In a blog post this morning, Redfin CEO Glenn Kelman announced what he’s calling Redfin 3.0. As he puts it, it’s “a massive upgrade to its service, designed to ensure that each Redfin customer has a one-on-one relationship with his agent.”
The bottom line: they are scaling back buyer rebates – the “discount” that got them so much attention early on – to fund a more personal, “traditional” customer experience.
To make that happen the company is hiring 50 additional agents and outfitting them all with iPads and mobile devices.
Kelman explains how the new model will work:
The price increase for buyers will affect some more than others. With Redfin 2.0, we refunded 50% of whatever commission we got from the seller, but the actual amount depended on the final sale price and the percentage of this price that the seller paid to the buyer’s broker.
Under Redfin 3.0, we now offer a fixed-dollar refund for each listing. As a percentage of the sale, this amount increases with the home price. We refund about 25% of whatever we get for a $300,000 home, resulting in a roughly $2,000 commission refund. For a $1-million home we refund 45% of the commission, for a refund of roughly $13,000.
This shift was perhaps inevitable. Discounting is a hard model and tough to scale – Zip tried and backed off; franchisors like Help-U-Sell and Assist-to-sell remain small players. Now it seems that one of the more aggressive proponents in the space is backing off too. Not completely, mind you, but they are inching back from a line they drew in the sand.
Don’t count them out
Redfin actively scoffed at the industry for the first few years of its existence. Many observers will remember yard signs being pulled up, “Barbie” gaffes and, of course, the infamous 60 Minutes video.
Five years later, however, you have its CEO saying “we actually want to be just like traditional brokers” – a remarkable about-face.
But really, the most interesting part of the Redfin experiment has always been watching a real estate company grow around two core principles – the web and customer service. You don’t see many big brokerages or national brands investing as heavily as Redfin does in technology (and shouldering as many expensive Seattle engineer salaries).
Nor do you see many companies putting their agents on salary and measuring their performance on customer satisfaction versus “productivity” or unit sales.
In my mind, that has always been what makes the company unique. The rebate was really always just a hook that got a lot of people’s attention – much like Zillow’s Zestimate in the beginning.
If Redfin 3.0 is about them maturing into a “real” real estate company – than so be it. It may remove one of the more inflammatory slights that was often leveled towards them.
That might just open a few people’s eyes to what they’re really trying to do. And that, I wager, could be a very good thing.
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It’s a great eye-opener for people who perceive discount brokering or for that matter iPads for agents as ‘progressive”. Bottom line, in my mind, 3.0 or otherwise they still look like a discount broker and sound like one. It’s not that you have technology, it’s how you use it. I will be interested to see their if this is an evolution or a step to safe a sinking ship.
The evolution of Redfin’s business model has been interesting to watch. In the beginning, the company seemed to think that all a buyer needed was good data and then the rest would take care of itself, and that an agent really didn’t add much value. Their current model clearly says they believe that an agent adds real value to the sale. And guess what, it’s more expensive to do it right, so you can’t give it away and be profitable.
This will be good for their customers and I admire the change. I must admit, I still bristle a little at the “Service not Sales” tag line. To be good at this business, you’ve got to be good at Sales. Hustle, find value, solve problems and beat out competitors – why is that a bad thing? Service and Technology without Sales will often miss the mark.
Anyone who thinks they can make a living in this business without “Salesmanship” will not be in business too long.
Very few people will sign the papers and write the check to buy a house without a little nudge to get them off the fence.
Redfin invest heavy in technology. No kidding they had two big rounds of VC investment and that is what they sold them on.
You quote Kelman, “we actually want to be just like traditional brokers.” Of course, its hard enough to make money as a brokerage never mind with heavy discounts.
To me this looks and smells just like ZipRealty. Which last time I looked is in a complete death spiral.
Yes it all looks so easy. You just show some houses and make tons of money. Right? The Real Estate business is one of the toughest sales businesses. I think Redfin is finding out that complacent non producing employees do not increase the bottom line. Good Riddance.
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Redfin does have a very good website. I am not impressed by Redfin agents who write on my listings without seeing them. Perhaps one of the challenges of discounting commission, you cannot have the time to get to know the product or the people.
[...] Redfin gets more traditional It’s Redfin again! You know, the online brokerage that created a splash a few years ago by giving buyers a 50% commission refund? Redfin’s grown into a successful, profitable brokerage since then and has continued to leverage the Web and empower its clients in ways that most traditional brokers don’t even come close to (though some are catching up). Last week, the company announced “Redfin 3.0,” which includes more agents, fewer clients per agent, and, to offset the added expenditures, smaller commissions to buyers. Joel Burslem of 1000Watt Consulting provides a helpful analysis of the move, which signals that Redfin sees great service as the bigger value to its clients over the commission refund. [...]
[...] have Redfin also reshuffling the decks for a (possible?) IPO – hiring a new CMO, moving to a more traditional business model, and looking more and more like ZipRealty reincarnated [...]