Redfin Drowning in Red

by Damion Matthews

Glenn Kelman, CEO of discount real estate brokerage Redfin, recently boasted that “Most agents only close about eight deals a year. Our agents can close 100.” So when Carol Lloyd, the SF Chronicle’s real estate columnist responded, “They can, but do they?” I immediately set out to find the answer.

And the answer, my friends, is a big fat NO.

A review of Redfin transactions, as recorded by the San Francisco Multiple Listing Service from July 2006 to July 2007, shows that the widely publicized firm has had only 15 closed transactions in the city, with work divided among three agents (the bulk of it was done by one.)

It’s astonishing that such a small firm has received so much attention, with coverage nationally on “60 Minutes” and locally on the cover of the San Francisco real estate section. Kelman may not be a great real estate person, but he sure excels in publicity!

He’s also good at convincing investors that his company is destined for financial success when, in San Francisco at least, the evidence would suggest otherwise.

In July Redfin received $12 million in venture capital financing. This, despite the fact that in San Francisco — one of the strongest and highest-priced real estate markets in the country — the company has received, by my estimate, only about $125,000 in revenue to date!

That $125,000 figure is based on total commissions received, minus the 2/3rd rebate it pays back to its customers.

Redfin’s site shows that the company is currently doing business in seven other markets — like Baltimore, Boston, and San Diego. Could it be any more profitable there than in San Francisco? The agents would have to close twice as many transactions in Baltimore to bring in half the commissions they make here!

How Redfin is ever going to make money is beyond my grasp, but it hasn’t stopped the media from covering it as if Kelman is some business genius who knows more than all us old fashioned pre-internet dinosaurs. At least Carol Lloyd voiced the question no one else has bothered to ask. And now you’ve got the answer.

– Damion

-Redfin.com [website]

-The changing face of real estate deals [sfgate]

14 thoughts on “Redfin Drowning in Red”

  1. Here’s my issue with Redfin: (I should preface this by saying I have a good deal of experience in the on line real estate world having assisted Pacific Union with their start up, SOMA Living and having worked for ZipRealty for a year before being deemed obsolete — NOTE – I worked as an Information Architect and Web Designer not as an agent)

    They are trying to sell real estate in the entire Bay Area and call themselves “experts” in the entire Bay Area. They are experts in Burlingame and Bernal Heights — experts in Sunnyvale and Presidio Heights — that doesn’t work. They have no true local knowledge and insight. Anyone can enter data and look at stats – that is not what a good Realtor provides. A quality Realtor can tell you about each and every house in a specific area because he or she has seen all the homes in that area.

    I’ve blogged earlier on this topic – I’ll happily take the Redfin challenge. Identify a few properties of interest in San Francisco – call me and call Redfin and see who can provide you answers and insight in a timely and educated manner. We’ve done this and the results are incredible. When we did hear from a Redfin agent (which by the way was DAYS later) the info provided was being read directly off the MLS marketing comments. The agent couldn’t tell us a thing about the property or neighborhood.

    If you give my company 12 million in venture cap, we’ll get some sick PR and press as well!!!!

  2. I think that companies like Redfin will probably not do well in places like San Francisco – where local insight and being a local “expert” DOES really matter.

    We’ve had discussions on here before about Realtor pay, etc. I believe that most Realtors in SF (and certainly all who post here) are very good and earn every penny that they make. Having an expert on SF real estate is very important.

    However, tract homes on the fringe of the Bay Area, in the Central Valley, and in hundreds of other metros in the US don’t need experts as much. If you’re in Vegas and not a condo tower specialist, you can learn all you need to know about the latest 700 home subdivision with four different models of homes in an afternoon. These are the type places that I see Redfin making it. I’d be interested to see some data on how they have done in areas like the ones I mentioned.

  3. The story is incredibly biased against Redfin.

    1. 15 closed transactions for one year IN THE CITY. That 125K revenue is the result of those 15 transactions. It is certainly not the TOTAL revenue the company received.

    2. For people who need help from the realtors, Redfin is not for them. However, the whole marketing of Redfin is based on people doing their own homework, and only use Redfin for the paperworks. If you need local expert, look elsewhere.

    3. If you look at the SFO office alone, I don’t think 15 closed transactions is to be ashamed of for any RE company doing business for the first year in a down market. Actually, it is quite possible that the offices are self-sustainable. (How much do you need to run an office?)

    4. As an .com, marketing easily costs millions. That’s what the 12M is for.

  4. I think the point is that the business model has yet to proved – It does cost millions of dollars to run a successful national dot com business — yet the business doesn’t generate the income to support the spending. In short, the model doesn’t work unless you are able to sell to the masses and I’m not certain the model works for the masses.

    15 closed deals for an agent – great – for an office with operating costs – not so great at all. I’m 99% certain the office isn’t self sustainable in SFO on 15 closed transactions given they have to rebate the buyer / seller and pay the agent. Add in rent, taxes, phones, etc and you are not breaking even at 15 closes per year. The ad they are running on a local plugged in real estate blog must cost close to 40 – 45K a year alone!

    Time will tell if they will suceed -

  5. It really depends on how it scales across the country. Using SF is kind of a bad example I would say since it is a very select and expensive place. Like Chris above said it is probably in places where things are very homogeneous (like Las Vegas) that a site like this could do well. I mean do you need a realtor to go to sub division and sub division when you could go to the open houses yourself in a lot of these place.

    Here in sf a lot of people have a lot of money so they probably are not ‘penny pinching’ like they would in a lot of the country. In SF people blindly over-bid more then both agents get.

    I would disagree that every agent earns every penny here in sf. There are a lot of good one but man there are a lot of tools out there who do almost nothing on the buying side. I along with a # of my friends ultimately found our own houses and had very minimal interaction with a buying agent or got led in the wrong direction buy a buying agent based on their connections to other agent, which sadly happens a lot. There are a ton of good agents but just like anything else there are a ton of stink bombs out there as well.

    Ultimately the buyer is the one who pays the agents, even though people claim ‘its the sellers’ that pay. But ultimately it is the buys money. So I can see where people would want to use Redfin to ‘save’ money.

    This company could succeed. Look at the doom and gloom of amazon.com years ago and look at it now. Or it could become another webvan.com and be out of business in a year. Only time will tell.

  6. Hey any company can succeed – if you have great people, a great concept and the money to see it through it certainly can succeed. I don’t know if they have any so I won’t speculate about their future.

    It’s interesting that several folks have mentioned sub division homes. Have you looked at the area’s Redfin currently services: Seattle, LA, San Diego, Orange County, San Francisco, Boston, Baltimore and Washington – Chicago soon. I’m familiar with all of these area’s with the exception of Orange County – all of them are neighborhood driven area’s and are markets more complex than subdivision after subdivision in my opinion.

    There are plenty of good apples and bad apples slingin houses in San Fran — you won’t find anyone argue that fact – at least they should not. Every industry has a spectrum of people who work within in it and San Fran real estate is no different. I’m interested to see if they can build a successful model but it does pain me to see them market themselves as this beacon of change. Zip brought the model to the national market 8 years ago and I can’t see any major difference between their model and Redfin’s. (yeah they canned me along with our entire web design team – but i’ll still give em props for being the “first” to do something new)

  7. The areas that they have picked are interesting, but I still wonder what types of places they’re selling within those areas. Yes, most of those places have older neighborhoods, but many of those also have huge swaths of tract homes within the metro. It would be interesting to see how many places they’re selling outside of the central cities in each metro.

  8. Personal attacks are unnecessary. It’s precisely because Glenn Kelman’s a talented entrepreneur with a great personal reputation that people are putting their money behind him- that was the second round of financing, btw, from investors who are betting that realtors will go the way of travel agents. Considering the amount of money out there available for new online projects, he hasn’t really raised much money at all- you may want to consider that the investors are not so much betting on Glenn as betting against the current real estate paradigm.

    Redfin got onto 60 Minutes because 60M was doing a piece on anti-competitive and deceptive practices by the NAR and its members based on the DOJ lawsuit. It devolved into the agent vs consumer program we eventually watched last Mother’s Day.

    Full disclosure: I’ve known Glenn Kelman about ten years, in perhaps a one-degree- of-separation sort of way. I’m a fan.

    [Editor’s note: I didn’t see any personal attacks in the post, and I am very much against them. If you can tell me what you found to be more personal, and less about the business model, I’d be happy to edit/delete. Being an entrepreneur myself, I know first hand the trials and tribulations that come along with it, and I applaud all entrepreneurs…that doesn’t mean I’m opposed to allowing others to share what they feel is the other side of the story. Thanks for commenting Phil…I appreciate it, and think you said very well what you wanted to say, but how did you get online? Wasn’t your laptop broken? ;-) ]

  9. I think Redfin is a FANTASTIC concept for consumers…. yet, I agree their agents DO NOT have expert local knowledge and can seriously screw potential SELLERS out of lots of money.

    The best example I have is a SFH in Cow Hollow on Filbert st. asking $1.795 mil. Poor seller! The house is 1,500sqft, with no view, I think only 1 bath. The Redfin agent probably sold her HARD saying list with us, you’ll not only get $1.7.95 mil, you’ll save on fees! This is the BIGGEST no brainer stalefish in District 7. She should have priced it at $1.39 or $1.45 and see where it goes.

    Redfin and other services are part of the reason why I DO NOT want to sell property for the next 10 years. Over the next 10 years, these new selling ways will become common place, and commission compression will occur. I believe flat fees will also become common place as well. These services will help consumers save money, and make housing even more robust. But, it’s still early.

  10. I really don’t see the point of using Redfin for selling. If I would sell, I would use a good agent and be glad to pay the full commission.

    Anyone trying Redfin or FSBO is just clueless.

    On the other hand, there is no point of using a traditional agent for buying, if you are willing to do the homework.

    So, among those 15 closed transactions, how many was Redfin the listing agent and how many was it the buyer’s agent? I won’t be surprised if Redfin was buyer’s agent for all of them.

  11. John, according to the MLS records, Redfin was listing agent on 3 closed transactions in San Francisco (according to their site, they charge a flat fee for the service.)

  12. Phil – I thought I went out my way to avoid personal attacks- As I mentioned earlier, I’m a firm believer that with great people and a great concept plus enough funds to get the word out, any company can earn a great level of success. If any of my comments were offensive or you thought they were a personal attack – please accept my appologies.

    We started a real estate brokerage this year in an attempt to provide a different level of service and committment to San Francisco home buyers and sellers and to showcase the great neighborhoods in this city. I do believe the industry will see change and i’m working towards providing an environment and company that will remain a step ahead of that change — but on a local level.

    I respect the folks at Redfin — I stand behind my remarks though. I question the area’s they decided to focus on and I question whether they learned from the folks that came before them — both the general lessons of the dot com era and their fellow on line real estate ventures.

    What I learned at Zip Realty – a real estate transaction is like no other purchase – there are no two clients or homes that are alike and due to that, people demand and require personal attention. I’m a firm believer that the national on line brokerages fail to deliver the type of personalized service that many buyers and sellers require. Some folks are comfortable buying a new car on Ebay or another on line car site — many do research on line and then go to the dealership, most likely pay a higher price and enjoy personalized service. I sense our industry is similar and until an on line brokerage is able to offer first class personalized service they will fail to gain a substantial market share in the major cities in this country.

  13. Is anyone going to the Inman bloggers conference (it’s on August 1)? Kelman will be speaking from 10 – 11. He’s going to answer the question: “Can blogging actually develop opportunities, open doors and become the voice of an industry?”

    http://www.realestateconnect.com/sf07/bloggersconnect.aspx

    [Editor’s note: I (Alex) am not. Leaving town Thursday…tons to do prior to my departure. Please let us know what you learn.]

  14. I am a buyer who spent a year educating myself. I spent almost every Sunday going to open homes in different neighborhoods. Track every SF real estate related websites, forums, newspaper, advertisement, MLS listings (sfarmls.com, redfin.com, movoto.com, etc). With a wealth of knowledge, I was confidence that I don’t need a traditional agent and therefore decided to use Redfin. I was a huge Redfin fan. After about six months and a few attempt and making offers thru Redfin, I came to the conclusion that SF is market with such a tight knit community of agents where specialized knowledge of the area, neighborhood/block and the rapport that agents have with one another is crutial and can make or break the deal. It is an extremely competitive market where temperature can change from week to week that one needs a very experienced and knowledgeable agent. This you won’t find with Redfin.

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