You just listed all the reasons Redfin (https://www.redfin.com) is killing it. Their value proposition is that their agents aren't paid on commission, they're paid on your satisfaction. Their website is also very data-intensive compared to MLS sites (which create information asymmetry between buyers, sellers, and brokers due to how they're setup).
Otoh, are the very best agents going to work for rf and make less money? Redfin looks like modern KW to me. Most great agents don't want to undersell their own industry. And while there are many markets where a mediocre agent will do, I wouldn't take that chance in sf, la, Nyc, Miami, etc
Oh boy, this is my time to shine. I just left Redfin for a new job and had to explain to my co workers why Redfin is able to offer a lower rate without sacrificing service.
1. Real estate agents spend a lot of time prospecting. In fact, the spend most of their time looking for customers instead of closing deals. The typical work week might be 30 hours of prospecting and 10 hours of actually working on a deal.
2. The Redfin website attracts customers so Redfin agents don't spend anytime prospecting. They only work on deals and are able to generate more revenue. This efficiency funds the customer's rebate.
3. What does "best" mean? It could be someone with a lot of experience and has a strong repeat and referral network so she never has to prospect. Or it could be someone who closes a high volume of high end deals. There are plenty of these agents at Redfin.
4. I've heard some friends complain that Redfin doesn't provide enough handholding for first time buyers. I've also heard that traditional agents can be pushy. I suspect these are two sides of the same coin. I do know that Redfin agents will provide extra handholding if you ask for it.
5. If you show up to a traditional brokerage and want to buy a 200k house then do you think they will send their top agent?
On the other end, someone with a 1~2+ million budget will get the best agent and they will bend over backwards to keep you happy. This is true for Redfin or any traditional brokerage.
6. Because of Redfin, other brokerages have lowered their commission fees too. Yeah for disruption!
Disclosure: I own Redfin stocks. At least I think I do. Their legal department hasn't responded to my email for confirmation yet.
> 5. If you show up to a traditional brokerage and want to buy a 200k house then do you think they will send their top agent? On the other end, someone with a 1~2+ million budget will get the best agent and they will bend over backwards to keep you happy. This is true for Redfin or any traditional brokerage.
Do you actually know what redfin does for a $200k property in a city where that is "inexpensive"?
> Below Minimum Price
> To ensure every client gets the highest level of Redfin service during strong demand, Redfin is currently unable to service this property. Get more details
>
> To learn more or see this home, contact the listing agent directly:
> Jerome Bibuld: 617-642-5456
> Red Tree Real Estate
Yeah, redfin really is beating out traditional brokerages with that response.
Regarding #5, that simply just doesn't make sense. There are "best agents" who spend most of their time buying and selling in homes in the 250K-500K range because they have a knack for doing it efficiently and in volume. It is a huge mistake to think that just because an agent only deals in "luxury homes" that they are a better or more capable agent than one who does volume in lower-priced homes.
As well, buyers and sellers in the luxury market are also more challenging to deal with because of very specific parameters and various exceptions that make doing deals more specialized (i.e. it is more difficult to compare House A to House B when both are $2.5MM each).
Would I use them to sell? Maybe. Would I use them to buy? Most definitely. As mentioned further down in this thread, buyer's agents have every incentive for the buyer to pay as high a price as possible (due to RE commission structure). I want someone earning a fee on my transaction because they got me the best price (as either buyer or seller).
Price of a service can be a form of signaling, but paying more for something does in no way mean you're getting better served.
Real-estate commissions don't incentivize squeezing out a maximum sale price. They incentivize closing the sale over everything else. For example:
Assume 7% commission.
Assume 50/50 buyer/seller agent split.
Assume 40/60 broker agent split.
Assume sale price of $190,000
Buyer agent commission = $3990
Assume market value of $200,000
Difference from market value is $10,000
Total commission $700 on $10000 sale price
Net difference to seller $9300
Net difference to buyer's agent $210
The $210 needs to be discounted for the risk that the higher price will cause the sale not to close or create some other form of opportunity cost.
Depends on the market. In a competitive market, I want my agent to be as dedicated as possible, not one taking a smaller cut. We won a 13-offer bidding war on a financed deal with only a SLIGHTLY higher price than the 2nd place, all-cash offer. anything could have made the difference in the deal, and I'm more than happy to throw another 10k at the agent to have it locked down.
You're right that traditional agents have incentives to get the highest price, but so does a Redfin agent.
It's cool that you liked your agent but in our experience submitting hundreds of offers in SF and LA, 100% of the time we've come in with the highest price at comparable terms (waived inspections in SF) our buyer has won. In our case, we take a smaller cut because we do less upfront shopping/client prospecting work, not because we provide less service in the offer/close process. But at the end of the day, it's really your money doing most of the work, not the dude presenting it.
I don't see how - and anyway, a buyer's agent can be a big waste of money in a lot of markets. Traditional single-family housing transactions aren't that complicated, and a great many buyers could handle one on their own just fine. I applaud _any_ effort to undermine the NAR.
redfin gets more money with a higher price. And there are some homes redfin will not show you at all because the price is too low (and a middle range where they use "partner agents" rather than their own). And I'm not talking your 5-figure houses in suburbia, I'm talking condos in the city of boston. I have a rooftop pool, fitness center, and concierge in my building, but the price I bought my condo in 2014 was too low for redfin. Meanwhile, my buyer's agent from century 21 got 10% knocked off the list price for me, despite list being 75% of what I was willing to spend.
That's an interesting data point, for sure. I've never had a Redfin agent turn down a showing because of price, but there are too many variables involved to read too much into it.
I would just contest the notion that "most great agents don't want to undersell their own industry." Not only does that kind of thinking assumes that compensation and customer service are tightly coupled -- even though "getting more for less" is one of the best working definitions of innovation -- it does a real disservice to the folks who have enough vision to work at a place like Redfin.
What is your definition of "great?" If you're referring to actual outcomes, check out Redfin's agent reviews -- the overall NPS rating blows any other brokerage out of the water, and is comparable to some of the best known consumer brands in the world. Equity compensation, automation of mundane tasks, a real team mentality when the agent next to you is a fellow employed colleague, not an independent contractor who happens to share a split with the same franchise -- these are all reasons a "great" agent might want to work at a place like Redfin.
Finally, many agents realize that the status quo (6% fees and asymmetric information) won't exist forever; it's all the NAR can talk about these days. The most far-sighted among them would rather work at an institution that is embracing and driving change, not resisting it.
All of this also assumes your axiom that Redfin agents are compensated less than traditional agents. Without going into too many details, I can say the opposite is true in most cases.
Can you define what you mean with best agents? My experience from NY is that they are all mostly using Street Easy and getting a fee for something I have already found myself.
Ex StreetEasy dev here (from a long time back). Is this buying or renting? If it is renting then I would agree with you, the market is so commoditized in NYC for renting that the current broker structure doesn't make sense.
For renting yes, buying is different I know. But I can still find many places myself and don't need an agent for that.
The best agents are really "only" good because they know of the good apartments it's not that the actual broker part itself requires some sort of special skills.
There is a reason why everyone who has the funds turn to buying real-estate.
What differentiates real estate agents in terms of "skill"?
It seems like their access to information of products available for sale would be the only useful service a from a real estate company. Of course, granted knowledge of which houses are available, helping the buyer find something they like is important but could this not be done with a google street view type system?
* negotiation (they negotiate tens of deals a year, as opposed to your negotiating one every few years--they should know the ins and outs of all the levers of a real estate contract)
* property valuation/neighborhood knowledge (the school lets out and a crowd of slouching teenagers walks through here every day/this street isn't plowed by the city/etc).
* access to inventory (some agents will have access to extra houses because of past clients)
The agency problem can be dealt with if you have an agent who wants your business and knows that the LTV of a happy customer is higher than the money he can get from putting you in a house you don't want.
The harder problem is selection--buyers/sellers tend to shop on referral or cost because, like any other profession, laymen have a hard time judging competency.
Source: I worked for a real estate brokerage as a software developer for a number of years.
[edit: formatting--geez, when can we get markdown here :) ]
It could. But the last two properties we bought were purchased through an agent before they were listed on MLS. I've discovered that there is a pre-sales lag between properties being put under contract and being listed on MLS. Agents call and find out what hasn't been listed yet. It worked out great for us in the last two purchases. But it may also not be typical.
mooreds answer is spot on. I'd add that experienced agents also know how to spot potential issues when touring houses, what work you should and shouldn't do to prepare your house for sale, and can provide a network of providers to help you close your purchase/sale (lenders, contractors, landscapers, etc.).
I thought I'd also mention the company I work for, HomeLight (www.homelight.com). We're trying to provide transparency into real estate agent performance to help people select agents that will actually provide value to them during a property purchase or sale.
There are over 2 million licensed real estate agents in the US. The average number of transactions per agent per year is under 2. Good agents can provide tremendous value, but finding those gems is really tough, especially when agents, until recently, tried very hard to hide their past performance. Also, a lot of markets don't really require a lot of work from agents. In SF for instance, you can list almost any property and get above asking price for it after one weekend of open houses, but that doesn't hold for other markets, which can make the 5%-7% commission feel like you're being cheated.
When my wife and I were looking for houses in the East Bay (Oakland and Berkeley mostly) our agent was average. She would send us property dumps for the entire city of oakland (we had no interest in east oakland, but she kept sending us properties there) and she didn't respect the way I wanted to communicate with her (email...she called me all the time), and she didn't provide great guidance on what we should offer on properties we were interested in. But, she did a good job showing us properties and pointing out issues, figuring out all the open house times, communicating with other agents, introducing us to a great loan officer, etc. I /could/ have contacted all the listing agents for the 10 properties we wanted to see a week myself, but she did that for us, which saved a ton of time.
Agents that are "bad" are ones that won't return your calls, don't listen to your needs, try to show you properties you aren't interested in, don't know the area you are interested in well, can't identify when a roof probably needs to be replaced or if someone just painted over the black mold in the basement corner, hooks you up with crappy loan officers, etc. And unfortunately, there's a TON of those agents out there.
i bought a house on redfin (my 2nd house) and if you are willing to put in time to scout out your house, it's a good cash savings. (which, probably you should, since you are going to live in it!)
I ended up touring maybe 15 houses. Reasonably sure that the house we got was the best deal out of them too.
the "cash back" is nice, but I'm more talking about finding the right house (more important I think!)
With redfin you can (and, are required) to do your own discovery: finding the house you think are potential candidates and touring them. Redfin has an associate go with you to the houses you are interested in to show you around/answer questions.
For me, it took about 4 house tours before I figured out the house type I was aiming for. After that, then next 10 or so tours was just trying to find a house that offered the best bang for the buck (based on what I was looking for)
Ultimately, if you have the time available to do this kind of footwork, Redfin offers you "choice" that you won't get from an agent. However if you are time constrained or not willing to put in 40 hours over a few months to find your perfect house, then a traditional agent will be better.
Also keep in mind that I'm in the Seattle area, which is Redfin (and Zillow's) hometown, and as per the original article, maybe in other regions redfin's listings may not be as comprehensive?
