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 dot.com 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.

REDFIN Hit Parade!

HOOOWHEEE! Busy day. Thanks, Greg; that worked. Lots of traffic. If you ever get your server back [update: it's back] I'll link to Kris Berg's superb post as well. And thanks to local agent Ron Ares for the link and excellent post.

Since there are many new visitors, including several agents from Redfin, here's a brief summary of the ideology behind this blog as it pertains to internet startups in general and Redfin in particular:

1. I'm a profound believer in the free market, which means I have faith in the ability of the customer – you – to make sound decisions. You're not stupid.
   
   
2. Given (1), I thrive on competition. I aspire to be as good as those who do things well, but still love those who don't because they make me look better.
   
   
3. Thus not only don't I have any inherent animus for startups like Zillow or Redfin, I applaud them their innovation. If consumers find value, they'll survive, and we'll all be better because of it.
   
   
4. Zillow will survive. Redfin, I suspect, will not.
   
   
5. The Sixty Minutes piece, as noted, was transparently dishonest. There's nothing customers hate more than dishonesty. [But I do admire the chutzpah of an agent claiming she quit her full service job because, doggone it, she was just making too much money too easily.]
   
   
6. As many have noted today, Redfin doesn't sell something for less, it sells considerably less for less.
   
   
7. Good agents sell not only what they do, but what they know, and are worth every penny they charge because of it.
   
   
8. Not every agent is a good agent.
   
   
9. The real estate industry is in flux, and it's internet related. But I think it has more to do with where effort is concentrated: The agents who spend most of their time prospecting for new clients, practicing listing presentations and learning how to overcome objections are going to dwindle in numbers; those who spend most of their time learning new techniques to market a home or touring homes to know the inventory – learning to be better agents – are going to go to the head of the class.
   
   
10. Finally, back to (1): As an industry we spend waaaaaaaayy too much time worrying about innovation, trying to protect ourselves from it, rather than capitalizing on it.
    
    It's simple: do whatever is best for the customer. That's what good agents do every day.
    
    Works a lot better than talking points.

REDFIN: Errata

Trevor Smith, Redfin agent, has pointed out that Redfin has never been through a downsizing. True (since corrected), and my apologies: my confusion was with HouseValues.com, another real estate internet startup. All else stands.

SIXTY MINUTES (3); REDFIN.COM

First, I owe Greg Swann of Bloodhoundblog.com once more for the brilliant device of using REDFIN.COM in a post, the more to attract search hits after the Sixty Minutes piece. I'm just venal enough to want some of that traffic as well.

So. Sixty Minutes. I feel like a Popular Mechanics editor who just sat through a Truther video. It was a parody of everything that's wrong with Sixty Minutes: preconceived story line, silly questions to silly people in order to puff that story line, demonstrably false proclamations by Glenn Kelman of Redfin, and absolutely no substantive rebuttal. It was so transparently bad I'm perfectly willing to let anyone make up his or her own mind: Here's the video. Redfin away. Let me know if you have any questions.

Use this as your guide: The same agent in the King 5 report that closed "as many as four sales a day", in this piece closes eight a week. Redfin released sales not long ago, and closed fewer than 300 as a company, in all of 2006. (Do the math!) They've never made a profit, and are living on venture capital, accumulated via Glenn Kelman's terrific salesmanship.

The marketplace will decide whether or not they survive.

So to the NAR and all other hand wringers: Much ado about nothing.

SIXTY MINUTES (2)

The segment hasn't run here on the west coast yet, but I saw the two and a half minute Q&A promo here. Three things struck me: 1) Leslie Stahl is looking really old; 2) I absolutely love the irony of someone from CBS News telling me that the internet is going to have an impact on my career (See: Dan Rather); and 3) Given that Sixty Minutes producers do all the background work, the correspondents only coming in at the last minute, Leslie Stahl, I suppose, has an excuse for being so thoroughly confused. [Leslie: Redfin's claim to ingenuity is that its agents represent buyers. Trust me, that has nothing to do with staging a house.]

I'll report; should be fun.

And Now: SIXTY MINUTES!

It's at least interesting when two dominant forces of the mainstream media launch real estate related stories within a week of each other.

In the email this morning was this press release from the National Association of Realtors. Apparently SIXTY MINUTES is running a piece this weekend on the internet's impact on the real estate industry.

Full disclosure: I have no use for Sixty Minutes. I haven't watched it for seven or eight years, ever since they ran a Kevorkian snuff film during sweeps week. Between that and the Alar hoax they spent pretty much all their residual credibility, and I have many better things to do during that particular hour.

I've also had experience with one of their producers and film crews. In the early nineties there was a measure put before the King County (Washington) Council by the local animal rights org that would have essentially outlawed the breeding of pets, particularly dogs. Couched in typically painful compassion prose, it looked like it might pass; that piqued Sixty Minutes' interest and they showed up to document before and after the council vote.

Oddly enough, there were a number of people who thought that was an absolutely nutty idea, largely because it was. We showed up at the council meeting at 5:30am – speakers were called on a first come, first to talk basis – and, while the cameras rolled, we spoke for the first eight hours of the meeting. The measure failed overwhelmingly, and Sixty Minutes was no longer interested.

Which is what's happened here. Apparently intended to be a major Good Little-Guy v Bad Big-Guy hit piece, it sounds like the nuances of a very complex industry backed them off considerably. Now – and, again, I'm only going by the press release – it's more of a puff piece on some internet startups, particularly Redfin out of Seattle. Zillow's probably in there as well. So, OK. Big deal.

About Redfin: One of the Seattle stations got a jump on Sixty Minutes, so here (via Inman Blog) is a sample of what you might see. [I love Glenn Kelman selling the fact that he isn't a salesman.] Redfin works primarily as an internet buyer's agent, promising to rebate 75% of the buyer agent commission to the buyer.

Reminder: it's illegal in the state of Oregon for an agent to share commission, avoiding in the process lots of conflict of interest problems. Redfin cannot operate here. Whether that's good or bad is for another day.

I'll break my boycott, DVR the Sixty Minutes segment and respond accordingly, but my gut is models like Redfin have a lot of tweaking to do before they're ever profitable. Their agents by design stay by their computers, fold on their fiduciary duty, and allow their buyer, the listing agent and others to do the heavy lifting. I suppose that's great for savvy buyers, but it puts the listing agent in a position of much higher liability with no prospect for return. Not a good way to begin a transaction.

So in keeping with the theme that people aren't inherently stupid, I think NAR's angst is juuuuuuuusst a bit overblown. We'll see.

And for the record: I really hate talking points.

Market Update…

Just to follow up on PARADE, from the Wall Street Journal (subscription required):

The housing news isn't all grim. Even as prices sag nationwide, there are several cities in the country where home values are climbing smartly. Portland, Ore., Boise, Idaho, Seattle, Salt Lake City, Houston, Austin, and Charlotte and Raleigh, N.C., are among the cities bucking the national trend.

And the trend continues. In the April year over year numbers for the Portland Metro area, though only 1%, unit sales were actually up. Median prices were up 5.8%, average prices 4.1%. All very good: buyer and seller expectations are reaching parity.

HOWEVER: there are 79.5% more active listings now than last year, 11,710 to 6523. That puts pressure on the selling side, and both average and median prices of active listings are down slightly. I think it's possible we'll see a couple months of flat prices – or even slightly down – as the inventory gets cleared.

All that said: Nothing much has changed. Sellers – at least most sellers – are bringing down their prices to reasonable levels. Buyers are realizing value when they see it. Prices are still local.

Ahem: Consult your agent!

I…ummmm...Love a PARADE…

Parade magazine really should stick to the meaningless celebrity gossip it does so well. When it attacks more substantive topics it tends to grind them up and spit them out as hyperbole mixed with non sequiturs masked as studied analysis. Thus they treat, say, the war in Iraq with the same seriousness as Anna Nicole's weight at the time of her death: 178. "Ah, but she may have been on a diet because a bottle of Slim-Fast was found by her bed." Thanks. I can rest easily now.

Today, then, came the breaking news that, nationally, the real estate market belongs to buyers. [No. REALLY???] It DID allow the Pacific Northwest as an exception, but painted mostly a dire picture, the same dire picture you've heard from other mainstream news outlets for the last year. Like ghost stories around a campfire, various versions of apocalypse apparently sell. As if AGW weren't enough.

Reminder: Don't listen to it. Not only is real estate local, it can be singular. What's happening in Phoenix is not what's happening in the Portland Metro area; is not what's happening in Lake Oswego; is not what's happening in Westlake; is not what's happening in Brighton; is not what's happening with, say, a 3300 sf Chafee in terrific shape and perfectly priced. National trends are interesting in the proper context; but trying to extrapolate them to specific situations can be dangerously misleading.

And speaking of misleading: I've defended Zillow in the past and I still defend the right of all people interested to access their site. But it remains a parlor game, and anyone who takes it as anything more is facing delusion and therapy.

PARADE and Zillow, though, have apparently reached an agreement: PARADE drives people to its own web site where, using Zillow's engine, offers this:

What's Your Home Worth?

Find out at Parade.com. Use our free real estate calculators from Zillow.com to determine the current value of your home – and your neighbor's.

See any caveat? No. "Determine the current value of your home". Period.

Look. It's not that I think most people are too dumb to get it, or that any marginally intelligent agent or appraiser can't answer "But Zillow says it's worth $500,000!" with "Well, Zillow assumes you have a roof."

What bothers me is this is likely to give additional impetus to the doofuses at the Arizona Board of Appraisal and those like them. [PARADE is what passes as deep source material for many politicians as they write laws.] If that happens, it's Zillow's own fault for either A) not demanding editorial rights; or B) having editorial rights and not exercising them. Parade doesn't care: they're just trying to get as many hits as possible so someday they can rely on the web to offset the perfectly awful color reproduction in their magazine.

And for the record: Zillow's claim to the wonder of algorithms is that a "majority" – that can be 51%, but I think they say 75% - of their estimates fall within 10% of the selling price. First, anything in this market 10% over priced isn't getting any showings, but more importantly that means, on a $500,000 home, the price could be either $450,000 or $550,000, a $100,000 swing. And those are the good ones!

Anyone want to buy or sell a home based on that information?

April Showers Bring May Showers!

Sure, it has little to do with real estate, but there are important moments in the life of a thirteen year old very furry dog: YETI has decided he hates the rain. Since he lives in Seattle, this presents a bit of a problem for, well, potty trips.

So, of course, Shannon bought him a raincoat, the perfect Seattle Slicker.

Now Yeti braves the elements and approaches potty trips with the same mettle as Galahad searching for the Grail. Stays out all day. Can’t get him back in.

What a thoroughly nutty dog...

Reminds me: make sure there’s enough visqueen in your crawlspace!

The Value of Us. Part 1.

Real life examples often illustrate truths better than any academic argument possibly can. This is such a case, but I'm going to couch specifics so it doesn't look like I'm trying to ridicule; I'm not. But I don't think anything has come this close to illustrating that good agents actually are worth everything they get in commission:

I've done a lot of business in a particular neighborhood. The homes are homogenous, built roughly the same time: Mid to late eighties, a few as late as 2000. The builders vary somewhat in quality, so some developments within the neighborhood demand a higher price than others; and most have been upgraded – new roofs, siding, kitchens, baths, etc. – at some point. Average sold price in the last year is around $720k, the average size 3000 sf, the average $/sf is around $234. It's safe to say I've been in most of those homes, plus those currently active and pending. There was a time during the frenzy a couple years ago that the average days on the market for this neighborhood was less than seven days and selling prices averaged a little over list; now the time is 47 days, and sellers are averaging a five percent reduction in their original list price.

There. That's the background.

A few days ago I was looking through Craigslist and came across an ad for a home I hadn't seen on the MLS. In a very nice area on a terrific lot, both backed and sided by greenways. The ad was nicely written, though included things like "Great investment!" that would never be written by a professional. In it the sellers argue that since the lot is so nice, the $/sf shouldn't count as much. True enough: greenbelts can account for as much as five to seven dollars a square foot, fifteen to twenty thousand dollars for a 3000 sf home.

Unfortunately, that's not what they have in mind. The price they're asking is $63/sf higher than any home that's sold in the last year – including, it should be noted, a number of homes on greenbelts. At the barest minimum the home is $150,000 over priced, likely closer to $180,000. Even if they found a buyer it would have to be a cash buyer; it would never appraise for a loan.

But more: The photos – Craigslist allows four – are of A) an exterior, which emphasized a tree, the garage, a dormer and a lot of hipped roof; B) children playing outside; C) either a den or the living room, emphasizing lots of furniture and knick-knacks (see: DECLUTTER!); and C) a darkened picture of a bath tub. Nothing that would actually help sell the house.

Then, yesterday, the home appeared on the MLS. The sellers had gone to a discount broker - $295 to list!! Why pay more??? – who had earned exactly whatever was charged: The same four pictures, plus four more, including one of a toilet; a half filled out listing; a price exactly $6000 less than the Craigslist price; a buyer's agent commission of 2% when, as noted elsewhere, the norm is 2.5% to 3%; and no provision for a lockbox, making showing much more difficult.

Anything's possible? Nope. No chance in the world this home will sell under these circumstances.

Here's my guess: Armed with the urban legend that brokers only care about themselves, they had several in to give comps, and the agents were at least honest enough to tell them the price the sellers had in mind was out of the question. It's even possible one or more turned down the listing: marketing costs are considerable, especially now; with no chance of a return they walked. And agents are fanatically cognizant of reputation: having their name attached to a listing $150k over market is bad business.

So at the very least, the sellers are out $295 plus their time and angst. If they really want to sell – rather than just play the market – and eventually have to hire and listen to a professional, the home will have the negative taint of its present listing. Chances are very, very good they'll net less than if they'd hired the right person in the beginning.

Please! Be represented. Hire the best, and listen. It's in your interest!

UPDATE: The buyer's agent commission has been raised to 2.5%. All else remains the same!