For the 410th episode of Mail-Right Show, Robert Newman and Jonathan Denwood discussed how Redfin operates and dived into how the lawsuit that NAR lost will affect real estate commissions and Redfin’s future. Robert Newman is the CEO of Inbound REM, an inbound marketing firm, and has been in the real estate SEO business for over a decade. Meanwhile, Jonathan Denwood is the joint-founder of Mail-Right, a CRM lead generative platform providing a great website solution.
Redfin Has Existed For 20 Years But Has Yet To Be Profitable
Redfin has decided to leave NAR before the lawsuits hit the public media. Redfin and the founder may have been dealing with a broken business model for a long time. They might be thinking that the monopoly practices of the NAR and the more traditional national franchise brokerages contributed to Redfin’s broken business model. Regardless, Glenn Kelman, its CEO, gives 20 good years.
Furthermore, one thing to learn about being an investor is that many companies do nothing but track how much stock the company’s leaders are keeping or selling. And Glenn Kelman has been selling him for a long time. He’s been selling and selling and not rebuying. And that tells everything you need to know about Redfin. That’s the company’s CEO divesting himself of his stock, which sold the largest percentage that he’s ever sold on November 2 of this year.
The Web Technology of Redfin
Regarding web technology, Redfin has a unique spin on lead flow and lead assignment from the beginning. They used to have a much better job at landing pages and hyperlocal presence.
One of the challenges that Redfin has faced is that from the beginning, they focused on the small, long-tail searches and stayed away from competing against the major, like homes for sale in a specific city. Redfin understood that Trulia and Zillow focused on that and didn’t put as many of their resources in them; they did neighborhood or subdivision searches instead and did a good job on that aspect. However, the competition changed, and now Redfin has become more known for its commission model. They also failed to produce anything unique inside the website space. In other words, their website looks and operates very similarly to what Trulia does.
Another thing that Redfin is good at is the data points presented on their page, which are slightly different. Redfin does a slightly better job at doing the details and guiding users toward Redfin real estate agents, which is interpreted in the digital age of what Century 21 did in the ’70s and the ’80s. However, they also did fall short on this aspect as they couldn’t keep up with all the technological advances on the website.
The Commission Rate For Redfin’s Over 2000 Agents is a Sobering Reality
One of the reasons that Redfin makes the news so frequently is because it does not follow the traditional model. Charging customers a flat 1% commission rate contributes to their lower commission structure. With over 2,000 agents, Redfin has been shifting away from discounting, and a growing number of agents are now compensated through the more traditional commission model. However, there are fundamental weaknesses in Redfin’s business model.
A generous bonus compensation is essential when considering compensating agents with a salary. The idea of offering a competitive wage is a good thought. However, paying an agent a fixed 1% doesn’t necessarily streamline the real estate process. Sometimes, real estate agents may receive excessive compensation for their efforts. This high pay is primarily justified by the occasional need to invest weeks or months in a client as a full-time commitment. In these cases, agents find themselves entirely dedicated to relocating a client. Despite doing the same work, a Redfin agent receives only a third of what somebody else would get paid. Competent agents providing exemplary service may eventually realize they earn significantly less, especially in challenging situations with high-maintenance clients.
Many regional and national brokerages heavily depend on having many agents, and many of these agents are part-time or sell only a handful of houses annually. Despite their limited sales, these agents contribute a disproportionately high percentage of their earnings to the brokerage. Redfin’s business model m