Redfin Turns Profitable, Real Estate Industry Shudders
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Finally, here is a comment from the Techcrunch article:
I was an active Realtor for 8 years and I’m glad to see something like this taking shape. It’s only a matter of time before real estate agents are entirely obsolete, and for good reason. You used to have to go through an agent to get this kind of information on homes; now the general public has access to that same information.
That's just a really sensible solution to this "problem".
Without any control, it seems like the rates will get quite high.
What actually transpired was that it listed for more than 300k (but not 24k more) and both the seller's and eventually buyer's agents decided to take less commission to make a quick sale.
These numbers aren't carved in stone. Everything is negotiable. You just have to ask.
The real estate industry, specifically residential real estate, is in the process of rebooting. A lot of the legwork that agents were doing in the past can now be accomplished by the buyer/seller and much of the information can be found on real estate aggregation sites. Not to say that residential agents will be extinct anytime soon (they still provide a service) but their commissions will definitely be affected.
Commercial/Industrial/Ag. real estate on the other hand, still requires professional agents, IMO. Specific knowledge (legal/zoning issues/environmental impact reports/etc. etc.) is needed in these areas to assist buyers/sellers.
So I honestly do see a market for a Redfin-esque service for commercial real estate and even buying/selling businesses. If only to get rid of that nonsense.
My experiences with commercial agents has been relegated to the broker that we have been using for over a 10 year period.
I agree though, a redfin type service will also evolve and take shape for commercial properties. However, from the commercial side of things, a lot more due diligence needs to be done (depending on the property type) as opposed to buying a home. And often times many 'good' commercial properties never make it to a listing service like loopnet etc.
Redfin for commercial real estate would be complicated pricing and service-wise because of what you mention and more issues unique to commercial deals, but I think it could have as big of an impact as Redfin itself has had for residential homes.
And oh, loopnet+something like redfin? That would be amazing...
That said, he MAY have a point about changing the wording on the legal document. Most states have had strict laws about real estate professionals changing the wording on contracts since the '50s or '60s, believe it or not. In most states, brokers and salespersons are only allowed to fill in blanks on printed form contracts that are 'customarily used' (usually defined as drafted or pre-approved by the local bar association) and to insert or delete items only at the direction of the principal in the course of negotiations. While the last part sounds like it allows what you want, it is very easy for the broker to get sued for doing these insertions and deletions, because almost anything they say when this is happening can be construed to be the "unauthorized practice of law." And when I say "get sued" I don't necessarily mean by you. It was complaints and lawsuits from bar associations that led to these restrictive laws...the attorneys didn't want more competitors for basic services, just like they have sued internet companies that are selling legal documents such as wills. Anyway, many brokers are advised to completely avoid changing the wording on contracts. E&O insurers sometimes even write stricter guidelines brokers have to follow in these matters in order to get covered under insurance policies. And the broker's company may also have its own policies.
BTW, depending on where you're located, there ARE companies that are more on the Redfin end of the spectrum and that have Loopnet-ish sites.
Most of the changes were not really about wording, more about the timeline on which certain contingencies were supposed to be met and which boxes should have been checked, which were just mostly blanks on printed forms. The biggest one though and the one that bothered me was a wording change to a contingency involving financing that everyone that had seen the document except for the broker had told me was just not something I could do as-written. I wanted it changed. If he had been upfront about his reluctance to change it because he was trying to cover his ass, that would have been great. If he had just let me change it like I did eventually because I wasn't going to sign anything otherwise, that would have been great. It's really the 'condescending ass' part and that we took (in all, over) 4 hours arguing over a single line that really annoyed me because it was not necessary...or at least, he couldn't explain why he didn't want it changed at all.
Anyway, I'm in southern california. I've found plenty of loopnet-ish sites, but none that are like redfin for commercial property or businesses...
One of the issues with having a commercial or business broker acting like Redfin is that there are different laws about compensation for commercial real estate than there are for residential real estate. (Commercial agents and brokers have more rights regarding how long, how much, and under what circumstances they are to be paid, for example. This is, for the most part, to protect brokers since these deals are much more complicated and they can potentially invest months of their time and hundreds of thousands of dollars marketing a property or doing due diligence, only to have the deal fall through at the last minute.) In any case, there is more legislation you would have to get around to do a commercial Redfin. I know of a few companies that have tried, but they all went out of business because of expenses or legal issues.
BTW, most consumers don't realize it, but there are roughly a dozen states that have made it illegal for brokers to offer rebates to consumers AT ALL, whether residential or commercial. Sometimes it isn't the real estate companies themselves that are stifling competition and innovation.
I think there should be far few real estate agents working in the US. And that the level of innovation should dramatically increase. But agents will not become a completely endangered species in the foreseeable future...certainly not within the next 10 years. The best agents will just become better at their jobs and BENEFIT from technological advances. The future usually doesn't shake out like people think it will, and disintermediation due to the internet is one of the forces that is usually overestimated. People who think real estate agents will cease to exist because of the internet don't fully understand what a good agent does. I know, because I was one of those people just a few years ago. There's a reason some people need agents, just like there's a reason I never ordered my dog food over the internet, Pets.com be damned.
I started a real estate brokerage after working in the software/internet and finance industries. Getting the license was just a legal formality because I was all about disintermediation. I was going to help eliminate those greedy, good-for-nothing agents. But then I learned that the good agents DO serve a purpose. And that the industry is much more complex than most people understand.
What is that purpose?
The bar to get a real estate license is lower than getting most other professional licenses, though, so there are many more BAD agents than bad plumbers/accountants/mechanics. I think most real estate agents suck. Just like I think most lawyers suck. It doesn't mean that either shouldn't exist, though.
I've got to go to bed...I'll come back later.
Finding houses is easy, that's what MLS listings do. So that leaves the hidden "gotchas" in the actual sale process, For a buyers agent to get 3% of an $800,000 home is ridiculous. I'd rather pay a lawyer $500/hr to do the 10-20 hours of work closing a deal.
One of many lessons learned was that most the best properties never make it onto MLS.
Where does buying a house require 10 hours of paperwork? (It seems endless while you're doing it, but it's way less than 10 hours and almost all of the paperwork is canned.)
Do you really think that a lawyer has 10 hours of expertise that's relevant to buying the typical house? (How many houses have you bought?)
I've bought two houses, one in my original hometown, and another for a cross-country move in a city I'd never lived in.
In both cases I viewed dozens of homes before putting in any offers. Because I had a realtor, it was as simple as finding a home I wanted to see and emailing him about it. We'd group a few together and he'd take us through them. In cases where there was a lockbox, he'd call the sellers agent and get the code. Others, when it was still occupied, he'd call the sellers agent and let them know there would be a showing.
I only remember a couple times when the sellers agent was there.
Now, try doing it on your own.
No sellers agent is going to give you a lockbox code. If its occupied, no owner is going to let some couple walk thru their home unescorted.
You're going to have to call the sellers agents and make appointments. They're not really working for you so they're not going to be nearly as responsive as your agent is. With your agent he'll setup an appt with you, a few hour block, to drive around and see the homes. On your own, you're not going to have these clustered appointments. Even if you get some scheduled back-to-back, you're at the mercy of the sellers agents keeping themselves on time.
This would've been hard enough in hometown the first time around. My second time, when I moved 1000 miles away, it would've been a positive nightmare. Our agent then blocked off whole days on a few separate occasions where we flew into town to see as many homes as possible in a weekend.
I think you get my point. Buying a home is hectic. There are so many variables to keep track of. Even more so when you're also coordinating a cross-country move.
The buyers agent was like combining all the best qualities of a tour guide, a personal assistant and a paralegal. They abstracted a lot of complexity. They were an expert we could rely on for advice and guidance. They knew things about neighborhoods I had no clue about despite living in the city most my life at that point.
Now, 3% is a bit high, though it's not the near-criminal-ripoff you make it out to be.
And to condemn the whole practice based largely on the fact that you are choosing to buy into one of the most expensive and inflated markets in the country seems a little over the top to me. Even in California the median sale is half the $800k you mentioned.
We're also doing this in a buyers market - which gives us a lot of leverage and we also know the area. My wife has lived here for 8 years, I've lived here my whole life, so we don't benefit from getting a locals input from an agent as we would moving to a town where we are not familiar, this would be a benefit to many.
In the first months, working with a realtor, we never saw a house not listed on MLS, (which we used via Redfin).
Second we we're always able to call a sellers agent and get a showing. If you tell them you are not currently working with an agent we found we got a very responsive agent who see's the opportunity to get both sides of the commission. Again its a buyers market so this may be easier now then in the past.
If you found the worth in using an agent by all means use one, its your prerogative. But the point is that the amount of work required of an agent doesn't really change with the price of the house. A commission basis for a buyer's agent is a piss poor model, and I'm at the end where its ridiculous.
I'm living in a house that wasn't on MLS when our "buyers realtor" showed it to us. (We were looking at another house and asked the realtor to get us in this one.)Unfortunately, we weren't able to stop it from being listed, so we had competition when we bought it, but .... Yes, this is highly unusual, but since we're trading anecdotes.
> Second we we're always able to call a sellers agent and get a showing.
If the seller involves a realtor, the commission is due in almost all cases, so buyers don't get to make the "realtor or not" choice.
It was that a lawyer could do the work of a buyer's agent, and even at $500/hr, would be cheaper when buying an $800k house. (That hourly rate would buy you 48 hours of lawyer time before you got up to the 3% commission of $24k.)
Granted, this might be rare, but the lesson for the real estate agents is that customer service can give them an edge in competitive environments.
And while that commission might look rather large, the last time I bought a house we looked at something like 20 houses, so you need to figure that into the agent's cost.
4. I'm pissed at Redfin.
Redfin is not that innovative. I think Glenn is a good guy, and a fast learner, but there are better real estate brokerages out there. What do I mean by "better"? I mean companies that save the consumer even MORE money, offer BETTER customer service, don't cut corners or take advantage of OTHER professionals to save money, and have business models that better align their interests with the consumer. I think Redfin is a move in the right direction, but I'm sick of hearing about their "innovation." They're not doing anything other companies haven't already done - they're mainly just doing it more vocally. This all may come across as jealousy or sour grapes from a competitor. It is. I'm jealous because I have a better (and more profitable) venture-funded real estate company - but I can't shout it to the world like Redfin does, because I haven't figured out a way to scale our company while keeping our same quality of service. So I can't advertise or blog about it, and I have to turn customers away because we can't keep up with our current demand. Being the guy with a better widget who can't manufacture enough to meet demand may be a "nice problem to have", but it's extremely frustrating. At this point, I'm trying to avoid going down the "referral partners" path because that largely defeats some of our advantages. So, yeah, I'll have the sour grapes.
[This is basically a throwaway, but I bring it up because of the guy posting everywhere at TechCrunch.] Flat fee MLS is a way to save money if you're 100% sure you know what you're doing in selling your own home. For roughly $299-499, you can get your property listed on the local MLS. If you offer a commission to buyer agents, as they require, you will have accomplished almost everything a LAZY agent would have done for you. (If you're greedy, and refuse to pay a cooperating broker fee to buyer agents, you will not be able to list on most MLSs per their rules, and you will have lost roughly 80% of the buyer's market. Why should an MLS association or buyer agent provide their time and resources to help you sell your home for no compensation? Do YOU work for free?) One issue with flat fee MLS companies is that many, but not all, (knowingly) violate their state's 'minimum service guarantee' laws, because it is often difficult for them to do what they're actually supposed to do for that small amount of money. Not all states have these laws, but most do. If you go the Flat Fee MLS listing route, you should just know what you're getting for the money. Some companies are horrible and they blow smoke up your butt without alerting you to the downsides and dangers of this approach. They could improve, for example, by giving you a list of things that you are legally forbidden from saying when you're showing your home, and a list of things you MUST disclose. A second issue with this is that you probably DON'T know what you're doing in selling your own home, even though you think you do. Which goes to issue three...
You simply don't know what you don't know. You know how some people who know essentially NOTHING about programming will offer to pay you $500 to create, say, a "better" Google, and then are shocked when you say there is more to it than that? In their minds, it's a simple thing. ("Jeez, all you need is to put everything into a database somehow, and then have people be able to search it in a little box, except faster and with better results...?" !!!) That's what it is like for good real estate agents when consumers assert that agents shouldn't get paid for what they do or that it could all be automated with a computer. ("I can find the homes myself on the internet, why am I paying you?") If you think a website can do everything a good agent can do, then you simply don't understand the process. Finding a house to go look at is just a tiny, tiny part of the process. The average consumer is completely ignorant about buying or selling a home, and they allow themselves to be taken advantage of by lazy and crooked agents, and by other consumers. People put less energy into researching the process of buying or selling a home than they would put into buying a new phone or stereo. Stupid agents and stupid consumers go hand in hand down the path together, ruining the industry for everyone else. Real estate is a specialized field, with thousands of things that can go wrong, and hundreds of state-specific and federal laws that govern it. Most agents, even GREAT agents, find it difficult to keep up with all the details and to cover every eventuality, what makes you think you can do it with no training? Most deals are straightforward, though, right? Few transactions have issues and "technicalities" are rare, right? (Well, I know people who have lost tens of thousands of dollars in earnest money because of "technicalities." I know people who have lost the home of their dreams because of "technicalities." I know people who thought they bought 'their' home years ago that actually didn't, because of "technicalities." And, I know a friend who recently saw about $2 million of his home value evaporate because his "private" lake access is no longer private, because of a "technicality." America is the most litigious nation on earth, and homes are the largest purchase people make. A recipe for disaster, yes?) Fortune 500 companies and real estate attorneys often use real estate agents. Do you know something they don't? Too many people think they do, but it can be an expensive and shocking discovery when you realize you don't. Specialization is a good thing. Ideally, you're paying an agent for their time and expertise. So you shouldn't begrudge them the right to make a living doing something you wouldn't do for the same money and/or something you couldn't do properly anyway.
Most agents make much less money than people assume. IIRC, the average "guess-timated" earnings for a real estate agent are 2-3X what they ACTUALLY are. Many agents make less than $10K, and the average earnings are usually in the mid-30s to low-40s. (Brokers make more, but they also have more headaches. It's a tough industry.) And agents pay ALL their own taxes and usually all of their insurance costs out of that. When you become an agent, your car insurance may triple or quadruple. You have to get E&O insurance, maybe bonding, etc. There is no consistency in your earnings, so managing your money becomes more critical than in salaried careers. You will LOSE money on some deals. Slow months you may have no income at all. Some customers are unbelievably demanding and will lie through their teeth. Blah, blah, blah. Basically, it isn't like taking money from babies - as some would have you think. Some of the blame for all this arises from the fact that there are way TOO MANY agents chasing the same deals. Especially during the boom times. The industry needs culled.
So, are many agents overpaid? YES!!!! Why? Because the incentive structure for the industry absolutely blows chunks, and because there are far too many ignorant and lazy people with real estate licenses. But you can negotiate the price you pay for real estate services. If an agent says there is a "standard" fee in the industry, then they're wrong. That gets into antitrust and price-fixing. They can personally turn you down at a certain price, but there is no "standard" price. You should always know what you're going to pay in advance.
Don't get me started. There are simply far too many lazy, ignorant, greedy idiot agents. There are some amazing professionals who are evolving, but they are vastly outnumbered by the others. It completely sucks when you can actually help a consumer, but you have to start by convincing them that you're not the stereotypical idiot agent which is all they've ever encountered. It sucks to make the legitimate arguments I made in point 2, only to have some piss-poor schmuck of an agent fall down on the job and prove you wrong. If you get a bad agent, and you're on your toes, then you probably could have done everything yourself and saved money. Except that the industry is structured in such a way that you'll usually pay out the money you would have spent on an agent anyway. The moral of the story is that you should spend the effort to research the process enough so that you can find a good agent AND protect yourself if things go wrong. But pay a fair price for the agent.
And if you're ever cheated or mistreated by a real estate professional, you should report them to their state board so that they get driven out of the industry. Don't just gripe and paint all other agents with the same brush. Reward the agents who are doing things correctly, and punish those who are not. Reward those companies that are doing things the way you think they should be done, and ignore those that are not. The industry will eventually evolve because of consumer action, not just technology.
I'm not going to blanket stereotype, but when certain realtors are basically just setting up MLS feeds, and then forwarding matching listings to a client, how do they assume that someone couldn't program a site to do the same thing?