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Redfin offers one-stop shopping for homes
Seattle Times staff reporter
In the intensely competitive online real-estate world, a small Seattle firm appears to have pulled off a coup.
Three-year-old Redfin.com believes it is the first online real-estate brokerage to give buyers the ability to buy a home over the Internet — and to do so in a way that saves them a considerable amount of money.
Two years ago, Redfin was the first site in the nation to overlay for-sale and sold homes onto up-close satellite maps.
And now Redfin has built a model that allows King County buyers to shop for homes online, compare their prices to adjacent properties, check property taxes and sales histories, take a virtual tour, then fill out standard sale documents.
The paperwork is fine-tuned by a licensed agent who works on salary for Redfin — a big change in an industry where agents almost always work on commission. The agent then presents the offer to the seller and negotiates the sale.
Buyers who do their own house-hunting and then use Redfin to make their purchase can receive two-thirds of the commission the seller pays to the buyer's agent.
How the system works
1. Buyers identify the neighborhood and house they want using Redfin's detailed mapping features.
2. To get inside, buyers attend an open house or contact the home's listing agent.
3. Buyers then use Redfin's online "Offer Wizard" to fill out a purchase and sale agreement.
4. A Redfin agent refines the offer, takes it to the seller.
5. Once the sale is completed, Redfin shares its commission, which it earns as the buyer's agent, with the buyer.
On a standard 3 percent commission, that means 2 percent back, or $8,000 on a $400,000 deal. Redfin gets the other 1 percent.
Will the idea fly? Glenn Kelman, Redfin's CEO, was surprised and delighted when, five hours after the company launched a trial of its new program, Redfin Direct, an out-of-state investor used it to made an offer on a Ballard house, sight unseen.
Redfin Direct's official rollout is Monday.
Part of Redfin's plan is old school. Aware that buyers are unlikely to buy a house they've never been inside, it suggests they scout their choices at open houses or call listing agents to request tours.
After that, Redfin Direct can take over with the online paperwork and formal offer.
Currently, Redfin's site carries only King County residential listings. But buyers anywhere in Washington except the Spokane area can use it to buy a home.
"Redfin self-selects people who are self-service oriented," Kelman said from the firm's Pioneer Square offices. "One segment of the population wants an agent; another wants to do their legwork on their own. We want to offer them direct electronic service."
A decade ago, the idea of buying anything on the Internet — much less the biggest purchase of all, a house — was novel and untested.
Two Seattle-area firms, Expedia and Amazon.com, played a major role in convincing buyers that e-commerce is safe, economical and time-efficient.
Simultaneously, real-estate firms began realizing that rather than replacing them, the Web offered an unlimited ability to market their products.
Today there are thousands of real-estate company sites, led by the giant of them all, the National Association of Realtors. Its site, www.realtor.com, contains more than 2.5 million listings of homes for sale.
But as is true in many areas of the Web, the big question was how to make money directly rather that from advertising banners on the site. The potential payoff is huge.
Real estate generates $60 billion in commissions annually, the Realtors group said. In King County, last year's 42,000 residential sales delivered an estimated $102 million in commissions to real-estate agents and their brokerages.
The competition for such big bucks has put pressure on bricks-and-mortar real-estate firms to lower their commissions. Generally 6 percent paid by the seller, the commission is split between the seller's and buyer's agents.
That means, for example, that the seller of a $374,000 home — the median price of a single-family home last year in King County — pays a $22,440 commission if they use a full-service agency
Redfin is out to reconfigure this model, and it's not the only one.
Another Seattle firm, progressivehomesellers.com, gives sellers a break by listing their properties for a flat $2,500. That puts their listing online, buys them a yard sign and the services of an experienced real-estate agent from one of several brand-name Seattle brokerages.
Progressive joins other discount brokerages in the area.
Redfin Chairman Paul Goodrich says the time is ripe for the Internet to spearhead fundamental changes in the real-estate industry.
"That's particularly true as the Internet has matured, particularly with bandwidth and other services, and the ability to get rich data out to the public," Goodrich said.
"That said, Redfin is not predicting that the whole world is going to shift to a Redfin-type model," Goodrich said.
"But there's also a growing segment of the public that feels comfortable making their own decisions and feels their costs ought to be adjusted accordingly," he said. "We're obviously positioning the company to be of service to those people who feel they can do more on their own."
Goodrich is a managing director of Madrona Venture Group, which put up the majority of Redfin's $1.25 million in operating capital.
Chief among Redfin's assets is its sophisticated proprietary mapping technology, developed by company founder and chief strategist David Eraker, a University of Washington honors graduate who quit medical school to start Redfin.
Goodrich threw his support behind the firm when he saw "a very small company with a very small team that had built an application that was more compelling than any I could find on the Web."
Prior to rolling out Redfin Direct, the firm did considerable market research, which convinced them online sales would work.
A decade ago, just 2 percent of homebuyers and sellers used the Internet to help them buy homes, the National Association of Realtors said. Last year 77 percent did, mostly to shop for a home.
The majority of those begin online long before they hook up with an agent — giving an advantage to a site that can combine shopping and buying.
But to really succeed, such a site would have to meet buyers' top needs, which Redfin focus groups identified as generating a legal and accurate offer and presenting it to the seller in a credible way.
The focus groups said these were deal-breakers if they couldn't be successfully addressed.
Redfin Direct's answer is to hire its own agents, who work with customers by phone. Unlike traditional agents, they don't build personal relationships with their buyers, offer advice on which home to buy or provide home tours.
They negotiate with sellers' agents, handling counter-offers and contingencies as necessary.
Buyers who use Redfin Direct can't have an exclusive arrangement with another firm's agent. But another part of the company, called Redfin Connect, links buyers who want more personal service with agents from prominent area firms.
How will traditional firms react to Redfin's entry into what has been their territory?
Eraker hopes they'll accept it as a partnership. "We have great respect for agents and think there is value in what they do. We just think there needs to be a choice."
Even before rolling out the buying feature, Redfin was getting 600,000 page views a week.
Its typical visitor was 35 or younger, working in technology or professional services, shopping for a Seattle-area home priced under $400,000, and doing so without an agent.
Early callers for its buying services have been in a "let's proceed" mode, said Marcus Smith, Redfin's vice president of real-estate operations and the former owner of several real-estate franchises.
"There haven't been 'Are you real?' type of questions at all," Smith said.
And callers like the financial advantage of buying online.
On that median-priced $374,000 home, $7,480 goes to the buyer, which can be used to sweeten the offer, increase the down payment or pocket.
Buyers "tell us they're happy to tell their friends and spread the word," Smith said.
Soon it will spread beyond King County: Within six months, Redfin plans to enter the San Francisco market.
Elizabeth Rhodes: email@example.com
Copyright © 2006 The Seattle Times Company