Redfin began 10 years ago with ambitions of using technology to revolutionize the residential real-estate business, but it still has less than a 3 percent market share on its home turf. Both the startup and its rivals have learned a lot, and changed a lot.
Redfin began a decade ago as a new kind of residential real-estate brokerage: It would use the Internet to streamline homebuying, slash the commissions paid by buyers and upend a staid industry that ran on personal connections and closely held information.
But while Internet-based companies in many fields have dethroned old-school industry giants, Redfin after 10 years still has less than a 3 percent market share on its home turf.
And despite its revolutionary aspirations, Seattle-based Redfin has become a lot more like its rivals, while they have embraced web technology.
Redfin by the numbers
Year launched in Seattle, San Francisco
Revenues last year
Metro areas served
Real-estate agents employed
These days, said Waleed Muhanna, a business professor at Ohio State University who studies the Internet’s effect on industries, “The same technology that allows Redfin to enhance the efficiency of the process is also available readily to traditional real-estate agents.”
Most Read Business Stories
- Fight rages on over Kemper’s private helicopter landing spot in downtown Bellevue
- Big Tech needs to face a Theodore Roosevelt-style trust busting
- Retail turmoil triggers new visions for shopping malls like Northgate in Seattle
- Boeing 787 being converted to VIP jet has unusual accident at Moses Lake airfield
- Amid bidding war for Amazon HQ2, Pittsburgh debates trade-offs
As it has introduced more personalized service, Redfin has raised its prices and rebated less of its commission to buyers.
“They’re very close to a traditional model at this point,” said Sam DeBord, a CB Danforth managing broker who’s a director at Seattle King County Realtors.
Redfin CEO Glenn Kelman disagrees, saying the brokerage offers consumers “a radically different way” to buy or sell a home. “What no one really understands about Redfin is the basic secret sauce of the business isn’t technology. It isn’t service. It’s this combination of the two.”
Privately held Redfin, which says its annual revenues are more than $100 million, employs more than 1,000 real-estate agents in 67 metros nationwide.
Industry watchers credit the company — and other early online real-estate ventures such as Zillow — with shifting power to consumers by giving them one-click access to data to which only agents once were privy.
“The consumer today shopping for a home knows more than the real-estate agent did 30 years ago about market dynamics,” said Galen Ward, CEO and co-founder of Seattle-based Estately, an Internet brokerage launched in 2007.
More than 90 percent of homebuyers use the Internet today when shopping, and half do it from a mobile device, according to a survey by the National Association of Realtors.
“I actually recommend my clients use Redfin,” said Ben Kakimoto, a Keller Williams broker and publisher of The Seattle Condo Blog. “Redfin has the best online home search there is.”
Other local brokerage startups challenging the traditional model
Estately: Launched in 2007, the brokerage shows over 1 million homes for sale on its website and refers buyers to 900 partner agents who pay it a referral fee.
Rebls: The website matches off-market homes and potential buyers. Homeowners can see the demand for homes like theirs and choose to list it with an agent.
Surefield: Redfin co-founder David Eraker last year launched this brokerage, which charges sellers a 1.5 percent total commission and offers high-resolution 3D home tours to save buyers time and focus their search.
WaLaw Realty: The attorney-led discount brokerage, founded in 2005, charges a flat fee of $7,995 to represent buyers or sellers.
— Compiled by Sanjay Bhatt
Yet the Internet hasn’t killed demand for real-estate agents: 88 percent of buyers in NAR’s survey bought their home through an agent, up from 69 percent in 2001.
Three traditional brokerages — Windermere, John L. Scott and Coldwell Banker — still dominate in King County. Together they account for about half of the homes sold on the Northwest Multiple Listing Service. (See chart)
But the top three have lost market share to smaller competitors, including Redfin: Its share grew from 1.1 percent in 2008 to 2.7 percent last year.
Redfin’s Kelman said the brokerage’s modest market share isn’t his main concern.
“We’ve wanted to be the best, not the biggest,” he said. “If you’re the best, you’ll be the biggest some day.”
Discounter stirred backlash
Redfin’s earliest investor was Seattle-based Madrona Venture Group, which has backed a string of online successes like retailers Amazon.com, travel search tool Farecast and discount stock broker Sharebuilder.
Most have gone public or been acquired within a few years. Meanwhile, Redfin has had eight rounds of venture funding since 2005 totaling $167.8 million, according to Crunchbase. Last December it raised $71 million, and there’s no sign that an IPO or sale is imminent.
“We’re in no hurry to exit a company that’s doing quite well,” said Redfin’s Chairman Paul Goodrich, a managing director at Madrona.
The real-estate industry, however, has proved more difficult to disrupt than some other businesses.
Plane tickets and stocks are standardized commodities that consumers purchase many times over a lifetime. But every home has unique quirks, and people buy one infrequently.
“This is one of the largest purchases a person makes in their lifetime,” Muhanna, the business professor, said. “For first-time buyers, they want a competent buyer agent, someone who can help them navigate the intricacy of the process.”
Another obstacle to revolutionizing the industry is that home sales usually involve two brokers — the buyer’s broker and the seller’s broker.
In its early radical days, Redfin tried to win market share by offering lower prices than competitors. Initially, it rebated to buyers about three-quarters of the customary 3 percent commission a buyer’s agent gets on a home sale.
Buyers would attend open houses and do their own research, then ask Redfin to write up the offer and close the deal.
Rival brokerages and the multiple-listing services that serve themreacted vehemently.
“Competing agents have threatened us with violence, intimidated our customers and tried to block their offers,” Kelman testified before Congress in 2006, the year Redfin launched in Seattle and the Bay Area.
After a year of industry backlash, Redfin backed off its aggressive buyer’s rebate. Its typical rebate in Seattle metro is now about one-third of the buyer’s agent commission.
The discount brokerage also has raised its charge for listing a home.
Redfin initially charged sellers a $2,000 flat fee, later doubling it. In 2010, it switched to a 4.5 percent commission instead — keeping 1.5 percent as the listing agent and giving 3 percent to the buyer’s agent. Though that’s less than the typical 5 to 6 percent commission traditional brokerages charge sellers, Redfin adopted the very fee structure it had once criticized.
“When it comes to discount brokerages, there’s a big pool of dead startups,” said Ward, Estately’s CEO. “It costs money to run a brokerage.”
Nevertheless, Redfin says its customers have saved more than $200 million in commissions.
And it’s still deeply discounting in select markets: In the D.C. area, Redfin’s site recently offered to list a home for a 1 percent commission.
In the Seattle area, Redfin stresses tours on demand and top-notch service in a TV commercial that’s aired on and off since October. Its agents, says the ad, “aren’t paid on commission but on your happiness.”
But there’s another difference from traditional brokers the ad doesn’t highlight: Redfin buyers don’t necessarily work with the same person through the entire process. They’re assigned to a contract-writing agent, tour homes with multiple junior agents and work with a transaction coordinator to manage the paperwork and close the deal.
Kelman said the team approach is part of Redfin’s way of providing “real estate as an on-demand service for a last-second economy, where people want to get into houses right away.”
The division of labor, however, comes with much higher caseloads for Redfin’s agents than peers at traditional brokerages — a system that can lead to burnout and high attrition among its top-performing agents.
“Your Redfin agent is going to do three to four times as many deals as a typical [full-time] agent, who is going to do 10 to 20” a year, said real-estate broker Adam Vogt, a Redfin agent in the D.C. metro area from 2012 to 2014.
Vogt said he found the pace at Redfin incompatible with raising his son, so he switched to a traditional brokerage where agents are independent contractors, work on commission and can have more autonomy.
Former Redfin agent Harry Silverstein left the Boston area office last year. He saw an opportunity to make a lot more money at a traditional brokerage, but said Redfin is “a great place to learn because of that volume you end up doing.”
Even the highest performing Redfin agent tops out due to its salary model, making it hard for the brokerage to hold on to top performers, he said.
Both Vogt and Silverstein said they believe Redfin hasn’t expanded its market share more rapidly because it hasn’t paid as close attention as competitors do to cultivating relationships with clients that generate referrals and repeat business.
“Redfin is about being more clever than the rest and bringing new ideas to the business, whereas the traditional model is about brute force — the number of contacts that you make, the number of people that you touch,” Silverstein said.
Traditional brokerages can support more boots on the ground too because their agents, working as independent contractors, don’t cost them much.
In King County, Windermere has about 2,260 agents; John L. Scott and Coldwell Banker, more than 1,100 agents each.
They compete against Redfin’s 220 agents.
While Redfin’s roots are on the buyer side, representing sellers is now the faster growing part of its business. Last year, nearly 30 percent of the 1,775 King County home sales it helped broker were on the list-side, up from 18 percent in 2008.
Eden Riddell said she and her husband chose Redfin to list their Lynnwood home in Snohomish County because of its customer service, its technology and the convenience of touring other homes within 90 minutes of a request.
The couple sold their home recently for $449,950, about 6 percent less than what Redfin listed it for in February. Riddell said she was fine with the price because they had another home under contract and needed a quick close.
Despite moving toward the traditional model, Redfin still maintains a technological edge, Kelman said.
“We’ve just gotten better and better at figuring out who’s really interested in your property,” he said. “You don’t need 10,000 buyers for your house. You need four or five, and it’s really nice to know there are six people who have looked at your property more than 20 times in the past 24 hours, especially if you’re about to consider a price drop.”
A virtual 3-D walk-through tour is standard with Redfin’s listing service and lets prospective buyers get 24/7 access to a home’s layout.
But competitors offer that service, too: Surefield, a discount brokerage launched last year by Redfin co-founder David Eraker, includes its own 3D-tour technology as part of its standard service.
Kakimoto, the Keller Williams broker, says he, too, can hire Redfin’s vendor, Matterport, for 3D tours if he thinks it’ll help sell a client’s home.
“I don’t think Redfin does anything that I wouldn’t do.”
Redfin also touts “Last Call,” an auction service launched in April: Once an offer for a specific house is in hand, the service alerts other prospective buyers who’ve expressed interest in the property that they’d better jump in if they want to play.
The brokerage also recently released a real-estate app on the Apple Watch.
Kelman said “the gap between Redfin and other brokerages may widen because we are not defending the status quo.”
Such features may matter less to the average consumer than what’s familiar. Consider Dave and Mandy Baltazar. The couple recently listed their Kirkland house for sale with DeBord, the agent who helped Mandy buy it years ago.
“I don’t know a ton about real estate,” said Dave Baltazar. “We felt really comfortable with him.”
Redfin’s revised business model shows it’s rejected the idea that brokers aren’t needed in an Internet-enabled world.
But all things being equal, technology features and lower prices may not be as compelling to real-estate consumers as an agent’s competence and trust, Muhanna said. For Redfin to grow, he said, its agents will need to prove themselves and generate referrals — just like anyone else in the industry.
“Until that happens, word-of-mouth is likely going to work in favor of existing players,” Muhanna said. “There are more of them and they’ve been in the game for a lot longer.”
Kelman recognizes that.
At the end of the day, Redfin isn’t just about some cool tech venture, he said, but “doing the bare-knuckled work of hiring and training real-estate agents, hanging yard signs and showing properties.”
As if to underscore the transformation, he added, “What I’m proud of now is what I used to be self-conscious about, which is that we’re real-estate agents.”