REAL Trending Episode 13 : Redfin’s Growth, Consumer Insights and Financial Team Data


Redfin’s Growth

Many strategists will always say when you’re studying your competitors/enemies it’s always good to study not their intentions, but their capabilities. So let’s talk about Redfin. They have enormous capabilities. We think we know what their intentions are which is to continue to grow their business at 20 25 or 30 percent a year. And learn as they go and work more and more towards being a profitable company even as they grow their business.

As we’ve said before on these Real Trending podcasts you have to have a long perspective of things. It took Re/Max nearly 30 years to get to 10 percent market share in the United States. Funny enough it took Keller Williams about the same period of time. Their biggest growth spurt came in their second decade, year 11 to year 20. Right where Redfin is today –  at the beginning years of that second decade. Fundamentally, they have an excellent website. And from everything we’ve learned from their  their own operating people and employees they have a very efficient, well run, technology platform in-house.

They have the capital to keep growing at the rates they’re growing. And our assumption is they can raise as much money as they need to keep growing for several more years, at least before anyone expects that they make significant earnings.

It’s likely they will learn as they go along that the discounted listing commissions and rebates on the buy side commissions are not really required if they are good as they say they are in terms of productivity. We know their excellent website generates many referrals leads inquiries and we understand they work very efficiently on converting those to real customers.

We expect Redfin to keep growing slowly but steadily if you consider 20 to 30 percent growth a year.  Yes, they will be affected by the lack of inventory and the affordability issues and rising mortgage rates just like the rest of the industry, nobody in the brokerage business escapes from those trends, but their attention to their systems, people and growth warrant their capabilities to keep growing for a long time to come.

Consumer Insights

Real Trends, together with great sponsors, California Association Realtors, and the CE Shop, employed one of the world’s foremost research companies Harris Insights and Analytics to develop a study of approximately 1000 recent buyers of sellers of homes in the U.S. These were buyers and sellers who conducted their transactions in the first half of 2018. The best piece of news we saw on the study? Ninety percent of those polled used an agent to buy or sell a home.

Well that’s up five points from the same study we did four years ago with Harris. And up almost nine points from 17 years ago when we did the first study in 2001. It’s incredible that knowing how important technology is, 90 percent of buyers and sellers used an agent. When you break it down by age group the millennials (18 to 34 year olds)  their rate was 92 percent. Gen X? 91 percent. Funny enough it was the Baby Boomers who used agents the least.

Let’s talk about some other important things. What services do consumers value from their real estate agents the most? No surprise the top service is negotiating the prices in terms of the purchase or sale of homes highly valued. Eighty nine percent of the people said that that was extremely valuable.

But here’s a kick. The second highest service, checking in at 84 percent, was when agents provided their customers with a list of homes that were similar to the home they were selling or ones they wanted to buy. Heck, I thought with all the websites out there consumers just did all that themselves! Turns out they still depend on agents to help deliver properties that fit their profile.

Let’s talk about satisfaction. First of all overall satisfaction was extremely high. Those rating their services extremely good/very good was well above 70 percent. There doesn’t seem to be a problem with customer service satisfaction with agents. In fact, another key thing we found was that in terms of responsiveness these nearly thousand buyers and sellers said that two thirds of those agents responded consistently within two hours, which consumers just said was a very acceptable rate!

There’s a lot more from the study we’ll be reporting on in the weeks and months ahead and look to hear some analysis from the California Association of Realtors and the CE Shop.

Financial Team Data

Our last topic is about team commissions and financials. We’ve just finished a study that we joint ventured again with our great partners and friends at the California Association of Realtors. In the United States approximately 85 percent of each commissioned dollar in the U.S. goes to the real estate agents or teams that work for the brokerage. What caught our attention is teams (between 9-18 members) were using lead generation whether it’s from sphere of influence online marketing direct mail some of the most common means of generating leads. We found, however, that they’re paying in their own inside agents on average across the country less than 35 percent.

So here’s something for all of us in the brokerage industry to think about. When we talk about adding value to the relationship with our agents. And by the way every indication from this study, and from our brokerage industry studies, and from the consumer study, this is still an industry about relationships! Whether it is between the brokerage and the agents or between the agents and the customers.

But this much is true, when you think about what brokers who don’t generate many leads pay versus what a team owner has to pay their inside agents when they provide a majority if not all the leads. That gap is 50 percent of the commission dollar. 85 versus 35. So something for all of us to think about in terms of how are we going to create value between the brokerage company and the agent. Clearly there’s an indication if a broker wants greater glue between themselves and their agents and to make it a more profitable relationship then generating leads as clearly the path to take.

We also found that the average person on a team is roughly twice as productive as all agents in the United States are. Almost twice as much! We did notice that there’s a difference between teams in the western U.S. in high priced markets and teams that are in the Midwest/Southern part of the country where the prices aren’t so high. There’s clearly a strong correlation to how much volume each person does as opposed to how many transactions they do. Of course, this is something we’ve known for many years is that a great number of the agents and teams in our country work to a production or monetary goal.