by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Glenn Kelman appeared on NBC. This time, he wasn’t the smartest kid in the class; he imitated Tom Bodett. Greg points out the “Duh” factor in the most recent Redfin Revelation:
Here’s real justice: Someday, an actual reporter is going turn to Kelman and say, “Glenn, you’re the expert. How do you set up a lease-purchase so the buyer doesn’t get screwed? What’s the best way to do seller financing — a contract-for-deed or a carryback? Under what circumstances should a buyer consider waiving inspections?” Just keep on smiling, Glenn. You’re asking for it, and you’re going to get it.
Here’s the problem (to quote Jeff Brown):
They don’t know what they don’t know (the public).
Kelmann is taking the Bodett approach to selling the Redfin USP. Instead of appearing as the bright boy with a rebel streak, he’s approaching this with a folksy twist. The message he’s sending the consumer is compelling:
“Aw Shucks! You don’t need no high fallutin’ REALTOR to sell your house. Just list it on craigslist.org…and leave the light on fer me. A professional REALTOR is a luxury; who can afford that?”
Right or wrong, dangerous advice or not, that message resonates with folks, who are facing the wrath of Countrywide, when they short sell their home. Why pay for sumthin’ that you don’t really need?
Even more astonishing is the trade union’s endorsement of his message. It’s like the Ritz Carlton endorsing Motel 6. (Hat tip to Jeff Kempe)
Redfin will fail. We all know that you can’t exist by selling widgets below the manufacturing cost of a widget. There are only so many investors who will fall for the internet start-up math before A Wall Street analyst cries foul. Their demise, however, should serve as a case study for how NOT to respond to the Trojan Horse.
Lenn Harley says:
Mmmmm. I did comment. Was I dumped???
December 15, 2007 — 7:11 am
Greg Swann says:
Commented where? Here? Nothing of yours was caught by the moderation bot. It’s always possible to be a false positive in the spam bot, but I try to catch all those.
December 15, 2007 — 7:38 am
Lenn Harley says:
Folksy doesn’t sell real estate services to buyers and sellers. It sells pro-forma financials to venture capitalists.
Redfin is a fringe and Kelmann has no real estate brokerage experience. The “trade union”, NAR that endorsed the “7 tips” is the same that is posting flyers advising that it’s a good time to invest in real estate. Not necessarily buy real estate to live in, but as an investment.
Fringes come and go. Real estate brokerage lasts.
Redfin is a fringe Internet experiment. Folks who rely on their advice and services deserve what they get.
December 15, 2007 — 8:01 am
Ken Montville says:
I find it phenomenal that NAR would post anything from Redfin no matter how obvious it may be. I thought NAR was after them for misuse of the MLS data. Maybe that’s just something I heard.
And yeah, folksy is cute (witness the Fred Thompson presidential campaign) but it won’t win.
December 15, 2007 — 8:22 am
Jeff Kempe says:
Brian, your Bodett description is so very, very perfect. But this is a case where the clip is even worse than the description. I had it sent to me by a client, one I dealy love but who I think, like so many others, hears “science” and buys into the Kelman shtick.
Here it is.
Unchained can’t come too soon…
December 15, 2007 — 9:17 am
Kevin Boer says:
I don’t know about this. There is no doubt that Kelman might be a better CEO of a real estate brokerage if he had actual in-the-trenches brokerage experience transacting real estate. However…
a) Does the CEO of Proctor & Gamble need to know the chemical formula for dishwashing liquid? Does the CEO of Merrill Lynch need to have an informed opinion about whether stock X or stock Y is a better pick? Does the CEO of Walmart need to know which brand of detergent is on sale this week?
Kelman’s job is not transacting real estate; it’s managing a company that transacts real estate. Those are two vastly different jobs.
b) Talk to some 30-year veteran brokers in this business, who cut their teeth in the trenches of real estate transactions. While some of them are good, many of them are ossified old fossils in terms of how they think about the business. Sure, they might know the answer to the questions “What’s the best way to do seller financing — a contract-for-deed or a carryback?” But these same folks give you the deer-in-headlights look when you ask them about the value of advertising in Craigslist.
It’s not clear to me that in-the-trenches experience is always a pre-requisite for success; in many cases, I’d say it simply narrows a CEO’s vision.
December 15, 2007 — 10:11 am
Brian Brady says:
Kevin, actually the answers to your questions, “Most probably”.
Ken Lafley spent 15 years as a Brand Manager and GM in the laundry detergent division.
John Thain is probably a better than average stock picker.
I doubt that Lee Scott knows which discounts are in which stores but he has a history of banging suppliers on the head so I’ll bet he has a pretty good idea where he wants those discounts to be.
Here’s what those CEOs DON’T say:
“We just mixed it all up and, WOW! It cleans grease”
“We just throw darts at a board”
“Discounts are easy, just ask for them”
What Glenn Kelman is doing is nothing short of brilliant. By trivializing the REALTORs role, he diminishes their value in the consumers’ eyes. Charles Schwab did the same thing in securities brokerage. He started his model with a “you do all the work, we give you discounts” approach. He morphed into a full-service securities firm and eventually abandoned the discount USP.
The Redfin.com USP is based upon theft; theft of service. It takes a fee for service (the co-brokerage fee) without fulfilling the duties required to earn that fee. If we follow Jeff and Greg’s advice about divorcing the commission, Redfin will be bankrupt in 6-8 months.
The NAR should be promoting the value of its memberships’ USP not diminishing it by applauding the trivialization of a REALTOR’s duties.
December 15, 2007 — 11:41 am
Jeff Kempe says:
Kevin, a couple things to add to what Brian said:
All the companies you mentioned are mature, with top down management familiar with every nuance pertaining to their division. It is possible to bring in an outsider in those cases to handle numbers and strategy, but not without significant input.
For a start-up can’t be done, especially when, as is the case with Redfin, Kelman has surrounded himself only with other computer people and the odd agents who felt they were making too much in full-service jobs. He has little or no expertise from which to draw.
There’s a shoe related parallel. I think I’ve mentioned it before but it relates perfectly: In the early nineties an entrepreneur came up with the idea to market a line of shoes made entirely out of recycled materials. In spite of the fact that she knew absolutely nothing about the shoe business, she was a good salesman and made an impact in the MSM. Venture capital was raised. The department stores bought into it. Ads were run. The only downsides were that the shoes themselves were unbelievably ugly, fit like socks on a rooster and, because new materials were being used and no one bothered to test adhesives, fell apart. She was out of business after two seasons. (Redfin will be out of business in a year as well.)
The other problem, of course, is that Kelman presents himself as an expert. That’s how he gets on Sixty Minutes and the Today show.
As to the old guard that doesn’t use Craigslist, couldn’t agree more. But look to leadership: our lobbying arm just thought it was worth cribbing Redfin’s ideas, ideas that any competent first year agent should know.
December 15, 2007 — 2:41 pm
Lenore says:
Redfin is in the business of getting capital from the VC’s so they can keep the lights on, and that takes face time somewhere, either in front of them or in the press. I bet Redfin pays very big bucks to the PR firm to place Kalman in front of the camera of national TV. Who watches these shows? Saturday morning Today Show? Do you? Do you know anyone who does? If you have kids they have the TV, and if you don’t have kids, is it on to NBC? As for CBS and 60 Minutes their demo is 55+ and that demo isn’t tech saavy. Refin has a business model that appeals to the young buyer and if they want to do all of the leg work and then try to figure out what they need to do to make sure they don’t find themselves in litigation with the seller or worse yet, the agency that “represented” them in their transacgtion who may, or may not be around when they need them so be it. I have only run into one couple who said they were using Redfin. Most people have no idea who they are and I’m in Silicon Valley!
December 15, 2007 — 5:52 pm
James Hsu says:
Kelman is simply doing what he is paid to do. Make his company look like they’re the experts to draw more people in. What I have a problem with is this (and I think I saw someone mention it but I can’t find it right now). Kelman bases his tips on their own web logs, which is a miniscule amount of the overall real estate web traffic. ..remember when Redfin tried to assert that their agents were better than everyone else based on a tiny percent of the area’s transactions …this is the same thing. They have a tiny percentage of the overall real estate web traffic and now they’re getting on national tv shows pitching what they learned from their itty bitty corner of the market.
Check out http://www.compete.com
enter in zillow.com, trulia.com and redfin.com
Play around with some of the metrics, but they all show a staggering reality. Redfin traffic is peanuts compared to other national real estate website. One thing it does show in Redfin’s favor is traffic to their site is growing. And that’s what Kelman is paid to do…drive people to their site.
Now… all of us can debate about the tactics used by Redfin, ..but not in this thread.
December 16, 2007 — 1:02 am
Marlow says:
“It is not nice to be a scab.”
–Jack London
http://london.sonoma.edu/Writings/WarOfTheClasses/scab.html
December 16, 2007 — 10:37 am
Glenn Kelman says:
I agree with all of you. I would be a better CEO if I knew more about the real estate industry. We have been open about our heritage as software experts rather than real estate experts. And I am learning as quickly as I can. I have many weaknesses, but not being hands on isn’t one of them.
And we could argue over whether Internet expertise is also valuable in a real estate executive but what matters most to a company’s culture and its brand are its values. At Redfin these values are a stop-the-world commitment to the customer, radical openness about about all the information we can share with the consumer, and an eagerness to learn always how we can deliver better results. My first job at Redfin is to promote and respect these values. Probably many contributors to this blog share those values.
Of course, Redfin is not me. Redfin is a team of software and real estate experts. Part of the exercise we just went through was a joint effort between those two groups to learn how we can improve as a real estate brokerage. We have made plenty of mistakes, but I have yet to see a client who suffered because of our lack of real estate expertise; every day, clients benefit from our real estate expertise.
Our goal is to have the best trained agents in the industry. We must be one of the only brokerages with mandatory agent training sessions every month, with a knowledge-base for agents to share information and best practices, with detailed customer satisfaction surveys distributed to every agent twice a month.
For those of you predicting Redfin’s failure, could you provide a date? Of course it’s possible that we could fail, but it seems unfair for you to project so much certainty about our failure without making that claim testable. If we were still in business in 2010, would you still be saying our failure is inevitable? What about 2009? Or 2011?
Finally, we’ve already acknowledged that our data set is not a perfect cross-section of all real estate web traffic, but the size of the sample is still statistically significant by a wide margin. Since we have grown carefully, launching the site in only seven markets, comparing our traffic to ad-driven national real estate websites may not be as useful as comparing us to other Seattle-based brokerage sites, particularly since the former make money by maximizing the number of pages each visitor sees.
December 16, 2007 — 8:40 pm
Brian Brady says:
“For those of you predicting Redfin’s failure, could you provide a date? Of course it’s possible that we could fail, but it seems unfair for you to project so much certainty about our failure without making that claim testable”
I can give you a pretty good guess, Glenn, if I knew your burn rate and cash position.
There is only one marketing channel that makes sense for your model; I suggested it on your post on Guy Kawasaki’s blog. Exploit that channel and you have a better than average chance at success.
Are you coming to the Unchained Conference, Glenn? While I think you’re USP is disingenuous, you’re marketing strategy is right in line with what we’re exploring at Unchained.
December 16, 2007 — 9:44 pm
Lenn Harley says:
I would suggest that the reason the Redfin models remain “fringe” is because they offer assistance to the consumer for the easiest and most measurable segment of our industry, finding a house.
Experienced agents and brokers know that it doesn’t take a Rhodes Scholar to search listings and identify a house to buy. It’s at that time that the consumer needs good counsel for market information, contract management, inspection management, title services management and many more duties performed WELL by experienced agents.
Redfin has focused on dumbing down the agents’ services to a point where the consumer is literally “staked out” trying to do what it takes seasoned agents years of hands on experienced to perform.
Bragging rights does not convey for “monthly mandatory training”. That’s woefully insufficient for today’s complicated real estate market place.
When the value of true buyer and seller representation and risk management is measured by the fee to the consumer, the consumer gets what they pay for, nothing more.
December 17, 2007 — 5:08 am
Jeff Kempe says:
Glenn …
January 1, 2009. I would have said longer – perhaps another year – but in this market people tend toward the proven, as I suspect you’re finding.
No one quarrels with your commitment to the customer and your desire to have the best agents in the business.
But desire doesn’t automatically translate into reality, and if “Don’t price a home too high” is the best you can do, you have a lot of catching up to do.
But my biggest problem, and suspect the problem of others as well, has nothing to do with your faulty business model or competence of your agents. It has to do with the fact that you’re selling yourself on my back. It’s the marketing approach that assumes that pulling yourself up and bringing others down is somehow synonymous.
“Forget everything your agent taught you”? That’s push-polling at its most overt, but a nice follow-up to the venal overpaid agent stereotype delivered on Sixty-Minutes.
When Redfin disppears, you’ll find another startup and, if you ever lock into something on which you or your partners have a solid handle, will be a monster success. You’re good, very good.
But when Redfin disappears we’ll still be dusting off our reputations in its wake.
Let me reiterate Brian’s invitation to Unchained. Sincerely, I’d love to meet you.
December 17, 2007 — 9:29 am
Kaye Thomas says:
The biggest problem that I see with Redfin is that they literally use the work of others and try to pass it off as their own..
The 7 Points are a great example.. is there anything new here.. No.. #1.. Don’t over price your home..However did they come up with such an amazing and earth shattering idea.. I especially like the part about how traditional agents overprice homes to make big commissions..overprice a home and the only thing an agent will get is a very large bill for advertising..
The other 6 points are equally inane. Read any good agent’s blog and you will find those 7 points plus a few more that actually offer good advice to consumers. I’m tired of being labeled as stupid and greedy by a company that blatantly wants to be paid a full fee for not doing the job they are supposed to do to earn their pay.
December 22, 2007 — 8:56 pm