Saturday, May 19, 2007

REDFIN, Sixty Minutes and the State of Real Estate

Translation: Please don't criticize our illegal, consumer hostile monopoly on real estate transactions, or Realtors will be forced to get real jobs.

Would like some cheese with that whine?

Gotta love the internet, where vacuous canker is assumed an adequate substitute to actual thinking, and cleverness is almost always inversely proportional to its writer's perception.

That was from John Cook's Venture Blog for the Seattle PI, a response to a reprint of NAR's letter to CBS rebutting the Sixty Minutes piece. It's a miniscule part of the polemic and traffic that's driven real estate blogs since last Sunday, some of it terrific, clearly some of it not. But it's generated some thoughtful introspection as to the state of the industry, and where it's likely headed.

First, that comment isn't completely out of the ordinary; real estate agents have a very real problem with reputation. Harris Interactive has done a couple polls in the last year, one on the prestige of various professions, one on the trustworthiness. RE agents were next to last in both, just above stock brokers. [I'd argue this is a little like polls re congress: 28% approval, but "MY congressman is excellent." That's why over 90% get reelected.]

That's the sentiment on which Sixty Minutes meant to capitalize, and it's indelibly etched in the marketing plan of Redfin. In its post transaction survey, to the question why the customer was attracted to the company, included in the multiple choice response is "Stick it to the Man. Just don't like traditional agents…" (for the record, 18%). That's one of the reasons Redfin will fail: a foundation built on what's wrong with everyone else rather than what's right with you isn't a foundation at all because it keeps moving.

More importantly, Redfin will fail because it doesn't pay nearly enough for what little it does; it won't attract any volume. But that said, the amount that it's paying is too much to ever realize a profit. Brokerages, even internet brokerages, are expensive to run, especially when it's staffed by too many salaried agents and support staff generating too few closings. By its own numbers it closed only 170 sales in the Seattle area from Feb 2006 to Feb 2007, a time frame in which (this is a guess based on our own Portland numbers) there were probably over 50,000 closings total. Since the beginning of 2007 it's closed 150, with 25 agents. Risk capital is very expensive, and VCs tend to get really grumpy when projections aren't met, especially since the recent collapse. I'll be a little surprised if Kelman is successful in his current fundraising trip, a lot surprised if Redfin is still around in eighteen months.

So I just don't see Redfin as a threat to the traditional model, and I still think normal people are perfectly capable of sniffing out Sixty Minutes deceit. As I've said, internet startups will come and go, the market deciding which are which.

The real threat to the industry comes from: The industry. In stereotype there's always an element of truth, as the stereotype exhibited in the Harris polls suggests: We spend entirely too much time worrying about and protecting ourselves, entirely too little focusing on our customers. We hoard information and regulate how it's dispensed, keeping it from those who need it most. We spend more time concerned about marketing ourselves than marketing our listings. Even the nomenclature betrays us: Consumers, clients, customers and friends are people; spheres and farms are commodities. Books and classes teach us how to SELL! SELL! SELL!, and give droll scripts to follow for every situation. Worst for this discussion, many are firmly anchored to the "I've done it this way for twenty years…" mentality, unwilling to change even as the internet passes them by. I've run into two in the last year who still don't have email.

None of which is to diminish the value a good agent brings to the buying and selling of real estate. Most of the people I work with are very, very good at what they do. Some are not and, unfortunately, they get most of the attention.

If we're going to limit opportunities for the Leslie Stahls and Glenn Kelmans of the world, we're going to have to change how we approach business. Change licensing procedures. Deregulate information.

My favorite because it will solve so much, and considerably closer to reality than most would think: Set up a new commission structure by separating completely the buyer's agent commission from the listing agent's. [Thanks, again, for the many ideas from Greg Swann.]

There's been a lot of comparative talk this week about Nordstrom vs Walmart, vis-a-vis full service agents and Redfin. But most miss the essence of what made – and makes – Nordstrom Nordstrom. It's not that they give good service; that's a result.

It's that they never take their eyes off their customer. What's best for that customer is the first consideration in every single decision that's made.

That's what we need to do.


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