A different approach to home buying
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Kai Ryssdal: Despite snippets of good news here and there, overall real estate continues to suffer. As do some of the people who make their living from it. Realtors are taking home less money. Many have quit the field altogether. But the industry itself has also been slow to react to the new realities.
A lot of real-estate agents continue to do things the way they have for decades, charging hefty commissions and letting properties sit on the market for months.
Mitchell Hartman of our Entrepreneurship Desk at Oregon Public Broadcasting checked out Seattle’s real-estate market, where one start-up is trying something a little bit different.
CONOR O’SULLIVAN: We’re sitting out here on our deck of our new modern home that we both love.
Conor O’Sullivan and his partner, Ryan Powell, bought this hillside home in May. Floor-to-ceiling windows frame a white baby grand . . .
O’SULLIVAN: We have a vista with a lot of green in it, and over to the right, there’s the bay.
The couple moved to Seattle from Chicago to work for Microsoft. They started their search there using the online discount realty company Redfin.
O’SULLIVAN: The original asking price was . . .
RYAN POWELL: Was $895,000 and then the builder lowered that to $830,000 and then we ended up paying $780,000.
O’Sullivan and Powell found Redfin does things differently.
The company posts much more data online than other realty sites, like price and mortgage history. That makes it easier for buyers to size up the property before making an offer.
And Redfin pays clients a rebate. Buyers get back half of the traditional 3-percent commission an agent usually pockets. Sellers get a similar deal. O’Sullivan and Powell got $12,000.
Redfin can afford this because its agents work mostly online, rather than driving clients around on house tours and trolling for new business at open houses. And it pays them in a completely different way.
ALLIE HOWARD: I’m actually paid a salary to do what I do.
Allie Howard was one of Redfin’s first agents in Seattle. I met her at the company’s annual meeting. On top of her salary, she gets a bonus based on customer satisfaction, rather than a cut of the commission.
HOWARD: And I don’t have that extra pressure of being nervous about losing a potential commission. I can just give the very best advice that I can. Sometimes it’s brutally honest, people don’t like it. But nobody wants to go on the market at the wrong price, and waste six months of their lives while their property goes down the tubes.
Redfin’s approach has attracted the ire of realtors in some markets.
HOWARD: Nobody really wanted to play with us. I was literally called ‘the enemy’ once.
In some cases, the company’s for-sale-signs were torn down and competitors balked at negotiating deals.
But not all realtors take offense. Gary Majors is a Portland Re/Max broker, and he heads the local realtors association. He’s confident buyers and sellers will continue to use full-service agents like himself.
GARY MAJORS: I think the place of the full-service realtor is to take the transaction from start to finish, from disclosures to getting feedback from showings, and getting some of those ducks in a row ahead of time. There’s some really key things that happen and that falls on the shoulders of the realtor to bring all of that together.
Still, in this cutthroat market, what matters to many customers isn’t full service so much as low price. Glenn Kelman is CEO of Redfin.
GLENN KELMAN: What we want to do is change the game, and attack the real-estate industry so we can make it more efficient.
Kelman notes that ordinarily, realtors earn twice as much for selling a $500,000 house as one for $250,000. And often, the more you pay for a house, the more your traditional real-estate agent makes. By changing that incentive model, Kelman believes he can offer clients a better deal.
KELMAN: Our goal isn’t to be the best rinky-dink little Web site. Our goal is to be a new way to buy homes, the number-one brokerage in the country.
Redfin has a ways to go. The company’s still tiny compared to chains like Re/Max and Coldwell Banker.
But Richard Green of USC’s Lusk Center for Real Estate says traditional realty services are becoming less necessary, now that buyers can see almost every listing on the market without leaving home.
RICHARD GREEN: Having a model where people examine what’s on the market online, and narrow for themselves what they want, it’s just not that big a deal. You really don’t need somebody to drive you around to look for houses that are going to fit your needs.
The Redfin approach is catching on fast. The 5-year-old startup just turned a profit. It has offices in Washington, California, Chicago, New York, Boston, and the D.C.-area. It’ll be in Portland and Atlanta by year’s end, pressing its key value proposition: that it aligns the financial interests of agents and clients better than the competition.
It’s a business model that could save home-buyers and sellers a roomful of money.
I’m Mitchell Hartman for Marketplace.
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