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Wednesday, September 27, 2006

Redfin Is Pornographic

Fast Company Article regarding how digital maps are enhancing the user experience.

"Traditionally, in real estate, you'd have to go to the county records office or the police station, and pore through dusty file cabinets, to get the information that a Web site such as Redfin.com can display in a couple of clicks. "We want to organize information geospatially," says Redfin CEO Glenn Kelman, "so people seeking a home can capture the gestalt of the neighborhood." For example, the home seeker can ask why a house is more expensive than others in the rest of the neighborhood, and the seller can respond by adding information to the map about recent renovations, even posting before-and-after pictures. Such features keep the average user on Redfin for an impressive 72 minutes a week. "The map is basically a centerfold--it's pornographic," Kelman says."
This -is- pretty cool, but does the geospatial gestalt image capture all the neighbors with toxic loans, or provide a ratio of the likelyhood your suburb will become the next shantyhood?
"From 15,000 feet, the $2.5 million house at 123 Highland Drive in the Queen Anne district of Seattle doesn't look like much. The roof is a nondescript gray square; the yard, a tiny patch of fuzzy space. This doesn't bother Matt Bell, a 33-year-old sales executive in the market for a new home. He is focused on the numbers flickering at the bottom of the Web browser two feet in front of him, the constantly refreshed statistics such as average property value, county tax records, local schools, and previous selling prices. "Eh," he sighs. "It's $538 per square foot, but the neighborhood average is only $420." Opting not to leave a comment on the house's open blog, Bell abandons 123 Highland and zooms back out over the city, the neighborhood numbers blurring to keep up with him."
Only $420 per square foot! You've got to be smoking something.

I have two questions. One, how does a 33 year old "sales executive" purchase a 2.5M home, and two, how do you think this crash will impact Redfin? Personally, I like Redfin. Any company that seeks to simplify the home buying process and rid of us realtors deserves respect.

7 comments:

S Crow said...

Redfin has agents. They are the key in assisting buyers and sellers in the purchase & sale of homes. If they were not agents, the business model of rebating thousands back to the consumer (buyer) would not work.

Redfin has a viable business model, but is experiencing fierce resistance from the traditional modeled real estate firms.

The idea of a buyer who is bringing the money to the table in the first place so that all parties get paid, receiving a rebate to the tune of several grand is a powerful incentive. The testimonials from their satisfied clients say it all.

If Redfin's roots start to grow deeper in the market, they have a real chance in putting pressure on the existing commission structure.

synthetik said...

I understand that Redfin has agents, but surely they won't act like your typical realtor.

How are they paid? Not completely by commission I'm assuming?

FYI, I went to a "networking mixer" at "the canal" (next to ballard locks) last night. The event was attended by at least 6 area chamber of commerce groups and there were a tremendous amount of people there.

I didn't bump into a single person in real estate or mortgage lending. A guy selling beepers was just as annoying however.

marin_explorer said...

Only $420 per square foot! You've got to be smoking something.

Funny, but that's a $/sqft I can only dream of for a good suburb. Around here, you're looking at $750-1000 for something comporable--and the houses aren't built as well as my hometown in WA. Can I say you're all lucky to be spared some of the BS we around the SFBay endure?

Right-- that 33yo "exec" must make serious coin--to jump on that home with a fixed rate. My guess is he's taking the ARM/IO route. Still, why are people looking at homes when the market is clearly poised for a correction?

I bet we're going to see a lot more info products for the house consumer that will help erode price premiums--and eventually those inflated transaction costs.

plymster said...

Pornographic - obscene writings, drawings, photographs, or the like, esp. those having little or no artistic or cultural merit

A 33 year-old salesman is planning on tossing $2.5 million on a house in Queen Anne.

$420/sq. ft. average for a home in Queen Anne.

Recent articles trumpeting (falsely) local rental increases.

Median prices rising to the point where only 10% of the region can afford the median home.

Everything that spews from David Lereah's mouth.

CPI (aka "headline inflation") excluding energy, home prices, health care, food, or anything else that would raise the CPI above 2%.

I think "pornographic" is a good description all right.

mercer_island_guy said...

In offering a rebate, Redfin may have the same effect of sellers giving buyers credit back. If the refund is given back at closing, it becomes 2% of the buyer's down payment.

With a downturn and lower sales volumes, clearly Redfin will be hurt a bit. However, as buyers and sellers become more frugal, this will probably help Redfin (even though I'm sure traditional realtors will drop their pants and cut their commission costs to 2% on the buy side). So I would guess Redfin will be helped more by the downturn than traditional realtors and do fine. They can use scale to lower costs anf offer more features over time (eg, home warrantees, educational materials & analytics, etc). And on the buy-side, they really fix the currently broken model whene the buyer's realtor just wants to the buyer to close.

mercer_island_guy said...

I should be clearer (and check my spelling) in that last post. The 2% actually becomes 10% of a buyer's 20% down in a traditional mortgage. The 2% is 40% of a 5%-down loan. Bottom-line is that Redfin will end up helping buyers who are short on cash as lending standards tighten.

Additionally, I believe Redfin's buying agents (incented by customer service metrics and not commission) will have the effect of longer DOMs and lower offer prices. Without salespeople (aka, realtors) pushing to close deals, this is only natural, and it's a very good thing for real estate.

Also, lowering the cost of buying and selling homes will make the housing market more liquid, especially in the condo market. In the LONG TERM, there may be an overall bump up in sales volume if Redfin's model become popular. (At this point, it's still a tiny outfit.)

CRichard said...

I am going through the motions of buying a house (spousal pressure). We are not using a buyer’s agent, but it has minimal impact on our buying process: My wife’s hobby appears to be scouring the MLS for listings, I am only interested in motivated sellers (so pre-listings are of no use to us), and we have small kids, so the whole-day 10-house tours are impossible for us. Also, I can now get all the sales and comp information from county records and online services like Zillow. Big deal if I have to make a few phone calls to set up appointments. I’ll gladly do that for 12-15K in saved commission.

The best part is that most realtors are simply baffled by this. I constantly get the retort that “it doesn’t cost you anything to use an agent”—as if it were impossible to negotiate away the commission. Also, I get the further benefit of being able to use a RE attorney if I choose (for $900), and they will actually have no financial disincentive in looking out for my best interests.

Buyers agents are toast!