Redfin, the national real estate brokerage, is introducing a new venture that enables house hunters to buy properties without representation, saving commission fees for both buyer and seller.
The company launched Redfin Direct as a pilot program in Boston in March, and first formally announced the venture in its first-quarter earnings release Wednesday. CEO Glenn Kelman spoke with MarketWatch about Redfin Direct before it was announced publicly.
At a moment of immense churn in the real estate industry, with billions of dollars backing big bets to upend the way Americans buy and sell homes, Redfin Direct represents a smaller tweak, but one that could still have big disruptive potential.
The program works like this: homes listed by Redfin
in a market where the program is available get a banner ad on the online listing explaining that the home can be bought “online without an agent.” The listing agent, or person representing the seller, will be paid the standard Redfin commission, which is either 1% or 1.5% of the sale price of the home. Redfin Direct calculates 2% of the asking price of the home, which is the average of what a buyer’s agent might expect to be paid. That amount is split between buyer and seller, saving both money, Redfin says.
“We’ve been asked by many sellers, what if someone who wants to buy the house isn’t represented? Do I have to pay the fee? We’ve said no, but we haven’t made it easy for that to happen,” Kelman said.
Kelman sees Redfin Direct as an additional layer of consumer choice. Buyers “can hire an agent if they want a consultative relationship,” he said. In an earlier interview with MarketWatch, Kelman stressed that many buyers, particularly first-timers, should have a helping hand. In contrast, a buyer comfortable using Redfin Direct to make an offer must work through an extensive questionnaire that vets his or her readiness to buy.
Rob Hahn, a veteran real-estate industry consultant, isn’t sure there’s much potential for a program like this one. “Most people buying a house would prefer to be represented,” Hahn said. “Given the current setup of compensation, buyers don’t feel like they’re paying for it. My gut feeling is, most people when they’re spending $200,000-300,000 or more want someone to hold their hand.”
Still, Hahn, who’s been watching the massive lawsuit brought against real estate incumbents, thinks that even incremental changes to the way of doing business in today’s housing market could add up to big transformation over time.
Many industry observers think that real estate is long overdue for some sort of sliding-scale service continuum. Last summer, MarketWatch profiled a small startup experimenting with an a la carte approach to For Sale By Owner transactions. At that time, Ben Harris, formerly the chief economist to Vice President Joe Biden, said, “There’s really no economic justification for not allowing the a la carte menu.”
Kelman agrees. “Our guess is in 2019, and probably 2020, more people by far will want representation by far, but I think there’s a new type of consumer and a new set of tools and this could be the future. There’s a new generation of consumers, people who feel confident in a digital world and prefer fact-based information rather than the wisdom of an agent. We were surprised at the strength of the response almost immediately.”
In the short term, the program will, if anything, represent lost revenue to Redfin, assuming the company might have acted as a broker for the buyer if he or she opted for representation. But in the longer term, Kelman said, “we think it’s going to be a really powerful tool for gaining listing share.”