Companies that employ ‘Alternative Commission Models’ are (were) quickly dismissed and unfairly stereotyped as ‘Discounters’, in a ‘you get what you pay for’ and other far more grievous statements/practices by the status-quo in the industry to steer consumers away from such choices…IMHO

What will (continue) to emerge are viable models for both consumer and business as the walled garden that was ‘real estate listing and local information’ is further opened for the masses to share and syndicate. In this bear market, innovation and cost cutting are required for survival.
If it’s not Redfin, it will be one of the 15 new models/options that are sure to pop-up over the next 12-18 months…IMHO

Real Estate is currently undergoing a double whammy. There were already well funded ‘disintermediators’ in the space (more are coming) before the heavy downward pressure of this soft (and getting softer) market…compounding current industry attrition and the necessity of continued innovation, evolution and subsequent adoption of ‘Alternative Models’. Ideally the trusted brands and franchises begin to more nimbly move with the paradigm shift rather than fight it at a greater expense…IMHO

The ’6%’ model has endured because the above information as a commodity was highly controllable. Simple economics of supply and demand allowed professionals to mandate pricing, even if technically doing so was/is ‘illegal’.
Nonetheless, there is portion of the ‘typical 6%’ revenue model vested in human services, which has substantial value…IMHO

What is that amount? Not sure yet.

What is the best model? Probably some combination of what currently exists, with a little pixie dust sprinkled on top.

Agents (and franchises/brands) who position themselves with or ahead of this curve are the ones likely to come out alive on the other end of this wild ride…In My Not So Humble Opinion :-p

Companies that employ ‘Alternative Commission Models’ are (were) quickly dismissed and unfairly stereotyped as ‘Discounters’, in a ‘you get what you pay for’ and other far more grievous statements/practices by the status-quo in the industry to steer consumers away from such choices…IMHO

What will (continue) to emerge are viable models for both consumer and business as the walled garden that was ‘real estate listing and local information’ is further opened for the masses to share and syndicate. In this bear market, innovation and cost cutting are required for survival.
If it’s not Redfin, it will be one of the 15 new models/options that are sure to pop-up over the next 12-18 months…IMHO

Real Estate is currently undergoing a double whammy. There were already well funded ‘disintermediators’ in the space (more are coming) before the heavy downward pressure of this soft (and getting softer) market…compounding current industry attrition and the necessity of continued innovation, evolution and subsequent adoption of ‘Alternative Models’. Ideally the trusted brands and franchises begin to more nimbly move with the paradigm shift rather than fight it at a greater expense…IMHO

The ’6%’ model has endured because the above information as a commodity was highly controllable. Simple economics of supply and demand allowed professionals to mandate pricing, even if technically doing so was/is ‘illegal’.
Nonetheless, there is portion of the ‘typical 6%’ revenue model vested in human services, which has substantial value…IMHO

What is that amount? Not sure yet.

What is the best model? Probably some combination of what currently exists, with a little pixie dust sprinkled on top.

Agents (and franchises/brands) who position themselves with or ahead of this curve are the ones likely to come out alive on the other end of this wild ride…In My Not So Humble Opinion :-p

Daniel — of course you’re right about the work an agent has to do to actually get the transaction done. Finding and buying are two different things. At the same time, if I was paying 6% in 1990 when the agent had to do more work on the Finding as they do today, then shouldn’t I pay less in 2008 when he doesn’t? Some part of the commission accounts for the advice, work, negotiations, etc. etc. but surely some part accounts for the Finding aspect which we agree is easier today than before, no?

The conversation between Marlow and Matt from Redfin is a classic. Basically, Marlow’s thesis appears to be that the discounters are burning through profits to buy marketshare. But Redfin says that their cost structure really is different, giving them the ability to provide the same level of service (and indeed, generate same profits or more profits) at lower cost.

To me, Redfin represents the prototype of the future model of brokerage I think is most interesting to think about: capital-intensive, web-centric models, that leverage large investments in technology to increase productivity and margins both.

Is it sustainable, though? Certainly the recent layoffs and bad news coming out of Redfin provides ammunition to the skeptics. But no one (besides Redfin insiders) knows the true picture.

Foxton’s and such are not good comparisons: they were promising fewer services at lower cost. That’s a very different thing that same services at lower cost.

Just my thoughts right now.

-rsh

Daniel — of course you’re right about the work an agent has to do to actually get the transaction done. Finding and buying are two different things. At the same time, if I was paying 6% in 1990 when the agent had to do more work on the Finding as they do today, then shouldn’t I pay less in 2008 when he doesn’t? Some part of the commission accounts for the advice, work, negotiations, etc. etc. but surely some part accounts for the Finding aspect which we agree is easier today than before, no?

The conversation between Marlow and Matt from Redfin is a classic. Basically, Marlow’s thesis appears to be that the discounters are burning through profits to buy marketshare. But Redfin says that their cost structure really is different, giving them the ability to provide the same level of service (and indeed, generate same profits or more profits) at lower cost.

To me, Redfin represents the prototype of the future model of brokerage I think is most interesting to think about: capital-intensive, web-centric models, that leverage large investments in technology to increase productivity and margins both.

Is it sustainable, though? Certainly the recent layoffs and bad news coming out of Redfin provides ammunition to the skeptics. But no one (besides Redfin insiders) knows the true picture.

Foxton’s and such are not good comparisons: they were promising fewer services at lower cost. That’s a very different thing that same services at lower cost.

Just my thoughts right now.

-rsh

Daniel — of course you’re right about the work an agent has to do to actually get the transaction done. Finding and buying are two different things. At the same time, if I was paying 6% in 1990 when the agent had to do more work on the Finding as they do today, then shouldn’t I pay less in 2008 when he doesn’t? Some part of the commission accounts for the advice, work, negotiations, etc. etc. but surely some part accounts for the Finding aspect which we agree is easier today than before, no?

The conversation between Marlow and Matt from Redfin is a classic. Basically, Marlow’s thesis appears to be that the discounters are burning through profits to buy marketshare. But Redfin says that their cost structure really is different, giving them the ability to provide the same level of service (and indeed, generate same profits or more profits) at lower cost.

To me, Redfin represents the prototype of the future model of brokerage I think is most interesting to think about: capital-intensive, web-centric models, that leverage large investments in technology to increase productivity and margins both.

Is it sustainable, though? Certainly the recent layoffs and bad news coming out of Redfin provides ammunition to the skeptics. But no one (besides Redfin insiders) knows the true picture.

Foxton’s and such are not good comparisons: they were promising fewer services at lower cost. That’s a very different thing that same services at lower cost.

Just my thoughts right now.

-rsh

At Redfin we’ve worked hard to build a killer website so that customer acquisition is a fixed capital cost instead of a variable spend. Our advertising spend is measured in the thousands of dollars a month and not the tens or hundreds of thousands that the larger brokerages spend.

We’ve also worked hard to restructure how our agents work together. From using junior agents to show homes, to experienced ones who focus solely on negotiations to transaction coordinators who focus on the paper work, all our positions are highly specialized enabling each position to do more transactions. We’ve also centralized a number of functions in Seattle for increased efficiency in certain roles. Overall we really can do more with less and the customer relationship software we use to co-ordinate deals over the Internet has played a central role in this.

I know everyone likes to position us as a discounter but we offer a discount because our cost structure really is different. We also don’t compete solely on price. If we did we would have cut our prices instead of recently raising them.

At Redfin we’ve worked hard to build a killer website so that customer acquisition is a fixed capital cost instead of a variable spend. Our advertising spend is measured in the thousands of dollars a month and not the tens or hundreds of thousands that the larger brokerages spend.

We’ve also worked hard to restructure how our agents work together. From using junior agents to show homes, to experienced ones who focus solely on negotiations to transaction coordinators who focus on the paper work, all our positions are highly specialized enabling each position to do more transactions. We’ve also centralized a number of functions in Seattle for increased efficiency in certain roles. Overall we really can do more with less and the customer relationship software we use to co-ordinate deals over the Internet has played a central role in this.

I know everyone likes to position us as a discounter but we offer a discount because our cost structure really is different. We also don’t compete solely on price. If we did we would have cut our prices instead of recently raising them.

At Redfin we’ve worked hard to build a killer website so that customer acquisition is a fixed capital cost instead of a variable spend. Our advertising spend is measured in the thousands of dollars a month and not the tens or hundreds of thousands that the larger brokerages spend.

We’ve also worked hard to restructure how our agents work together. From using junior agents to show homes, to experienced ones who focus solely on negotiations to transaction coordinators who focus on the paper work, all our positions are highly specialized enabling each position to do more transactions. We’ve also centralized a number of functions in Seattle for increased efficiency in certain roles. Overall we really can do more with less and the customer relationship software we use to co-ordinate deals over the Internet has played a central role in this.

I know everyone likes to position us as a discounter but we offer a discount because our cost structure really is different. We also don’t compete solely on price. If we did we would have cut our prices instead of recently raising them.

They’re refunding dollars to try to buy market share.

The reality is that the companies that are involved in these price wars are out of business (Foxton’s, Iggy’s House, Buy Side Realty, etc.) or about to be (Redfin) or bleeding money but still able to stay in business because of investor capital (HouseValues, Zip Realty).

The cost of business to these “discounters” is the same cost of business to full-service traditional brokerage houses because, as you’ve pointed out we all have the same tools to assist us.

The difference is the discounters are refunding their profits back to the customer. They can only continue to do this until they run out of money. In a good market, this may take a long time to run out of dough but in an extended slow market, these companies may be out of business sooner rather than later.

They’re refunding dollars to try to buy market share.

The reality is that the companies that are involved in these price wars are out of business (Foxton’s, Iggy’s House, Buy Side Realty, etc.) or about to be (Redfin) or bleeding money but still able to stay in business because of investor capital (HouseValues, Zip Realty).

The cost of business to these “discounters” is the same cost of business to full-service traditional brokerage houses because, as you’ve pointed out we all have the same tools to assist us.

The difference is the discounters are refunding their profits back to the customer. They can only continue to do this until they run out of money. In a good market, this may take a long time to run out of dough but in an extended slow market, these companies may be out of business sooner rather than later.