Active Rain April 26, 2009

Why Redfin Won’t be Redflop

There has been some chatter on the Internet and here on Active Rain about Redfin, and I suppose that any non-traditional firm will attract controversy, especially from the rank and file orthodoxy. We have seen non-traditional firms come and go in the New York market; Foxtons went out of business in 2007, and Zip Realty currently is making a big push. 

I have often been a skeptic of non-traditional brokerage models. I haven’t been confident that they are sustainable once the investment capital runs out, and in the case of several, inlcuding Iggy’s House, I have been right. The main reason for my skepticism is the fact that people, not gimmick creative business models, determine the success of an enterprise. Simply put, top agents will work where they can make the most money. A top producer will not join a team with lower per-transaction revenue, and you need top producers for market share an oh, um, profit. Think 80/20 rule, and remember that the unorthodox brokers were the flavors of the month in the hot market but went under when things slowed down.  

I have reason to believe that Redfin will be different. I’ll give you my rationale:

  • They have figured out a way to recruit high producers.
  • They screen their associates thoroughly.
Redfin has worked out referral association agreements with carefully selected firms with a record of production. This will work well in the slower market, because, in this climate, any source of extra business is gold. I am happy to report that my company made their cut, and it wasn’t easy. They vetted me carefully, and every future referral’s feedback and rating about me will be public. Those are high standards, but more importantly, their results will be helped by the slow market, not hurt by it.
It is actually a very savvy move- open markets where you don’t have a dedicated office by referring business to established producers, and hold them to a high level of consumer satisfaction. There is full disclosure as to who is a Redfin agent and who is a referral agent. There is no ambiguity, and the transparency, both in operations and feedback, is by design. 
Is it sustainable? Consider this: there is virtually no brick and mortar overhead in the referral markets, they get referral fees, and the business grows organically. No salaried pretenders running around in company cars. No expensive ads. No rent. No feaux prosperity fueled by rapidly burning capital. I think it will work, and my contact with the company managment gives me the sense that they know what they are doing. Granted, I am biased toward those who do business with me, but then again, those who do business with me make money (he said humbly). 
Stay tuned. 


  J. Philip Real Estate


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