Redfin and ‘Disruption’ in the RE Industry

On every third call I do the word “disruption” comes up — meaning the upending of some practice or financial model in the traditional marketing and media world. It’s almost an empty term at this point it’s used so often; much like “Web 2.0” has been drained of meaning from overuse (“Web 3.0” has now made its appearance). 🙂

But in the real-estate industry consumer adoption of the Internet, especially at the high end, combined with the advent and now wider availability of discount brokers (Redfin is the latest to join the group) may put increasing pressure on local realtor commissions and over time change the nature of real-estate transactions. (This is Zillow’s vision too although not yet embodied on the site.)

From today’s NY Times (reg req’d) comes a lengthy article on the subject:

“At that point we became a true pariah to the industry,” said Rob McGarty, Redfin’s director of West Coast operations. Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com. A prospective buyer finds a house on the Redfin site, which populates its maps with homes found on the local M.L.S. A request to see the house can be made with the click of a mouse.

Buyers also enter details of their offers — the price they want to pay, the size of the deposit they are willing to put up and, for example, whether they will pay for the termite inspection. Then they click on “Submit.” A Redfin agent checks everything with the customer before passing along the offer to the seller.

“It took eight minutes,” said Perry Webster of Des Moines, a suburb of Seattle, who bought a new four-bedroom house through Redfin. “But it didn’t really matter that it was online. We just liked the business model.” He asked, “Is it really worth $10,000 to ride in a real estate agent’s Lexus?”

Redfin can also work the seller’s side of a real estate transaction. It uses a disruptive method there, too: it lists homes in the M.L.S. for a flat fee of $2,000. The customer is responsible for showing and advertising the home; Redfin handles paperwork and negotiations. But one part of the old system is steadfastly adhered to: buyer’s agents are offered their full share of the usual commission.

Like many Redfin customers who were interviewed, Mr. Webster and his wife, Robin Meyers, told of encountering hostile selling agents who said their offers would not be competitive if they used Redfin. But other agents’ antagonism only seems to make Redfin customers more loyal.

(My emphasis.)

In several places the article makes reference to agent hostility or resistance to buyers using Redfin. Certainly this reflects that agents are worried and this has struck a nerve. But there may be an early momentum here that becomes very hard to stop – especially in a slowing market where people want to pay less and keep more (whether you’re a buyer or a seller).

Word of mouth referrals and top-performing agents will still exist and still make good commissions over the long term (our agent jumped through some elaborate hoops and really delivered for us). But there will be increasing downward pressure on commissions, especially when — because of the Internet — people feel that they’re doing all the work and the agent is bringing less value to the transaction.

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Related: Results of a Classified Intelligence survey of local realtors’ marketing attitudes and behaviors.