working with ‘traditional’ brokerages?

      I think that was an ignorant assumption on Mr. Dalton’s behalf and I am surprised that other agents and real estate enthusiasts have clung to this argument without checking facts.

      Yours truly,

      Switters, a proud INTJ

    11. Brian Brady January 31st, 2007 9:36 am

      ENFJ here which means I’ll probably appreciate an agent who takes me to a baseball game and explains the process between innings in a concise but conceptual manner.

      Of course, that game may cost me some $10K but I understand the value of the expertise that comes along with it.

      Very fun test and good observations, Greg.

    12. KANDYKANE January 31st, 2007 10:06 am

      “If you buy a $1,000,000 home with Redfin, they will rebate $20,000 to you. If you buy with a full-service Realtor, you may not get a commission rebate, but your agent may negotiate a $50,000 or $100,000 savings on the purchase price.”

      Sure, keep telling yourself and while you’re at it, you’ll be talking yourself out of a job. Most agents couldn’t negotiate their ways out of a paper bag, let alone talk a seller into parting with $100K less than planned. Be real. I will concede that there are some GOOD brokers out there. The multitudes, however, are terrible. I’ll take the rebate, thanks very much. One other thing – don’t assume Redfin does nothing for nothing. Friend of mine just got thru with their service and LOVED it. Said it was just fine.

    13. Craig Blackmon January 31st, 2007 11:34 am

      Well, it appears that even the “full service” agents are overcharging just a wee bit. It turns out that a successful agent must rebate nearly $69,000 a year to clients in order to charge a “fair” fee for the service. With this sort of transparency, I’m not sure Redfin has such a poor business model — at least they overcharge less.

    14. Jeff Brown January 31st, 2007 1:38 pm

      KANDYKANE – In the last 18 months I’ve had two clients who thought they knew better than I. It cost one $1.MILK and the other over $2.5MIL. Respectfully, they disagree with your take.

      If you can’t find a competent agent that’s on you. Figure it out. You literally have no idea how much you’ve cost yourself already.

      Greg – ENTP which is only 3.2% of the population? Does that mean everybody’s been right all this time, calling me a freak? :)

      Insightful post to say the least.

      Brian – It won’t be that expensive. :) See you in Peoria.

    15. David G from Zillow.com January 31st, 2007 5:39 pm

      ENTP here; Jeff, you’re not totally alone (but that doesn’t mean you’re not a freak).

      I know this is hardly a significant sample but I’m surprised the E’s outnumber the I’s — both in these comments and in this industry?

    16. David G from Zillow.com January 31st, 2007 5:40 pm

      … meant to say …

      “surprised the I’s outnumber the E’s”

    17. Greg Swann January 31st, 2007 5:46 pm

      > “surprised the I’s outnumber the E’s”

      I used to be much stronger on I, but I’ve worked for many years on becoming a sales monster. If I don’t test out at ISTP/INTJ, then I come in at ESTJ.

      As for the I’s outnumbering, weblogging salespeople are the geek minority among salepeople. I would expect most successful salespeople to be very strong E’s.

    18. Charleston real estate blog February 1st, 2007 6:32 am

      ENFJ for me, but blogging has a social networking component so it works for e’s as well. One trait in the analysis of this type indicates buying at a bargain and selling high, lots of sellers these days must be enfj :)

    19. Mike Thoman February 1st, 2007 11:48 am

      An interesting post, at the very least for the Myers-Briggs test! It’s been several years since I’ve done a personality evaluation. I’m an ISTP, although very close to an ISTJ (“Trustee”)…

      ISTP – “Engineer”. Values freedom of action and following interests and impulses. Independent, concise in speech, master of tools. 5.4% of total population.

      Is it surprising then that I’m an engineer by profession???

      > “surprised the I’s outnumber the E’s”

      Perhaps at first glance, but this is an innovator/early adopter crowd, isn’t it? I think it makes sense in that light.

      Should we be worried that David G.’s (from Zillow) and JB’s preferred professions are dictator, international spy, and assassin???

      Mike

    20. Kevin Boer February 1st, 2007 5:34 pm

      Here in the heart of high-priced INTx-land (Silicon Valley), I think there’s more than enough business to keep Redfin going for a long, long time. They’ll never become Coldwell Banker, but that’s fine.

      And let’s not assume that Redfin will always and only be a discounter. They may do a Charles Schwab and move upmarket with their existing client base.

      If they have plans to do that, however, they’ll need to start branding themselves a bit differently, and indeed it seems they have done so. The whole “discount” bit isn’t even on their home page anymore; now the main message is, “Find, Buy, and Sell Homes Online.” That message appeals to INTx’ers whether they’re buying their first home, an $800K 3/2 starter, or their fourth one, a $4.5M Atherton mansion, with their start-up riches.

    21. [...] Greg Swann has previously pointed out that Redfin’s target markets are high-priced INTx-heavy metro areas – translated, for those of us not familiar with Myers-Briggs personality profiles, as high-priced markets with lots of geeky, web-savvy, technical, analytically-minded people. Why high-priced? Because when you take home only 1% of the purchase price as your commission, you have to sell expensive homes to make it worth your while. Why geeky, web-savvy, and so forth? Because grandpa and grandma, or even mom and dad, ain’t gonna be buying real estate online definitely won’t be buying real estate online. [...]

    22. Jimmy February 10th, 2007 8:13 am

      Stumbled on this post because I’m an INTJ closing a house with Redfin this week. (And I’m living in Boston now, moving to SF to further legitimize Greg’s point.)

      It’s been very smooth and the agent has been awesome and very helpful, even setting up a special viewing appointment for me at an odd hour. I tried a traditional agent before and the only thing different is that I’m not riding in that agent’s Porsche SUV this time.

      As an INTJ, I did not go with Redfin because I prefer $20k in hand vs. $50-100k in the bush. The analytical part of me realizes that a properly-priced home (you know if you do your research) will not go far below asking.

      My Redfin agent got us the place for 1% below asking — with the Redfin rebate, that’s nearly 3% below asking.

      There was actually an offer ahead of us for 2% below asking and that (traditional) agent couldn’t seal the deal.

      So I got the best price possible on the house we wanted, with great service.

      I’m now loyal to Redfin and recommending them to others, so I hope they find a way to make money.

    23. Greg Swann February 10th, 2007 10:19 am

      Very interesting, Jimmy. Thanks for coming!

      FWIW, the overwhelming majority of people like and refer business to their own Realtor. This is not as odd as it might at first seem: We tend to do business with people we like in the first place.

      Good luck in your new home!

    24. Thomas February 10th, 2007 7:50 pm

      is it just me, or does Jimmy sound like he’s written professional PR before?

    25. Greg Swann February 10th, 2007 8:13 pm

      > is it just me, or does Jimmy sound like he’s written professional PR before?

      It sounded genuine to me. We’ve had a Redfin sock-puppet before — “Simon”. He was stone obvious.

    26. Brian Brady February 10th, 2007 11:46 pm

      KannyKane forgot to leave his profile