First of all, I know there’s cool Q1 news out there and coming soon from companies I’m keeping track of. But I’m at the T3 Summit today, so look for the Q1 updates next week.
In the meantime, I thought I would take notice of something… a bit odd.
First of all, I know there’s cool Q1 news out there and coming soon from companies I’m keeping track of. But I’m at the T3 Summit today, so look for the Q1 updates next week.
In the meantime, I thought I would take notice of something… a bit odd.
I think this might be a bleg (that would be a blog/beg) for help in making sense of some recent buyer data. Some of this just makes so little sense to me that I’m asking the Notorious community for assistance.
The buyer data comes from Redfin. I’m focusing on it because I know Redfin’s corporate culture is data-driven, and because the folks there are really good at data. They constantly survey their customers, they take pride in their NPS-derived customer satisfaction surveys, and pretty much have been data junkies from day one.
Given that we’re only looking at buyer survey data from one brokerage, and a fairly unique one at that, it isn’t clear how much weight we could/should put on the data. But it’s something. If you’re aware of any other brokerages (NAR’s survey is a bit too broad/diffuse, and I’d like to look at broker-level surveys) who have this kind of buyer data, I’d be interested in knowing about them.
So let’s get into it.
Thus far, we have explored why Redfin 3.0 is significant, and the hypothesis that the real estate consumer cannot, will not, or in any event does not form relationships with companies or with brands, but only with another person: the agent. We have looked at the two main consequences of that hypothesis: that if the brokerage brand doesn’t help an agent form and maintain client relationships, it can’t hurt an agent either; and that brokerages should only invest in technology only to the extent that such investment leads to greater recruitment and retention of agents. What matters, at the end of the day, is agent count.
We now turn to how those two conclusions then inform business strategy for brokerages going forward.
(Part 1 is here)
So in the last post, I made the case that Redfin 3.0 is significant because of who made the decision. Redfin was and remains (a) an innovator in brokerage business models, (b) a technology leader, and (c) led by smart people who don’t make snap decisions. Their decision to move away from the whoever happens to be available brokerage-to-consumer model to a one-to-one agent-to-consumer model suggests that perhaps the real estate transaction is so emotional, so psychological, so personal that consumers cannot form a relationship with any company or brand, but only with another human being.
In this part, I explore the possible consequences of that assumption: real estate consumers can and will form a customer relationship only with a human being. I believe that assumption has real implications for the hot topics the industry is debating and talking about today.
So many interesting items in the news these days. Last week has been a busy week for blogging. And it ended on a most interesting note. Following all of the excitement around Zillow and Howard Hanna and all that, I saw this news from Redfin:
Introducing Redfin 3.0: Redfin Becomes a No-Brainer
Redfin is proud to launch today a massive upgrade to its service, designed to ensure that each Redfin customer has a one-on-one relationship with his agent.
The Redfin agent who works with you throughout the touring and negotiating process now meets you from day one, sees with his own eyes the home you’re buying or selling, and attends the closing.
Because we believe this service upgrade is of the same magnitude as our decision to offer free unlimited home tours, known within Redfin as Redfin 2.0, we are calling this new service model Redfin 3.0
I thought this was interesting for a lot of reasons.
First, love ‘em or hate ‘em, Redfin has always been a truly innovative brokerage since it began. So many companies want to claim they’re innovative, that they think outside the box, and so on, but Redfin has actually proven it… to mixed results, to be fair, but they’ve walked the walk for years. Second, Glenn Kelman is what you might call a Big Brain; he doesn’t make whimsical moves. The tired and overused term “thought leader” applies to fewer and fewer people, but Kelman I think lives up to the moniker.
So I think Redfin has done the research, thought about the decision a whole lot, and then pulled the trigger after serious consideration.
And finally, Redfin has been, without a doubt, a technology pioneer in the brokerage world. They’ve been so advanced, in fact, that many brokers routinely think of Redfin as a web portal first.
So Redfin 3.0 is of interest. Let’s think about it some more, and think about what their moves might suggest the future of brokerages everywhere might be.
I’ve been traveling more or less nonstop for a couple of weeks, and busy as hell in any event, so I kind of missed the controversy around Redfin’s Scouting Report. I’d suggest heading over to Jay Thompson’s blog to get his thoughts on the product, and the various responses from the real estate industry to it. I don’t have a whole lot to add to the controversy.
But there are at least a few things that most of the commenters are missing on this controversy. I’m far more concerned, actually, about the responses to Scouting Report and what they say about the industry than about the Scouting Report itself.
If you’re responsible for real estate brokerage operations, you owe it to yourself and to your company to read this post by Glenn Kelman at Redfin. I have said for a while now that I believe Redfin to be one of few viable models for real estate brokerage of the future, and this post helps confirm that belief. It’s a long post, and worth reading in full, but here’s the money graf:
But outside of calling one agent after another, the CB CEO has no way of knowing what his agents are doing; most work as contractors, for franchises, recording their deals in spreadsheets and notepads. Redfin on the other hand has a system for scheduling home tours and writing offers, which means we also have a system for storing data about every tour & offer. Months before the numbers are recorded at county courthouses or by federal agencies, we know when bidding wars are back, or when tire-kickers have taken over the market. We can see the whole elephant, and we’re minutely sensitive to when he’s about to roll on top of us or stampede through the jungle. [Emphasis added]
Fact is, far too many real estate brokerages pay lip service to the importance of technology. Even the ones who do invest are putting money and resources towards marketing technology rather than information technology. In the long run, I think the companies that survive the Great Recession will be ones who invested in information technology, rather than just another pretty website. Continue reading
Agent ratings are back in the conversation, thanks to this scintillating op/ed by Kris Berg (link is for Inman premium subscribers only) who is one of the best writers in real estate today. I have written about this topic before (here and here) and it continues to fascinate and puzzle me still.
Kris’s point essentially boils down to the fact that providing real estate brokerage service is one fraught with emotion, with unpredictable clients who don’t know what it is that a realtor actually does for them, who cannot make rational evaluations of how good or bad an agent really is. Quantitative metrics don’t provide accurate ratings, in Kris’s view, because those focus on production rather than service. Customer surveys are flawed because customers are ignorant on the one hand, and nuts on the other hand, and are too often influenced by how the transaction itself went down rather than how the realtor performed.
All of her points are, I think, valid and true.
Sadly, they are all irrelevant to some extent.
Fact is, agent ratings are already here in places like Yelp and Angie’s List. Consumers will talk, will evaluate, and will rate realtors (as they do every other service provider) on their FaceBook pages, on blogs, on websites, and with each other in person. It’s going to happen whatever the merits of such ratings.
The real issue, then, isn’t whether such rating systems are good or bad or inaccurate or legitimate, but who will do the rating and how they will do it.
Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.
- Sir Winston Churchill
Redfin released a sprawling, glorious update to our website last night that changes Redfin in two fundamental ways:
- We built data-driven agent profiles, showing every deal our own agents have done and every customer review, even on deals that failed.
- We opened up our business to partner agents and we published all their deals too, surveying old customers for reviews.
How does this change Redfin as a company? Well, when we upgraded our own service last November to offer unlimited home tours and a choice of agents, everyone said we were becoming less virtual. And now that we’re connecting consumers with partner agents, folks will say we’ve become more virtual.
Actually, I think the change to Redfin as a company is far deeper and far more subtle than what folks will say.
The Peanut Gallery
A hint of what’s changed comes from Gregg Swann of the Bloodhound Blog:
If Redfin can make five figures a day on what may not even amount to a single full-time staff line, that’s a killer business.
Maybe even such a killer business that it will replace client-representation altogether. Implausible? One of Redfin’s planned expansion cities is Phoenix — where our numbers are worse than Kitsap’s. Of the RE 2.0 players, only Estately.com does anything like this, but Redfin could go into the referral business virtually anywhere, virtually overnight.
And Louis Cammarosano of HomeGain said with maximum succinctness, over Twitter: “It means they are becoming like Homegain.”
John Cook at TechFlash took Redfin to task:
The concept is not new. In fact, Seattle area companies such as Estately and HouseValues.com also earn money through agent referrals. But the program is a big switch for Redfin, which has always touted the customer service focus of its agents. Kelman said he was “terrified” that the partner program “could screw up the brand.” That’s why the company interviewed all of the partner agents and implemented an agent review system on the Redfin Web site. It also reserves the right to remove partner agents that are not living up to customer service requirements.
Kelman downplayed the possibility that Redfin would move entirely to a partner model. “There is something in Redfin’s blood that we like having direct relationships with the customer,” he said.
This change is a fundamental one. This is not a mere extension of the Redfin model and philosophy. It’s something else.
What Was Actually Done
TechFlash post above actually has a pretty good brief description of what Redfin actually launched:
Starting today, the company has aligned itself with 35 real estate agents from 13 different brokerage firms in nine counties. The agents, which receive a profle page on Redfin and must have completed 15 transactions, pay Redfin a 30 percent referral fee on any completed deals. Redfin then refunds 15 percent of that fee to home buyers, keeping the other 15 percent.
But Redfin has more info on this front:
Every single one of these partners committed to our consumer-friendly values as a prerequisite to joining the program:
- Technology: the partner refunds part of his commission to the client because the client asks for service online using our tools.
- Service: the partner is not allowed to do any of the funny-business around forcing someone to use him when buying a house; the partner earns more when the client is satisfied.
- Transparency: the partner publishes information about all his deals, and all his reviews; the partner provides the service requested by the consumer and nothing more unless asked.
Furthermore, rather than sending the “leads” to the agent (or multiple agents), the Redfin model places that power in the consumer’s hands. The consumer sees the deals, failed deals, activities, etc. of the partner agent, then actively chooses to contact that particular agent.
So, the major differences between Redfin and other models are:
But all of that, still, fails to address the central, subtle, and fundamental change.
Basically, by going to a ‘partner’ model, Redfin is no longer responsible for the consumer service experience.
Now, Glenn Kelman and others at Redfin vigorously dispute this:
The story said that we had been “terrified” about potential problems in our partners’ customer service without explaining that we said that to introduce the steps we took to avoid those problems. (emphasis added)
We planned for Redfin’s partner program in a financial model built in 2007. We experimented with it earlier than that, canceling the program in 2006 after it became clear that we had no way of being accountable for good service to the client.
We could have offered a year ago the referral programs typical in the industry, selling the client out to multiple unnamed agents for a fee. There was ample financial pressure to do so. We stuck to our guns to create something much better, building an entire accountability system and a set of tools for a client to ask a particular agent to perform a particular service, interviewing every partner agent in person, and checking each agent’s references over a year back, so we could offer a partner program consistent with our values. These values are why we radically cut the profitability of the program by offering half our fee back to the consumer. (Emphasis added)
For what it’s worth, I completely believe Redfin. And furthermore, Redfin might very well be successful.
However, there is a large gap between “building an entire accountability system” and actually being accountable.
Redfin is a brokerage in the markets in which it is active. The agents who work for Redfin are employees of Redfin, and Redfin as an entity is accountable to the actual consumer for the service experience. In fact, while I don’t know for sure, I’m going to guess that Redfin has a certain “Redfin Way” of “Redfin Service Standards” or whatever that it enforces on its agents.
If I’m a Redfin agent, and I don’t live up to Redfin’s performance standards, then Redfin has a variety of tools and methods at its disposal to enforce standards. With these partner agents, no matter how well Redfin screens ‘em, Redfin only has one way to enforce standards: remove them from the program.
If I pick a partner agent, and have a terrible experience, who do I get to blame?
The Liability Question
A way to crystallize the issue is to consider legal liability.
Suppose that some unhappy consumer sues the partner agent after a deal goes south. (Not saying this would happen, but thinking about lawsuits help clarify some issues.)
The agent’s actual broker would be named in the lawsuit, since legally, the agent is just representing the broker. The broker’s E&O insurance would come into play, and the lawsuit would then focus on whether the agent’s acts/omissions rose to the level of professional malpractice. The broker’s processes, standards, training, screening, etc. would all become relevant as to establishing liability under respondeat superior theory.
Where does Redfin fit into this?
On the one hand, the consumer would absolutely sue Redfin. After all, Redfin supposedly screened all of its partners, and built an “entire accountability system”. That a crappy agent slipped through resulting in a big loss for the consumer means that the consumer has a reason to sue Redfin. After all, he went to Redfin to find an agent, and relied upon Redfin’s representation as to quality, professionalism, and ethics.
On the other hand, Redfin’s defense would presumably be along the lines of, “We ain’t the boss”. They would presumably assert that respondeat superior does not apply in their case, because the agent doesn’t work for them. They don’t control the agent’s actions. All they’ve done is made an introduction between the consumer and the partner agent, and the consumer chose to work with that particular agent.
(I suppose, in theory, Redfin could choose NOT to fight liability and embrace it wholeheartedly in order to preserve their ideal of customer service… but I doubt that very much. Lawsuits focus the mind in interesting ways. Plus, does Redfin’s E&O insurance even cover these ‘partner agents’? Would Redfin’s insurer really agree to that without a substantial hike in premiums?)
If the agent’s broker — the actual “boss” in theory — is held liable, would they not consider bringing Redfin in as a third party defendant? Or bring an indemnity claim that goes something like, “Your program caused our otherwise ethical agent to do bad things, so now you owe us money”? I know I would advise the broker to bring such a suit, were I representing them.
With the other lead-gen sites, like Homegain or HouseValues, these issues never arise. All that those sites promise to consumers is that someone will be in touch, and they pass the lead on. They’re merely a marketing conduit.
Redfin’s program goes far, far beyond that… but they’re not ultimately accountable to the consumer client from what I can tell.
The Brand and Ideals Question
That Redfin would disavow responsibility for a poor consumer experience through Redfin is, to say the least, a sea change. As Glenn says quite passionately:
We will always, always fight for the consumer: exposing information about agent performance the world has never seen, offering the best value we can, paying our agents based on customer satisfaction, negotiating with Realtor associations to publish more data.
This is an emotional issue for us. We are less interested in proving TechFlash wrong, or even in convincing you that Redfin will succeed or fail — which is still an open question — than we are in establishing what this company stands for: making the real estate industry better for the consumer. Maybe nobody else cares that this company actually stands for something. But we do. We always will.
Does that include accepting legal liablity for the actions of your ‘partner agents’? If it does, then in what way are those ‘partner agents’ different from your own employees — except that they’re not really subject to discipline/training/enforcement by you?
If it does not, if Redfin’s program stops short of accepting legal liability for the misconduct or negligence by partner agents, then that is a fundamental change in the Redfin brand. And I daresay it represents a change of the Redfin ideals in a subtle, yet profound, way. Sure, Redfin can still work to make the real estate industry better for the consumer. But it won’t do it directly, by training its agents, by implementing its policies and procedures, and by serving the consumer.
That might be fine; might even be great. Maybe Redfin overcomes some of the acrimony built up over the years this way.
But it is a fundamental change. He who pays you is your customer.
The End of the Beginning
For the industry, I think Redfin’s move represents the end of the first wave of Real Estate 2.0. The implication appears to be that new companies cannot implement new business models for real estate. Trulia and Zillow are not real estate companies; they are media companies in the real estate space. They make money from advertising.
Homegain, HouseValues, Estately and so on are also pseudo-media companies, but with a pay-for-performance type of ad model.
Redfin was the pioneer of a new model, centered around a fantastic website, direct consumer engagement, and a novel refund concept. Their obsession with transparency, truly excellent user experience online, and “freakish depth” was the precursor to what the brokerage of the future might look like.
That chapter, I think, now comes to a close. The new real estate companies have found that they cannot make money directly from consumers. Okay, fine. What does the next chapter look like?
No one knows of course. But it does seem to me that the battle lines are getting drawn as follows:
On the one hand, the new entrants must find ways to derive revenues from real estate agents; on the other hand, the existing brokerages must find ways to make consumers happier and provide more value to its agents. The midgame, then, represents a struggle on the one hand over consumer service/experience coupled to value delivery to agents, and a struggle on the other hand over getting money out of agents.
We are living through interesting times in real estate.
As most denizens of the Re.net know, there was a recent kettlestorm (tempest in a teapot) around some mean and nasty things said by some blogger at Redfin. Glenn Kelman, the CEO of Redfin, took immediate action and posted an eloquent appeal for harmony and peace.
Glenn — you’re a class act, and a brilliant guy.
So when you write:
We all know that Redfin’s business model is different than yours: we try to get customers via our search site, we pay our agents salaries and customer-satisfaction bonuses, we want to put the escrow process online to avoid talking so much to our customers, and we refund part of our commission. This makes us freaks perhaps, or even fools if you like, but not an enemy.
I know you mean it. And I believe your appeal for understanding and peace is genuine:
So maybe there’s hope that we can work things out. This isn’t a promise to be boring. But at least we can be civil. We weren’t today. We are sorry for the post about Kris Berg. We wanted to say to everyone else in real estate talking about this post that we hope there can be peace between us.
But because you’re such a smart guy, I know that you will understand when I invoke Thucydides:
There can be no peace between Redfin and traditional brokerage. Like the Lacedaemonians of old, the traditional brokers have cause for alarm at the growth of the power of Redfin. That makes war inevitable.
It’s great that Glenn and the folks at Redfin are so civil and open to working with others and so on. But Redfin has embarked down a path that represents a serious threat to traditional brokerages. It has done so effectively, and should be applauded for its execution. Consumers have and may continue to benefit from Redfin’s model. But calls for peace strike me as a bit… I don’t know… naive perhaps.
Just a bit further down on the Redfin blog, you find the post entitled, “The Redfin Advantage“:
Last spring, Redfin analyzed the MLS data available to all brokers to show that our home-buyers negotiated a better deal on a home — saving an extra $4,000 off the list price — over and above our commission refund. We called the total savings, of $14,080, the Redfin Advantage.
The post then goes on to detail how the Redfin Advantage has widened since then.
Unlike other traditional competitors who like to boast some advantage or another (“We have the best agents” or “We care about you like no one else!” or some such), Redin can boast numbers. $14,080 as a matter of fact.
If I’m a competitor of yours — and all brokerages in the areas where Redfin is active are competitors — and you’re offering the same service I am for $14K less… well…. On the one hand, kudos to you and your team, and we can be civil to each other and make nice and go have a beer. But let’s not pretend like you’re not taking bread off my table, and doing it in a way that I haven’t yet found a way to combat.
Since I’m not a competitor of Glenn’s, as a neutral observer, I can only marvel at the job that Redfin has done and is doing. It’s innovative, and so far, extremely well-executed. Every traditional brokerage company has reason to be afraid of Redfin, and reason to be hostile to Redfin. I don’t see co-existence as a possibility here: either Redfin’s model and method of salaried agents + web-based self-service + refunds will win and dominate the industry, or the traditional model and method of commissioned agents will. Consumers want choice, but when one choice offers $14K… that ain’t much of a choice.
None of this, of course, excuses She-Who-Shall-Not-Be-Named’s behavior toward a fellow agent and blogger. None of this takes anything away from Glenn’s apology or his sincere appeal for civility and peace. But what it does do, I believe, is to expose the fact that what Glenn should be asking for is not peace with his peers, but civilized combat with honor.