Profile: Redfin.com

Online start-up Redfin saves home buyers money

By Edward Iwata, USA TODAY
June 17, 2008
 
MENLO PARK, Calif. — Linda Flynn, a
steely-eyed United Airlines pilot, has flown planes and passenger jets
for years. But last week, Flynn had to calm her nerves before signing
papers to buy her first house.

Longtime apartment dwellers Flynn and her
husband, Christopher Code, started house-hunting after their landlord
recently raised their rent to $2,450 from $1,900. Using online search
tools offered by Redfin, an Internet real estate firm, the couple
searched dozens of homes and neighborhoods.

They quickly found a three-bedroom, one-bath
home in Pacifica, a beach town south of San Francisco, for $490,000.
The deal closes July 15.

 

MENLO PARK, Calif. — Linda Flynn, a
steely-eyed United Airlines pilot, has flown planes and passenger jets
for years. But last week, Flynn had to calm her nerves before signing
papers to buy her first house.

Longtime apartment dwellers Flynn and her
husband, Christopher Code, started house-hunting after their landlord
recently raised their rent to $2,450 from $1,900. Using online search
tools offered by Redfin, an Internet real estate firm, the couple
searched dozens of homes and neighborhoods.

They quickly found a three-bedroom, one-bath
home in Pacifica, a beach town south of San Francisco, for $490,000.
The deal closes July 15.

WHAT REDFIN OFFERS:

Refunds to home buyers. Redfin returns to home buyers two-thirds of the 3% commission that its brokers make on housing sales.
Technology power.
Sophisticated mapping and search technology for customers to find
home-sales histories, property tax records, days on the market and
other hard-to-get information.
Flat fee for home sellers. Rather than a 3% commission to brokers, home sellers pay Redfin a flat $3,500 at closing and a $500 processing fee.
Real estate agents-employees.
Redfin’s agents are employees, not independent contractors. Redfin
supervises its agents and pays them salaries, benefits and
customer-satisfaction bonuses.
Insider real estate tips.
Blogs (blog.redfin.com) and online forums (forums.redfin.com) that
offer inside advice from brokers and comments from house hunters and
buyers.

Sources: Redfin, USA TODAY research

 

"I got a little nervous, but we’re really excited," Flynn says. "It’s the biggest purchase of our lives."

Flynn is among a growing number of home buyers
who swear by Redfin, an online start-up in Seattle that has rocked the
real estate market — especially after a legal settlement last month
between regulators and the National Association of Realtors (NAR) that
will give all brokers equal access to home-sales listings.

Redfin investors and CEO Glenn Kelman, 37, a
University of California, Berkeley literature graduate and Internet
entrepreneur, hope that Redfin will change the real estate industry the
way Amazon changed book-selling.

How? By offering a range of online research
tools and low-cost services that save home buyers thousands of dollars
over traditional real estate firms.

Redfin’s easy-to-use website (www.redfin.com)
provides consumers market data on home-sales histories, school
districts and other information. Then Redfin brokers and agents take
home buyers on house tours and negotiate and close deals.

Redfin charges a typical 3% commission. To the
delight of home buyers and the dismay of traditional brokers, Redfin
also returns two-thirds of the commission to home buyers.

"There’s $60 billion in commissions in the
United States," says Kelman, who co-founded Plumtree Software in San
Francisco before joining Redfin. "That’s a very large market, and we
think we can change the game in the consumer’s favor."

Making waves

Redfin should get a big boost from the recent
settlement. The Justice Department in 2005 had sued the NAR, alleging
that the trade group barred online brokers from offering lower costs to
consumers by limiting access to nationwide listings of homes for sale.

In the settlement, the NAR agreed to give all
brokers — including discount and Internet firms such as Redfin — access
to the same data used by traditional brokers.

Even before the settlement, Redfin had been
growing, landing $1 million in revenue in 2006 and $5 million in 2007,
Kelman says. Redfin Chairman Paul Goodrich says profits are projected
this year in all cities that Redfin operates in.

Launched six years ago in the tiny Seattle
apartment of founder David Eraker, Redfin also has offices in Boston,
Washington, D.C., the San Francisco Bay Area and Southern California,
and the start-up plans to expand to Chicago and New York this year.

Venture capitalists and private investors —
Madrona Venture Group, Vulcan Capital (founded by Microsoft co-founder
Paul Allen), Draper Fisher Jurvetson and others — have poured $21
million into Redfin.

Goodrich, a managing director at Madrona
Venture, says Redfin is hitting key milestones, including fast-growing
website traffic and high customer satisfaction.

"Even in this down market," Goodrich says, "I’m very happy with the progress the team has made."

All has not been rosy, though. Early on, Redfin alienated many in real estate by attacking business as usual in the field.

During a 60 Minutes TV interview last
year, Kelman called real estate "the most-screwed-up industry in
America," which led to harsh criticism from brokers in blogs and at
real estate conferences.

"We saw ourselves as a crusader for consumers,
but we poked fingers in the eyes of the traditional real estate
industry," Kelman admits. Now, Kelman says, he’s more diplomatic,
learning "to be an advocate for consumers and still work closely with
other brokers."

Sean Valiton, a 28-year-old Redfin agent in
Boston who has worked for traditional real estate firms, praises
Redfin’s business model and collaborative style.

"Redfin educates consumers and gives agents a lot of freedom," he says. "We’re building a business here."

Gene Phifer, an analyst at the Gartner
technology research firm, wrote in a report last year that Redfin
blends first-rate technology, discount prices and brokers who can work
closely with home buyers. Redfin, he wrote, is one of the first Web 2.0
start-ups "to become a significant player" in its market.

The downside for Redfin? Real estate is
dominated by big firms such as Coldwell Banker and Windermere Real
Estate, with legions of brokers and agents.

What’s more, about 12 states have anti-rebate
laws that bar brokers who represent home buyers from returning money to
their clients — effectively blocking Redfin from doing business in
those states.

Greg Swann, a Realtor in Phoenix who runs
BloodhoundRealty.com, says Redfin has a brilliant business model but
will face trouble in sprawling Sunbelt cities where real estate firms
need vast networks of brokers and agents. Redfin’s management team of
technology gurus also lacks real estate experience, Swann says.

Drawing younger buyers

Meanwhile, more traditional real estate firms
are strengthening their online presence, offering home listings and
other basic information on their websites.

Redfin’s interactive technology appeals to
young, tech-savvy, first-time home buyers who use Redfin’s site 30
minutes each day — twice as long as home buyers use some other real
estate sites, says Michael Young, Redfin’s chief technology officer.

Many older Realtors see the Internet as a threat
and don’t understand young consumers, says Jim Crawford, an online real
estate expert (RealEstateTechCoach.com) and Re/Max broker associate in
Atlanta. In contrast, he says, smart firms blend online tools and
marketing with brokers who know local neighborhoods and provide the
personal touch.

"It’s a tidal wave that no one can hold back," says Crawford, who conducts 85% of his deals online.

Even as online real estate gains momentum,
Kelman feels the pressure to keep Redfin growing, given the high
expectations of investors.

"In the venture capital business, you keep
pushing money back on the table, doubling down and risking more,"
Kelman says. "That’s a heavy burden to carry."

 

 

Leave a Reply

RSS Daily Search Trends