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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.

Random Thoughts on Redfin Going Public

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I have been waiting, wanting, hoping for Redfin to go public for a few years now. For a bunch of reasons, mostly having to do with getting another company in real estate to have to report publicly about their operations and their numbers.

Well, my wish has been granted. Redfin just filed its S-1 to go public a couple of days ago.

I don’t have any strong opinions at the moment, besides wishing Glenn Kelman and crew lots of luck. But looking through Redfin’s S-1, I had a few random thoughts. I figured I’d share them with you all, taking a bit of a break from the internal machinations of NAR.

This is a game changer. The industry as we know it will never be the same after Redfin’s IPO. I’ll post on that later, but I wrote most of this before I started thinking harder, so I figure I might as well share this with you all while I work on the bigger piece.

A Response to Bill Brown, 2017 NAR President

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Usually, Notorious is what you might call an underground-yet-not-really phenomenon. That is, I know that almost all of the leaders of the industry read it, and I get emails, messages, and phone calls from them from time to time responding to one post or another. Very, very rarely do I get a public response from someone in a position of authority.

Well, in a refreshing change from the atmosphere of omerta that seems to surround organized real estate, 2017 NAR President Bill Brown posted a lengthy comment on my post about Bob Goldberg’s elevation to CEO. He corrects the record, and takes me to task on a couple of items. I thought it worth responding to him here, in a separate post, rather than in the comments section.

Seems to me that this is a rare opportunity for public discourse about an important decision that the organization has taken. I think it’s healthy for people who have the same ultimate goal — to save the Realtor Movement — to discuss things openly.

I’m going to quote parts of Bill’s comments, but I encourage you to read the whole thing. It provides real insight into the thinking of the NAR Leadership of today. This will be written as an open letter to Bill.

The Silence of Our Friends: NAR CEO Edition

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My last post on Bob Goldberg being selected as the next CEO of NAR has sparked quite a response. Most of the private messages — even from those in top leadership positions at local, state and national levels — are of the “Boy, you hit that one out of the park!” variety. Most of the public messages take yours truly to task for daring to question His Holiness. It’s all good — I’m used to all sorts of responses from people on whatever topic du jour.

There is one kind of reaction, however, that is just… as puzzling as it is annoying. The number of people who are coming out of the woodwork with their unquestioning support for Bob Goldberg is simply astonishing.

We’re not talking about reserved support of the kind I gave him. We’re not even talking about enthusiastic support, like, “Boy, there were great people in the mix, like Alex Perriello, but Bob will be just great!” We’re talking about a level of fandom that raises real questions on the whole process that just finished, and questions on where the hell these people were for the past couple of years.

Let me explain.

The Bob Goldberg Era Begins; Convince Me On A Few Things [LONG]

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In the middle of the afternoon on Friday, June 23rd — a curious time to be releasing such major news — NAR announced that it had chosen NAR Senior VP Bob Goldberg to be the next CEO, replacing the retiring Dale Stinton.

As you can imagine, I’ve had more than a few emails, text messages, Facebook messages and the like from all sorts of people asking my opinion on the selection. Why they care about the opinions of some consultant/blogger is a bit beyond me, and I am… how do I put this… “humbled and excited” to be asked.

I have a bunch of thoughts, many of them in conflict, and a few different emotions — a couple of those are in conflict as well. So in a way, this post may be my working out all of those different thoughts and emotions. Take the journey with me.

Are Investor Offers Always Worse?

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I’ve been in the mountains of North Carolina the last couple of weeks with intermittent internet service and zero cell coverage. So obviously, blogging was nonexistent. I barely responded to emails, to be honest.

One interesting conversation I had with Sunny around the campfire, though, was whether investor offers are always and everywhere worse than traditional sales. Yeah, we’re real estate nerds, so yeah, we talk about that stuff around campfires toasting smores.

What if investor offers are not that much worse than selling your home through an agent, the traditional way?

What if… investor offers are better? By a lot?

Random Musings: FSBO and the MLS, NAR Mandates Syndication, and Googlicious Horror

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I’m packing for a two-day road trip, after which I will be in the mountains of North Carolina as opposed to the swamps of Houston for a couple of weeks. But I wanted to share a couple of random semi-amusing thoughts I’ve had in the last couple of days. Maybe you’ll find them amusing as well as thought provoking.

Here we go.

How "fixing" the Zestimate isn't just math

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I recently amused myself – and a few others – when I Facebook trolled the CEO of Zillow, Spencer Rascoff for offering a million dollars to anyone who could fix their “Zestimate” algorithm.  My solution was simple –

“Hire a REALTOR®”

Then I suggested he send the million dollars to the Beverly Hills/ Greater Los Angeles Association of REALTORS® – where yes, I am the CEO, and yes I am technically a paid cheerleader for the industry.

Despite all of that – as well as my nature to be a smartass – I stand by my statement.

Every Property Is Different

Every property – be it a space in a building, or a stand alone home – is different.  From the orientation of the lot which can be affected by wind and rain patterns that wear differently on a property to the maintenance of a given room in a given unit, the smallest differences can vastly affect the valuation of that unit or property.

Take, for example, a small crack on a wall. Some questions that arise are:

  • What side of the property is oriented for stormwater drainage?
  • Is the crack in the upper corner of a room likely to indicate a broken slab from drainage or just poor maintenance/ installation of drywall?
  • Does that same crack run a higher or lower risk of letting moisture seep into the walls?
  • Does that moisture leak indicate a likely mold problem?
  • Is that likely mold problem a small problem, or one that could require major remediation?

And that represents just one crack on one wall in one room of one unit on one property that can not be seen from a plot map and a satellite picture taken some time in the last six or so months.

How Exposed Do Consumers Want To Be?

Even the most complex algorithm can not bring into account what a professional intuitively knows about the conditions of a property.  They’ve gained this expertise by spending time in countless properties, and being able to identify similarities to conditions found in recently closed comparable properties.

That isn’t to say that an algorithm can not be devised to get closer than what the Zestimate currently produces, but accuracy that consumers can rely on would require either:

  • A serious inspection of the property by an accomplished, trained, and experienced professional; or
  • A truly invasive collection and association of consumer data, data available through APIs with as many other property related apps as possible, collecting all available government recorded information, recent photography/ video evidence, complex scenario modeling and AI to address concerns – and then local service market information to factor repair costs.

Stay Focused On Your Success

While I applaud Mr. Rascoff and the Zillow team for trying to deliver a better product to the consumer, Zillow should focus on their core value is in the marketplace – connecting the consumers with reliable information and qualified professionals to serve their needs.

Attempts to replicate or replace expertise with an impossibly incomplete picture of a property only serves to further create confusion and distrust with consumers by giving them unreliable and inaccurate information that contradicts thorough and adequate evaluation.

When it comes to the largest purchase that the average person makes in their life – that is an irresponsible if not dangerous course to chart.

How “fixing” the Zestimate isn’t just math

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I recently amused myself – and a few others – when I Facebook trolled the CEO of Zillow, Spencer Rascoff for offering a million dollars to anyone who could fix their “Zestimate” algorithm.  My solution was simple –

“Hire a REALTOR®”

Then I suggested he send the million dollars to the Beverly Hills/ Greater Los Angeles Association of REALTORS® – where yes, I am the CEO, and yes I am technically a paid cheerleader for the industry.

Despite all of that – as well as my nature to be a smartass – I stand by my statement.

Every Property Is Different

Every property – be it a space in a building, or a stand alone home – is different.  From the orientation of the lot which can be affected by wind and rain patterns that wear differently on a property to the maintenance of a given room in a given unit, the smallest differences can vastly affect the valuation of that unit or property.

Take, for example, a small crack on a wall. Some questions that arise are:

  • What side of the property is oriented for stormwater drainage?
  • Is the crack in the upper corner of a room likely to indicate a broken slab from drainage or just poor maintenance/ installation of drywall?
  • Does that same crack run a higher or lower risk of letting moisture seep into the walls?
  • Does that moisture leak indicate a likely mold problem?
  • Is that likely mold problem a small problem, or one that could require major remediation?

And that represents just one crack on one wall in one room of one unit on one property that can not be seen from a plot map and a satellite picture taken some time in the last six or so months.

How Exposed Do Consumers Want To Be?

Even the most complex algorithm can not bring into account what a professional intuitively knows about the conditions of a property.  They’ve gained this expertise by spending time in countless properties, and being able to identify similarities to conditions found in recently closed comparable properties.

That isn’t to say that an algorithm can not be devised to get closer than what the Zestimate currently produces, but accuracy that consumers can rely on would require either:

  • A serious inspection of the property by an accomplished, trained, and experienced professional; or
  • A truly invasive collection and association of consumer data, data available through APIs with as many other property related apps as possible, collecting all available government recorded information, recent photography/ video evidence, complex scenario modeling and AI to address concerns – and then local service market information to factor repair costs.

Stay Focused On Your Success

While I applaud Mr. Rascoff and the Zillow team for trying to deliver a better product to the consumer, Zillow should focus on their core value is in the marketplace – connecting the consumers with reliable information and qualified professionals to serve their needs.

Attempts to replicate or replace expertise with an impossibly incomplete picture of a property only serves to further create confusion and distrust with consumers by giving them unreliable and inaccurate information that contradicts thorough and adequate evaluation.

When it comes to the largest purchase that the average person makes in their life – that is an irresponsible if not dangerous course to chart.

Question of Trust: A Response to Tni Leblanc

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I do love me some good meaty debates on industry issues, even if it can be passionate. Especially if it is passionate, as long as the debate doesn’t descend into irrational ranting or rudeness. I get to enjoy that with many of my friends, like Sam Debord and Andrew Flachner. I hope Tni Leblanc, with whom I will engage in this post, will be someone I get to call a friend in the future.

A bit of background: my post on Zillow’s Instant Offer was crossposted (with permission) to Inman. Tni left a lengthy comment, and I invited her to do a guest post here on Notorious. She declined, and left even more thoughts. I figured I’d respond to them all here so Facebook doesn’t just lose them as time goes by.

Go ahead and check out the original comments here. I will reproduce big chunks of them here on this post because I’m going to engage in a bit of fisking, which I haven’t done in quite some time.

For the TL;DR crowd: go ahead and skip this post. It’s gonna get lengthy and may not be all that interesting to you. 🙂