Home Brokers & Agents The Impact of Redfin Post-IPO: Part 1 – Brokerages

The Impact of Redfin Post-IPO: Part 1 – Brokerages

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Lobby of Redfin's new corporate HQ

Since I wrote most of the last post about Redfin’s IPO off-the-cuff without thinking too hard, I promised I would have something more substantive on Redfin’s IPO and the possible impact. Well, as it happens, I’m writing up a fairly significant white paper on the future of brokerage and this goes right to the heart of it.

So first of all, if you’d like to get a copy of the brokerage white paper once I’m done, drop me an email and I’ll add you to the list.

Having said that… the Redfin IPO is one of two things.

It could be one of those moments we’ll look back on in 4-5 years and realize “that’s the moment everything changed” much like how we view Zillow going public back in 2011. Don’t forget, all you Zillow Haters, that few people paid much attention to Zillow back in 2010-2011.

Or, it could be a total fizzle like Ziprealty, which went public in 2004 and did precious little of anything until it was acquired by Realogy (where it still hasn’t done anything), and the industry will be emboldened in the status quo.

I am very much in the first camp, because Redfin is a contemporary of Ziprealty, and competed head-on with Ziprealty when ZIPR was a public company flush with cash. Redfin was gaining online when the competition was even fiercer with Trulia as an independent company.

So let’s assume that Redfin will successfully complete its IPO, raise $100 million, and be valued in the neighborhood of $3 billion. Let’s further assume that Redfin behaves like intelligent business people, as they always have, instead of buying private jets for Glenn Kelman or some such thing. (Which they won’t, since their S-1 stressed “frugality” as a virtue of and culture in Redfin.)

What are the likely consequences?

In this part, I focus on a couple of thoughts in the brokerage side of things.

For the TL;DR crowd, Redfin kills off any non-boutique large brokerage… unless they swallow their pride and go beg Zillow for help.

Redfin Has Been Kicking Ass, Y’all

The first thing to note is that until the S-1, we really had no idea what Redfin was doing. Anecdotes from around the industry were along these lines:

  • Redfin’s got a nice website and app, and I send my clients there, but they always come back to me.
  • Redfin sucks in my area; their agents are incompetent and inexperienced.
  • Redfin might get some of the pain-in-the-ass discount buyers, but they got no traction with listings, which requires personal relationships.
  • They’re a discounter! And you get what you pay for!

Redfin, for its part, kept awfully quiet and did not bother to correct the impression of the industry. I think now that was on purpose.

Those of us who knew that Redfin was an interesting company doing interesting things simply couldn’t find out too much about its operations. We knew what they were saying publicly, which hadn’t changed in years. We knew they were going after listings. We knew they were growing. We knew they were raising money. And we could visit their website and use their mobile app. But we really didn’t have any insight into their operations. Redfin didn’t even report to RealTrends 500 despite being a major brokerage with operations in over 80 markets.

Well, now we do.

Some topline key stats:

  • 20 million in monthly unique visitors, with 44% year-over-year growth
  • $16.2 billion in sales volume in 2016, which makes them #5 in RealTrends 500.
  • 25,868 transaction sides in 2016, which makes them #10 in RealTrends 500.
  • $267 million in revenues, with 44% year-over-year growth
  • 763 employee agents (“lead agents” in Redfin parlance)

Now, I’m not a math major, although we AZNs are good at math, so I can say with confidence — after having consulted a calculator — that it looks like 34 transactions per lead agent. The average REALTOR does 12, according to NAR (a figure that most observers think is way, way too high), so that’s almost 3X?

It also looks like Redfin makes $350,000 per lead agent in revenue. Anybody out there with over 50 agents want to claim the same?

As a point of comparison, the only publicly reporting brokerage in the country, Realogy’s NRT did 77,536 transaction sides in 2016 and generated $4.3 billion in revenues out of 780 offices and 48,000 agents. So… that’s 1.6 transaction sides per agent, and $89,583 in revenues per agent. So Redfin makes 4 times in revenues what NRT does from its agents?

By the way, Redfin reported gaining market share in 81 of its 84 markets. That’s quite significant to me. Market share is more important than simple revenue growth, since real estate tends to be a zero-sum game. Revenue growth alone can be attributed to rising home prices; market share growth means that Redfin’s growth comes at the cost of some other brokerage.

I don’t know about you guys, but that qualifies as a solid butt-kicking in my book.

Now, Add Money & Credibility

So take a company that is the #5 brokerage by volume, #10 by transaction sides, whose agents are doing 34 transactions each, generating four times in revenues what the NRT agent generates, whose website is #3 behind Zillow and Realtor.com, and give them $100 million in fresh funding plus the credibility that an IPO generates plus the fact that public companies have stocks that can be used as currency.

What do you imagine Glenn & Crew will do with all of that?

We don’t know, obviously, and maybe success will go to their heads and they’ll all just stop being smart and effective. But that seems like a foolish bet to make given their history.

In all likelihood, Redfin will take the additional money, the additional credibility, and expand into more markets, invest more into their technology, and invest more into marketing. How much could they grow if they did that?

Comparables are hard to come by in the real estate space. But let’s just take one stat: website traffic. And let’s just take Zillow as a comparable — which we might as well since the entirety of the financial press is doing that.

Traffic Growth

In the S-1, Redfin claims 20 million monthly unique visitors, and says they are the fastest growing major real estate website:

[We] drew more than 20 million monthly average visitors to our website and mobile application in the first quarter of 2017, 44% more than in the first quarter of 2016, making us the fastest-growing top-10 real estate website.

To put that in context, Zillow in its latest filing claims 140 million monthly uniques, and Realtor.com claims 55 million. It is difficult to find good data on website traffic and rankings, but one source suggests that the top ten in real estate looks like this:

  1. Zillow:  36 million
  2. Trulia: 23 million
  3. Yahoo! Homes: 20 million
  4. Realtor.com: 18 million
  5. Redfin: 6 million
  6. Homes.com: 5 million
  7. ApartmentGuide: 2.5 million
  8. Curbed: 2 million
  9. Remax: 1.8 million
  10. Hotpads: 1.75 million

Whether we’re going by self-reported internal metrics or by a third party ranking, what becomes clear is that Redfin is the clear #3 behind Zillow (which owns Trulia and Hotpads and powers Yahoo!) and Realtor.com. And it’s also clear that Redfin’s traffic is roughly a third of Realtor.com’s traffic: 55 million to 20 million, if we use both companies’ self-reported numbers, or 18 million to 6 million if we go by the above.

However Redfin is in only 84 markets, while both Zillow and Realtor.com are national websites.

Furthermore, Zillow is a $9 billion public company. Realtor.com is owned by Rupert Murdoch’s News Corp, a global media giant with $8.5 billion in annual revenues. Both have access to capital and resources that Redfin simply did not, despite raising $167 million in 9 rounds of funding.

What happens after its IPO?

Well, we could maybe look at how Zillow did after its IPO back in 2011 then apply the same growth projections to Redfin’s starting point. Here’s how that looks:

(in thousands)Q2Q3 (IPO)Q4/Year 1Year 2Year 3Year 4
Zillow Avg. Monthly Uniques20,75924,23823,50734,53554,35876,713
Redfin Avg. Monthly Uniques20,12622,33324,73937,24556,07384,420

Zillow, after its IPO, grew at 11% per quarter on average until end of 2014 at which point, they stopped reporting their unique visitor counts on Key Metrics. But we still get a really good view of how much Zillow grew from mid-point of 2011 to the end of 2014. There is no reason to think that Redfin couldn’t match that 11% Q/Q growth (and quite a few reasons to think Redfin will surpass it given how much more important web and mobile have become in real estate since 2011).

Even if Zillow keeps up its traffic growth, they’re operating with less headroom because they’re already at 150 million monthly uniques. Realtor.com will also grow, one expects, but how much? Redfin can grow simply by adding new markets.

I think that it is a real possibility that by 2020, Redfin surpasses Realtor.com to be the #2 website in real estate.

Listings Growth

Another hidden gem in the S-1 which goes counter to conventional wisdom about Redfin is just how much they have grown the listings side of their business:

From 2014 through 2016, brokerage transactions for home sellers as a percentage of brokerage transactions increased from slightly over 20% to slightly over 30%. We expect brokerage transactions for home sellers to comprise a greater portion of our brokerage transactions over time as we continue to focus on listings as a strategic asset that provides benefits beyond the revenue we generate from home sellers. For example, we believe that increased listings draw more homebuyers to our website and mobile application. [Emphasis added.]

Of course Redfin is focusing on listings. And of course they’ll continue to focus on listings. Because you list to last in real estate, and Redfin ain’t no dummies. Slightly over 30% coming from listings is a pretty healthy number, and there’s no public stats available from any brokerage (not even NRT). But I asked around to some brokerage management types and they all kind of agree that a 2:1 ratio between buy-side revenues vs. sell-side revenues is normal.

But there’s more! Redfin is very clear on its competitive advantage, and getting more listings, and what that ultimately means:

And we’re just getting started. Because we’re one of the only major brokerages building virtually all of our own brokerage software, our gains in efficiency, speed, and quality are proprietary. Because our leadership and engineering teams have come from the technology industry, and have structured the business to invest in software development, we believe those software-driven gains are likely to grow over time. And finally, because we hire our own lead agents as employees, we can set data-driven best practices for selling homes, with our software tailored to those practices, creating a positive feedback loop between software and operational innovations that we believe differentiates us from traditional brokerages. Moreover, we believe listing more homes and drawing more homebuyers to our website and mobile application will let us pair homebuyers and home sellers directly online over time, further improving our service and lowering our costs. [Emphasis added]

If you work in MLS space, or if you work at a brokerage heavily dependent on IDX, you might want to read that last sentence over again. And again. Then have it translated into Spanish, and have it read to you.

The Great Misconception About Redfin

Despite all of the above, I know there are brokers and agents out there who are going to shake their heads and say stuff like, “Yeah, well, that’s all fine and dandy, but Redfin can’t recruit the top producers who really matter.” Because that’s true. Redfin does not and cannot recruit the super elite top producers who have teams under them and have deep and wide personal networks that just feed them referral business year after year.

Those men and women make so much money and have so much freedom that the notion of going to work for Redfin as a salaried employee is a nonstarter.

But this is where just about everyone in the real estate industry bought into the misconception about Redfin — a misconception fostered by Redfin’s messaging. That misconception is that Redfin is a technology-powered brokerage. It is not.

Redfin is not a brokerage; it is an agent team.

Let that sink in for a moment.

Redfin is not in the recruiting & retention business like 99.99% of brokerages are today. They could care less about recruiting the superstar elite agents.

Redfin is in the business of helping people buy and sell homes — just like an agent team. They have employee agents who must use Redfin’s systems, must follow Redfin’s procedures, and the people they work with are not their clients, but Redfin’s clients — just like an agent team.

And just like an agent team must have a superstar lead-generation lead agent, Redfin has one… in its website and mobile app.

So what we have is a super agent team, in 84 markets, which did $16.2 billion in volume over 25,868 transactions, and brought in revenues of $267 million. I do believe that makes Redfin the #1 Agent Team in North America by several country miles.

The distinction becomes super clear if you think about Redfin on the one hand, and another VC-backed darling, Compass, on the other. Redfin spends millions building its website, generating traffic and leads, to send to employee agents. Compass spends millions bringing top-notch superstar elite agents into their company.

Redfin is an agent team; Compass is a brokerage.

Today’s large, established mainstream brokerages know how to compete against Compass, because Compass is playing the same recruiting and retention game they are. They have no idea how to compete against Redfin, because Redfin isn’t playing that game.

What today’s Realogy, Long & Foster, Howard Hanna, HomeServices of America, Keller Williams, Re/Max, and others have to figure out is whether their superstar agent teams can play the game that Redfin is playing. And the answer is not good.

Because Redfin has technology that no agent team in America has today. Read the paragraph above again:

And finally, because we hire our own lead agents as employees, we can set data-driven best practices for selling homes, with our software tailored to those practices, creating a positive feedback loop between software and operational innovations that we believe differentiates us from traditional brokerages.

A really well-run agent team can have that same positive feedback loop between software and operational innovations… but I can probably count the number of really well-run agent teams like that without needing to get my toes involved. And those well-run agent teams most certainly do not have the software and data systems that Redfin has spending $34.6 million on technology per year.

And that’s before the IPO. What do you imagine Redfin’s technology spend will look like after the IPO? And can you think of any agent team or any agent team software vendor who can match Redfin?

There is one company I can think of.

Strange Bedfellows Time

That company, of course, is Zillow. Maybe Move could also do it, but… until they do, I’ll remain skeptical.

Thinking about all of the major agent-team software vendors… Boomtown does a great job, but they’re not going to be able to match Redfin’s technology and marketing prowess. Contactually is just a CRM, not a vertically and horizontally integrated platform. Top Producer… bwahahahaha. Placester might play, but boy, they’re gonna need to go public or raise a boatload more cash and unveil what it is they have other than Free IDX websites from NAR.

ZipRealty’s Zap platform could do that… on paper… but Realogy has two major problems with Zap:

  1. It sucks (according to actual agents and brokers who have seen and used it)
  2. They have 1099 independent contractor agents who cannot be forced to use the platform

I know I’m leaving other major agent-oriented software vendors out, but until someone contacts me to say that they’re spending $35 million a year on technology development (soon to be more like $70 million a year post IPO), I don’t know that I care.

Within the next 2-4 years, I expect that we will see a total sea change in the attitude of brokerage companies towards Zillow. The smart ones have already made phone calls to Errol Samuelson and his team to see how they might bury the hatchet and figure out ways for Zillow to save them from the coming tsunami that is Redfin. Others will need to be convinced by losing market share and deals and transactions to the supercharged Redfin. (Or more precisely, by seeing their agent teams on whom they rely for listings and volume and revenues lose market share and deals and transactions and buyer agents to the supercharged Redfin agent team.)

I say this because we have already seen what happened to the MLS when Upstream became a reality. Overnight, a bunch of MLSs were like, “Zillow is our best friend!” The previous week, they were saying, “Zillow is the enemy!”

It’s one of those funny things about human nature: the prospect of death focuses the attention and clarifies the situation.

Brokerages will suddenly realize that they can buy ads on the page views of Zillow’s 150 million monthly uniques. They can’t buy ads on the (projected) 84 million monthly uniques that will be on Redfin. Sure, it costs money, but that whole “You’re making money on the back of my listings!” thing becomes somewhat silly when there’s a company out there not only making commission income on the back of your listings but is also actively trying to take your listings away from you.

And whatever it will cost for brokerages to get Zillow’s help, it will be less than what it would cost to compete head-on with Redfin’s technology and marketing spend.

Those brokerages who do not, who hold out hope for Broker Public Portal to somehow save them from the Scylla of Zillow and Charybdis of Redfin, who think that somehow Project Upstream is going to put a stop to all this portal nonsense (oops! Redfin isn’t a portal….), who think that maybe NAR will do something somewhere to #StopZillow and then #StopRedfin… well, they’ll be able to enjoy a brief existence as a niche player in a niche market until their home buyers and sellers finally move into Assisted Living facilities.

To be sure, I’ll get into the impact of Redfin post-IPO on the whole MLS/Association/Tech Vendor space, but for now, my prediction (sure to be wrong, or your money back) is that brokerages will find themselves forced to look at Zillow as a white knight, rather than the black devil they’ve been calling it for so long.

Strange times make for strange bedfellows.

Five Years Out…

Again, none of this might happen. Who knows what the economy will do, or maybe Glenn and the entire executive team at Redfin get hooked on meth, or North Korean nukes take out Seattle. Predicting the future is dicey business.

But five years out, if things proceed as foretold, what I see is a brokerage environment that looks nothing like what we have today.

The industry will be dominated by no more than ten to twenty super regional brokerage firms. Redfin will be one, and dominant. But the largest of large brokerages, like NRT, HomeServices, Long & Foster, Howard Hanna, and so on, will be firmly allied with Zillow across the board. Sure, they’ll pay Zillow tens or hundreds of millions to get access to software and lead flow that lets their agent teams compete with Redfin, but it’s better than bankruptcy, no?

Then we’ll have tens of thousands of small boutiques, which are all more or less agent teams in all but name, focusing on their local markets, focusing on their in-person relationships, focusing on referrals and a superior customer service experience… which requires that “positive feedback loop” between software and operations… which requires buying the software from Zillow… because Redfin ain’t gonna sell it to you, and all the other vendors are too small to compete.

(Again, I leave open the possibility that Move/Realtor.com will be a player in this, but they’ve got to show me something and right soon.)

There is an alternative, of course, but hey, that’s reserved for paying clients (or potential clients) of 7DS Associates who have finally realized that they’re not going to survive without dramatically rethinking everything.

Anyhow, that’s my take on things. I told you it was going to be a “gamechanger” type of a thing in my previous post, didn’t I?

You may now commence disagreeing with me or telling me why I’m so wrong that it ain’t funny and why Zillow is the true enemy no matter what.

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

35 COMMENTS

  1. I still can’t help but wondering if Redfin is redbox to Opendoor’s Netflix. Hatip on you calling them the nations biggest team.

  2. Rob, another thought provoking article. The per agent productivity is amazing and my guess is that post IPO it will get significantly easier for Redfin to make hires and grow. You exactly right that they are like a team with processes in place. There was some commentary on this on a large FB group where I posted the following on July 1:

    “Redfin has been very focused on the consumer experience with systems, processes & training. I would be curious to here their avg. NPS score on closed clients vs. traditional agents. We know that the industry doesn’t do that great of a job since most say they will use the same agent but most don’t.

    If RF gets the process down & they are confident in process in systems, the $$ maybe for consumer direct marketing to compete against Z big ad spend & agent recruiting. Announcing “RF Now” creates inbound leads, just like it did for Zillow. Once the tech system is built, if there is 1K or 100K using the internal tech, tech cost doesn’t increase linear w/ users, so profitability increases.

    The systematized experience that RF or OpenDoor are creating with agents is what is the game changer. As consumers will come to expect a higher level of personal service, traditional agents need to up the service level they provide.”

    We are in a transition where real estate & the process of buying or selling is becoming big business and the level of agent professionalism increasing.”

    Look forward to your next piece & seeing you at Inman Rob!

    • You hit it on the head. Redfin does mention that they have a “customer repeat rate that is 37% higher than competing brokerages” but don’t know how they compute that, how they back up the claim, etc.

  3. Great post Rob!

    I also see one more huge method in which Redfin is going to make money. This wasnt mentioned in their S1 filing, but my gut feeling says once they go public, they will also want to sell their some of their in-house tech to outside agents. As a non practicing retired traditional agent who also bought and sold a home using Redfin, I can tell you that traditional agents will pay lots of money for that tech. It is pretty sweet. I was absolutely floored when my agent showed all the features of their in house tech. Outsiders just have no idea on their internal technologies. I can see them selling their in house CRM/follow up tool, its called Agent Tools, its by far the best CRM I have seen. It an all in one solution, there is nothing else you need. They also have a few other things that I think traditional agents will absolutely love.

    Secondly, as a retired traditional agent who was also a redfin customer, I can share my thoughts on the redfin experience.

    Every Redfin agent you meet might not be the absolute best agent that you will ever meet and blow you away , but I would say for the most part they have developed systems and measures in place to deliver a better experience on average compared to the traditional agent that you will randomly meet at an open house (and thats how most buyers anyway meet their agent).

    And not to be a redfin cheerleader, this says more about our industry-when 10-15 percent of agents in every market do about 80-90 percent of the business, you can be better off going with a random redfin agent versus a random traditional agent.

    On your point that Redfin will never be able to hire that top producer who will be in that 10-15 percent group, do they have to? When there are so many agents who would love to work there for the model, and Redfin can still deliver a decent enough experience for the customer that they keep coming back or refer people. Some of the systems in place that I mentioned are the lead agent gets surveyed at the end of the transaction- the unedited survey (not testimonials that traditional agents love) gets posted on the agents public profiles and anybody can see them. This translates to accountability. and if an agent consistently receives negative surveys, you bet that the agent will not survive for long. A good survey response leads to a better bonus for the agent, so it could really hurt their pockets, you bet that that they will do whatever they can to make sure the client is satisfied and gives them a good survey.

    Other little things that you would never know unless your a consumer is that even after a home tour, you will get a survey asking about your experience, it takes like a few seconds to complete, but systems like this measures satisfaction and customer experience along the way so that if anything is not working between the agent/client, they can either get them reassigned or find an amicable solution. I didn’t feel like I was a good fit with the initial lead agent after meeting with him for a couple of tours, I left feedback in the survey, and boom! three hours later, the market manager called me, asked me for more feedback so that he can assign another agent and I was assigned another lead agent whom I loved and I bought and sold with that same agent!

    That agent has more than 200 plus reviews on the site, even some bad ones!, but overwhelmingly positive. My agent closed 46 deals last year! on average a traditional agent closes 6-7 a year in a market and thats very good as the average sales price in my area is 750K.

    I asked my agent why is she with Redfin when she can make more money else where. She told me that she realizes that she undoubtedly could make money else where, but she feels like its a tradeoff. The stability, culture perks -health insurance, mileage cell phone bill, mls dues reimbursed, vacation time, support- every lead agent gets a transaction coordinator, support agent who handles incoming leads, tour coordinator who sets up tours, marketing assistant who sets up listing consults, handles incoming listing queries, handles inspection scheduling, appraisal ordering, photography appointment, etc, associate agent who goes on tour when the lead agent is not available. She feels like these perks really make that gap in pay pretty small and its a lot smaller that you think, though she told me that the traditional world might still come out ahead though on pay-if you can be in that top 10-15 percent group I mentioned, otherwise, your making way more money at Redfin. Also, this year they are paying for a 2 week trip to Thailand for their top producers and my agent is going. I was so jealous, but good for her, she deserves it, anyway she is happy there. So, I can definitely see the appeal for a particular type of agent who would love it there, its not for everybody though.

  4. I would like the White paper!
    Great post, certainly thought provoking. I think the 3 most important points I take away (providing they get the money) 1. Lots of eyes on their website; 2. Software developed fits their model; 3. The team acts within IRS laws.

    I’ve long had problems with teams that pretend the agents are independent contractors while requiring training, hours time at desk, etc. This is blatant violation of IC law from the IRS, and causing all Real Estate agents future headache with rule changes. I applaud Redfin for having the benefits, the hours, the employees. Instead of abusing IC’s (no benefits) and still requiring employee duties, they’ve done it right. I also believe the Software (as described) coupled with the lead generation could be very workable.

    As for finding agents: I’m not sure. Why? Yes, they handled 34 transactions per year average – BUT if they worked for 25% of an IC agent commission, and the spouse has benefits, whom would they attract? They could start with hiring their own employees and train. They could pay during training, they could retain well. But could they also train and lose to IC? Not sure. Many on teams are afraid to leave now because they feel they can’t generate leads. They could retain, they could lose as well. Why would I want to work 3 times as hard for 1/4 the money?

    Quality would be the next issue. My son works for Starwood in their phone center. He’s done so well that he’s been promoted to only working with Elite status consumers. So those not elite get a lesser representative. How would one deal with agent quality in a large center? Do we still get to choose? Or does the company look at price range and decide if your buy/sell needs are worthy of certain groups? How will consumers react to quality service differences? (This could be a silly worry because brokerages already have some of this – yet often the agent is known to the consumer so quality is already known based on choice).

    My last comment has to do with buyers and sellers connecting. I have NO PROBLEM with this. I anticipate we will someday have a Contract to Closing Transaction broker who has no duty to either party. And this could happen based on saving Marketing fees. However, I think nearly anyone will be skeptical that a company with stock holders wouldn’t be pushed to charge at least the standard commission in an area. Or perhaps 1% less? Certainly not 1/2. Because as you peak on market share, how do you grow profits?

    Great idea. Could be part of a larger over all change. Wouldn’t it be great if the IRS had 2 status for agents, declared at state licensing level – Team or IC, assuming all would declare and follow rules accordingly.

    Finally – we don’t have Redfin in Wichita – Guessing 650,000 population with average price $160K isn’t enough for them. I would be curious if areas that have Redfin could provide Market Share for that area.

    • You got it Greg 🙂

      I don’t know the exact compensation package at Redfin, and I suspect anybody who does won’t tell. But based on Jay’s comment above, it does sound like the Lead Agents are getting paid rather more than what one might imagine — maybe it’s heavily weighted towards transaction completion bonuses?

      We’ll all soon see how it plays out.

      As for elite vs non-elite customer service, I think that depends on the business model and the culture of the company. My training on customer service was at Bergdorf Goodman, the NY flagship of Neiman Marcus. And there, the culture was of absolute perfect customer service regardless of who the customer was. (Not that all salespeople lived up to that culture, but that was what was preached.) Remind me to tell you the story about gloves in July….
      I’m working on the post about MLS/Organized Real Estate, but… I think you might have misread the part about directly connecting buyers and sellers.

      I don’t envision that’s how it’ll work. I envision that it will work more like a giant off-MLS product where Redfin buyers will get early access to “Redfin Exclusives” or some such. And maybe sellers get a concession if they elect to have their homes be “Redfin Exclusives” (i.e., not marketed on the MLS) which would normally be a no-no… unless Redfin has 100 million unique visitors per month and can reasonably claim to have exposed the property to the market.

      Finally, Redfin does provide market share data by cohort in the S-1; some interesting stuff there too 🙂

  5. As always, nice job Rob. Thorough and detailed and very thought-provoking. Even before I read your article, I was convinced that Redfin may be one of the best examples of a “Baskin Robbins” business model that I know in residential real estate. Second only to the old Cyberhomes who was proud to announce a “flavor of the quarter” strategy as long as they were in business and up and until they were out of business. The real issue is that I have quite frankly lost count of how many “flavors” of business Redfin has offered the consumer and the industry. Pretty sure it has not reached “31” yet though, but I could be wrong. With a post IPO number of nearly $300MM or more invested in the business by others, I guess one of the most effective ways to promise eventual success – or at least on-going funding – is to “keep the model moving.” Of all the facts that you have stated above, the one that was missing was the very disappointing performance the company has achieved in its home base of Seattle. The one that accounts for the consumer adoption of the “flavor of business” being served by Redfin at any given point in time. That statistic concerns me, and it should “cause a pause” for a potential investor. But it does not seem to have ever been a great concern to the mid twenty to thirty percent market share Seattle-based brokerage company, Windermere Real Estate. They just keep on listing and selling – just like they did before and even for all the years since Redfin arrived on the local scene. And while the “shiny nature of new” makes for an attractive lure for investment capital, the proven ability for Windermere to sustain a focused business model and to be profitable, even if their business model only represents one “flavor”, may ultimately be the true measurement of sustainable value. But as is true in most cases in business, time will tell. For now though, let’s just agree to revisit all of this sometime after the $100MM has been funded – and oh yes, spent.

    • two points, and keep in mind this is coming from a retired non practicing traditional agent who was also very happy redfin customer.

      1. Why does a company need a singular vision/purpose? Rapidly growing start ups need to innovate, otherwise somebody else will innovate for them. Example-Uber, they do not want to just be a middleman that connects drivers and consumers long term. So, while they are are operating as a middleman right now, they are also simultaneously developing their self driving operation with hopes of having a self driving car fleet on the road one day. This is innovation. So, a start up cannot do several different things at once? I have no problem with Redfin working on their flipping (redfin now) business, or mortgage, escrow and title business. But right now, at their core they are still a brokerage that helps people buy and sell homes. Their last big change to the rebate was a few years ago. So, no big changes there for atleast a few years now. You make it seem that they keep changing their “core” business every other day.

      Secondly, its not an apple to apples comparison when you compare Windmere who has agents as independant contractors compared to Redfin who hires agents as employees. Redfin will never ever beat brokerages like Remax, KW, Windmere on “headcount”. Those brokerages are in the headcount business and it does not cost them a dollar (besides some office space and printer ink) to bring on a agent. But it costs Redfin money- salary, health insurance, other benefits and perks like paid vacation, mls dues, cell phone bill, mileage reimbursments to bring on a agent. So, they will always want to be as lean as possible operationally. How many agents does Windmere has in Seattle? I know nationally they have over 50000 and have been around since the 80’s , Redfin has less than 800 nationally I think and they have been around for a little over a decade. Think about it, is it an apples and apples comparison. You got to admit, for the number of agents they have, the per agent productivity is mind boggling, it certainly beats other massive brokerages.

      • Windermere has 7500 agents only. My comparison was based upon consumer choice. Apples to apples in terms of whose platform do I prefer or trust most with what is most commonly the single largest transaction in the life of the consumer. I think simplicity rules in trying to introduce something new to the world. By no means has the consumer ever appreciated being a guinea pig for a start-up experimenting in the industry to see what it wants to be when it “grows up.” So ultimately adoption is measured in terms of results expressed as a share of the overall market and that converts – or not – to the ultimate success of a business. Some like Southwest, others prefer Alaska Airlines. They are both ways to get from one place to another in a Boeing 737 jet. I measure success at the “point of consumer”. And with hundreds of millions of $$ invested (spent to date), that needle has not really moved to a great degree at Redfin. But time will tell. . . . .

    • Hey Ken –

      Good insights and questions, as usual. But honestly, I’m not all that concerned about Redfin’s performance (or perceived lack thereof) in Seattle as the collective is growing at a rapid clip.

      Having said that, Redfin doesn’t isolate out Seattle, but they do break down their markets by cohorts based on when the market was opened. What they do say is that in their first cohort (opened between 2006-2008, which includes Seattle), their market share by value went from 1.15% to 1.41% to 1.66% from 2014 to 2016. That’s Y/Y growth of 22.6% and 17.7%.

      Now, in absolute terms, if Redfin has 1.66% market share in Seattle, is Windermere or CB Bain worried? I doubt it very much. But I’d like to know how much Windermere’s market share has grown over the last three years. If they’re showing flat growth or negative growth, while Redfin is racking up double digit growth… what happens in another 5 years post-IPO?

      Finally, I would like to point out that Windermere does not list and sell 20-30% of the real estate in Seattle. Windermere’s top producing agents (most of whom probably have a team) list and sell 20-30% of the real estate in Seattle. Those top producers have deep personal connections to large spheres and farms and have a referral base. Two things:

      1. None of those agents at Windermere have anything close to the capability of Redfin the Agent Team; and
      2. They’re not getting any younger, while Redfin’s website is ageless.

      The executives at Windermere are free to ignore this and continue as they have for decades, with great success. I wouldn’t, but then, I’m not in their business. 🙂

  6. I swear I read the whole thing and I’m confused. Serious question: Why are the smart brokers going to be phoning ZG to help defend against Redfin? It’s probably just me not understanding, but I don’t see the connection between what specifically brokers need and what ZG would offer them in response to a bigger Redfin?

    • It’s probably me being overly paranoid and overthinking things, but here’s the logic.

      1. Redfin is a Super Agent Team. IPO opens the floodgates of resources ($100m is just the initial IPO; follow-on offerings, using stock as currency, etc.) which makes them supercharged.

      2. Existing agent teams simply cannot compete with Redfin on tech, lead generation, and customer service delivery. They’ll be OK with referral business, sphere, past clients, etc. but most of them do a poor job of maintaining contact.

      3. Brokers are going to have to offer those agent teams something to help them compete with Redfin.

      4. ALL the other vendors other than Zillow and Move have development budgets that are nowhere close to what Redfin has and will have. Maybe money isn’t everything, but money isn’t nothing either.

      5. Ergo, brokers have no choice but to go to Zillow (and maybe Move) and ask them for help with both online traffic and lead generation as well as agent productivity software to keep pace with Redfin. Otherwise, agent teams are going to look and go, “Why am I paying you X% of my commissions?”

      -rsh

      • Why not just copy the business model? The other moving piece of this is the employee-vs-independent contractor business model. Why not run the employee model at traditional commission rates within a traditional brokerage?
        NRT surely has the firepower to set start an employee-subsidiary brokerage and put agents on salaries, then create/organize teams around their lead agents. These systems occur ad hoc already in most brokerages – transaction coordinators for hire, marketing support, discounts negotiated on print marketing, marketing credits agents can use – these huge brokerages know what needs to happen in the traditional sphere. Do you see an employee track evolving as an arm of the traditional brokerages along with cozying up to Z?

      • Well, Kristen, kinda sorta what you’re describing is kinda sorta what 7DS has been working on for quite a while for our brokerage clients (and future clients)…. 🙂

  7. Rob
    1 good job on impact to ‘traditional’ brokers
    2 look forward to your piece on “the impact of Redfin post-IPO on the whole MLS/Association/Tech Vendor space,”
    3 and in line wioth some of your recent articles – what about the impact on NAR; the organization generally run by those from traditional brokerages?
    Thx
    ddoT

  8. Great information Rob, I would like the white paper when you are done with the subject.
    I am nearing retirement but I have a son who is getting his license this month. We are in a fairly small market so we have the advantage of watching the national trends and then project the future of the industry in our small market about 5 years down the road.
    When I first started seeing articles on RF a few years ago, I thought what a great idea! Agents come and go quickly on this profession, but with a system and help to start PLUS a health care plan, the success rate would certainly beat an average of 20% renewals after the first dreary year that most new agents experience.

    Thanks for your thoughts, they always challenge me to think on a higher level!

  9. -rsh~ lots to think about here, but based on your logic, purchasing Redfin stock out the gate is a no-brainer. Anyway, I’ve always looked at Redfin as competition (which fair competition seems to be for the greater good.) I’ve never looked at Z as the competition. I won’t get into my opinion about Z but I will say this! “Those that feel getting into bed with Z is beneficial and the smart move doesn’t know Z as I do.” And in 10 years I have a feeling all that do get into bed with Z (as well as the most brokers and agents) will be sorry and have many regrets (IMO.) Thanks for the vine, now I’m going to listen to LL Cool J do his thing!

  10. Add Amazon to the list.
    From Housing wire.com:
    As shoppers scoured Amazon’s website on Tuesday for its annual Prime day deals, the online shopping giant quietly disclosed a new service coming soon to its users: “Hire a Realtor”. The move would turn the company into a competitor with Zillow and Redfin. Shopping for a new television? How about adding a new home to put it in?

    https://www.housingwire.com/?eid=359724582&bid=1809765

    • From a “brand” perspective, I can’t imagine consumers using Amazon to select a realtor anytime soon. Maybe they will provide a list of all the agents who provide discounted commission?

      I don’t know the %, but I’d wager a guess 70%+ of all leads are from consumers looking at properties & then trying to ask a question or go see the home in person. Is Amazon going to build a real estate search portal to enable that dynamic to happen? Maybe, but not likely anytime soon.

      • It may be that Amazon’s big data predictive analytics would get involved… but seems to me that a “powered by” type of partnership with another Seattle-area company would make more sense for Amazon….

  11. […] Hahn has some follow up thoughts on Redfin’s coming IPO as it relates to brokerages that I’d highly recommend reading (if you care about such things as the future of […]

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