Zillow is the website with all the hype, but there is another which, in its so-far
modest press notices, has been widely hailed as the new way of buying real estate.
Redfin, launched earlier this month, is the baby of a relatively
new real estate company in Kings County (Seattle) Washington. Redfin the company,
in its scant three years of operation, has used the Internet in at least one
attention gathering way before. According to an article in The Seattle Times
it was the first in the nation to "overlay for-sale and sold homes onto up-close
satellite maps." Now "Redfin Direct" is touted as being the first site that
lets buyers actually bid for real estate online.
This new wrinkle is one likely to cause Stephen King-like spontaneous ignitions
among traditional -real estate brokers once word about its methods gets wide
exposure in the media or the company begins to spread its operations, and it
is poised to move into the San Francisco area. But before we get to that, here
is how Redfin works.
A buyer logging into Redfin, apparently a totally virtual company - as
far as we could determine there are phones and faxes but no real offices - is
offered two choices; "Redfin Direct" and "Redfin Connect."
The latter merely refers the buyer to traditional agents working for "partner
agencies" in the community; the same type of service offered by hundreds
of other sites. These Connect agents show properties, offer advice, assist with
offers, and undertake all of the steps leading to culmination of the sale.
Redfin Direct, on the other hand, maintains a salaried staff of agents (there
is no indication on their website if these are licensed agents nor do we know
whether Washington State licensing would require them to be) which will assist
buyers in composing, submitting, and negotiating an offer, and if necessary
evaluating counter-offers, submitting responses to those counter-offers, and
coordinating some, maybe all, of the details prior to closing such as house
inspections, appraisals, and so forth. In other words, they start work only
when the buyer has actually decided to buy.
The Redfin buyer receives a rebate on two-thirds of the commission share that
is typically paid to the agent presenting the successful offer. In Seattle if
commissions are still in the 6 percent range as claimed, a selling agent (we
are being intentionally careful about using the term "buyer's agent")
would receive a commission of perhaps $10,500 and the Redfin buyer would be
rewarded with $7,000 of that amount. The prospect of this money, due at closing,
can be used, if desired, to sweeten the offer, increase the down payment, or,
for that matter, a trip to Hawaii.
What does Redfin not do?
They do not show the house. And this is the first occasion for spontaneous
combustion on the part of its competitors.
Redfin advises potential customers to view the property at an open house or
by contacting the listing agent for a private showing. While listing brokers
are working for the seller and are obligated by Realtor ethics to work in the
best interests of that seller, open houses are a marketing tool for the agent
as well as the seller. In some parts of the country it is common for buyers
to visit open houses and sign in with their agent's name, thus protecting
him should they decide to buy but in others it is common still that agents consider
anyone walking through the door of an open house to be "their" customers
in the sale of that house. This is a tough stance to defend in mediation should
it come to that, but still it is an expectation. Most states enforce the rule
of "procuring cause," i.e. he who produces the offer gets the commission,
but in such disputes ugliness usually prevails and it is the buyer who gets
caught in the middle.
And what if that buyer, after viewing the house once and being a reasonable
and sensible consumer, decides he must see it a second or even a third time.
Again, he is expected to impose, and at this point it is an imposition, on that
listing broker. Should there be no open house or the listing broker is "unavailable"
then the buyer must find another agent willing to show the house.
This agent, whether aware of the fact or not, is working without hope of remuneration.
While real estate agents are used to being used, such institutional abuse is
hardly likely to promote goodwill toward Redfin.
In order to use Redfin the buyer must be pre-qualified by a mortgage
officer for an amount sufficient to finance the property and has to
sign the Redfin Buyer's Agency agreement. The latter requirement will probably
entitle Redfin to try to collect a commission should a buyer make an offer through
another agent or directly to a FSBO without resigning that buyer agency agreement
in writing. Rules, however, vary from state to state. The buyer may not have
a buyer's agency agreement with any other broker or must resign that in wiring,
nor can he have an open offer on another property. Interestingly, the buyer
cannot have toured properties with an agent referred by Redfin; that is a Redfin
Connect agent. This is worded on the Redfin site to imply that one cannot have
toured ANY property with a Redfin Connect agent, not just the property on which
one is making the offer. At least they are protecting their own!
How does it work for the consumer?
It will probably be an overall advantage to the seller. It is easy to see listing
brokers cutting commissions at the table to make their own offers more competitive
with those coming from Redfin, but there are listing agents who will dig in
their heels and refuse to show properties to Redfin customers
even in violation of Realtor ethics. This removes potential buyers from the
pool. More likely listing agents will eventually reduce the split, the portion
of the commission they offer to the selling agent. This split is usually 50
percent but there is no rule as long as the percentage is published and the
listing agent has a good argument here that he is doing more than his share
of the work.
The buyer who opts to use Redfin might make out handsomely with a very generous
rebate at closing, particularly if the market is one tipped
toward the buyer. However, in the critical initial steps of buying a house he
is on his own learning about neighborhoods, getting a handle on the process,
and could find himself in some very awkward situations trying to actually see
the house. In some states the listing agent would be within his rights for liability
reasons to insist that the buyer be accompanied by his buyer's agent on any
visit to the listed property.
Once the offer is made, and again this will not be so prevalent
in a buyers' market, the listing agent is in the catbird seat. That agent can
reduce her commission to favor her own offer, or convince the seller of the
"inconvenience" or "danger" of dealing with a virtual site rather than a familiar
brick and mortar neighborhood business.
Perhaps the real question is whether real estate, at least on the buyer end,
is moving toward a fee for service model with agents paid by salary rather than
commission. This is not the first version to be tried. Before DeWolfe Real Estate
was bought by Coldwell Banker in 2002 it was experimenting with a model on Cape
Cod in which two separate sales staffs were maintained. The first was a selling
team that took listings on a traditional commission basis and the second was
a sales team which represented buyers on salary (although ultimately that was
founded through commissions from the selling end.) The merger came before results
of the experiment could be weighed, but there is no question that more and more
firms will be playing around with different concepts and bringing real estate
into a brave new world.