Kris recently got together with the CEO of Redfin, Glenn Kelman, for a chat. Redfin is the most recent of the “discount” brokers to hit the area. The backdrop of this meeting was the impending rollout of Redfin in SoCal this week. Glenn also made the rounds to visit Roger Showley, real estate writer for the San Diego Union Tribune, and Channel 10 to spread the gospel of yet another discount model. Most of Kris’ discussion with Glenn was recorded (by mutual agreement) and is presented on podcast at the Bloodhound. With so many fish to fry, Kris didn’t have time to get to what I find to be the meat of the issue, so I will chime in here. Given that the meeting took place last week and Glenn imposed an embargo on the broadcast until 7:00 AM this morning to coincide with the debut of their San Diego website enhancements, and given that I had the opportunity to hear the taped interview before going “live”, I have had some time to gather my thoughts.
First, I would say that Glenn sounds like a nice, intelligent, well spoken person. He was very forthright in admitting to existing and potential flaws of the model, acknowledging that it is still evolving and that there are still several “issues” that need to be resolved. While his motives for bringing this new discount model may not reach the standard of being “noble”, he does seem to sincerely believe that there is a better, more efficient and less costly way to buy real estate, of course within the context of a for-profit operation. He is not running a charity here and is the first to admit it. Note that I don’t mention “sell” real estate. Although Redfin claims to have the ability to do this, their model, at least at this point is heavily weighted on representing buyers.
I’m not sure whether the background derives from negative personal experiences Glenn has had with real estate agents in the past or whether he is just an opportunist. He says that there are too many substandard agents today. I agree. The current barrier for entry into the business of real estate sales is far too low. In less than a year, my 17-year-old daughter, Becky, can get a license. Believe me, she can pass the test now without breaking a sweat. Does that mean she has the life experiences and business experiences to properly represent buyers and/or sellers? Of course not. There are too many agents out there who have no business being in this business.
In a nutshell, the Redfin model primarily relies upon a buyer-side commission rebate, generally in the range of 1%-2% of the sales price. Glenn will station an “agent” in Del Mar. Yes, one agent for all of San Diego County.He says that he wants to provide a “high quality customer experience and consistent service”.
Generally, the Buyer would be responsible for finding their own home, determining an offer price and submitting this information on-line to the Redfin agent, who will then forward it to the Listing Agent. If you do not feel comfortable on your own or are unable to find your perfect home driving around, you have the option of having Redfin show you homes, first 3-hour tour free, then by paying Redfin $150.00 per home or $250.00 for a 3-hour “Home Tour”. According to their website, they feel that charging for the home tours will be a small price for buyers to pay when compared to the rebate. Another way to see homes for sale, according to their website, is to call the listing agent and have them provide this service, even though they do not represent you. The website actually contains a “script” for buyers to use to get into homes. This may be one of the “hotspots” with local agents, since a buyer who is represented by Redfin will try to shift the buyer agent responsibility on the listing agent. Their website actually advises the buyer to say, “If you are unavailable to show the property, my broker is happy to call the seller to arrange a tour.” I suspect this tactic may result in some interesting responses from listing agents.
The licensed agent will work as a “Transaction Coordinator”, pushing paper. There will also be “Field Agent(s)” who would be responsible for doing things like attending the property inspection. It’s not clear if this is a licensed agent, since Glenn did not say. He did state his goal several times – “Winning a good house on good terms” and providing “good service from offer to close”. Very worthy, but nothing new here. We all try to do that, of course.
So, here are just a few of the many questions that come to mind with regard to the buyer’s agent responsibilites if you are using Redfin:
1. Has your agent actually been inside or seen the comparable sales in the neighborhood? Will he/she be able to advise you on the differences that may justify establishing a reasonable purchase price for the home you have selected, even though the agent has not seen the home?
2. Is the agent aware of the current sales price trends in the many “micro-markets” that make up San Diego and, particularly the micro-market where you are searching for a home?
3. Since Redfin boasts that their rebate to the buyer is partly due to their “on-line” efficiencies, who actually negotiates the purchase price, escrow period, title company, escrow company, items included or excluded from the sale, rent-backs, etc.? How will the buyer know that the best possible purchase price and terms have been negotiated?
4. What if the sale is contingent upon the buyer first selling their home or the seller finding a suitable home? These can be delicate and complex issues. Who negotiates these and other related terms? Is it done exclusively on-line by the one agent Redfin has in San Diego County or is the buyer on their own (he/she is, afterall, getting a rebate)?
5. Will your agent assist you with evaluating and finding a reputable lender that they have experience working with and review the lender fees associated with the loan? Will the agent coordinate with the lender to ensure that underwriting is sufficiently completed by the time the buyer must waive contingencies (when their deposit becomes non-refundable) and manage an on-time close of escrow?
6. Who reviews the title report, escrow and homeowners association documents, etc. and who is responsible for resolving issues arising from them?
7. Who is responsible for determining which of the items identified in the property inspection are worthy of further inspection and/or inclusion in the the Request for Repairs? Who negotiates the Request for Repairs?
8. Does the agent attend the walk-through inspection just prior to closing escrow? What if, at this inspection, the seller has not completed or properly completed items agreed upon in the Request for Repairs? Who is responsible for resolving this? What if close of escrow cannot be delayed without incurring liability? Who is responsible?
9. Will the agent review all seller disclosures and advise/counsel the buyer regarding identified issues?
10. Who will conduct the agent visual inspection?
11. What happens if the buyer fails to preform in a timely manner and receives a Notice to Perform? Does the Redfin agent jump into action and negotiate with the seller’s agent in an attempt to save the deal (and the buyer’s deposit)?
Summary: These questions just begin to scratch the surface of issues an agent must deal with. To do our job correctly regardless of whether we are representing a buyer or a seller, it takes a considerable amount of focus and direct contact with our clients on an almost daily basis, especially when there are multiple escrows going simultaneously. Redfin, in order to keep their cost structure down and offer a rebate, must rely upon the internet and the buyer doing much of the work, necessarily and dramatically reducing the kind of direct contact we find to be necessary with most clients.
Opinion: The “hook”, of course is the buyer rebate that Redfin will advertise heavily. They probably hope that their buyers will overlook the reality that Redfin would end with 1% of the sales price for doing very little for their client’s, not to mention shifting liability to both their buyer and the listing agent. For a company with a business model that professes that commissions are too high and service from agent’s is too low they are, ironically, raping their own clients by receiving too much commission (for what they do) and providing less service. In trying to shift the traditional buyer’s agent responsibilities to their client’s and the listing agent, it seems to me that the value they bring to a buyer and a transaction is worth very little, maybe about 1/10 of the 1% they would receive. I’m not suggesting there aren’t clients out there who may find this appealing. I just think it will be a very small segment. Maybe Redfin should offer part of their rebate to the seller…