Russ: Hi, I’m Russ Capper and this is BusinessMakers USA coming to you today from Seattle and my guest is Glenn Kelman, CEO of Redfin; Glen, welcome to the show.
Glenn: Hi, thanks for having me.
Russ: You bet. Tell us about Redfin.
Glenn: Well Redfin is a technology powered real estate broker. The idea behind it is that if we use technology and we employ our own agents we can save people a bunch of money when they’re buying a house and we can give them better service.
Russ: Okay, I have a little experience in that space too and there always seemed to be a lot of opportunity for streamlining the process and offering better services but man, you’ve hung in there longer than anybody and you must be doing something right because you’ve gotten pretty big in the meantime too, right?
Glenn: The business has grown; it’s hundreds of millions of dollars in revenue, it has thousands of employees and we’ve helped tens of thousands of customers buy homes. We have about 5% share in our best markets which is a significant amount in a fragmented market like real estate. But what I love best about the business is that it’s a mission-driven business. We got into this to make real estate better and it’s a very durable business. As we grow we get more local, our service becomes faster, we raise awareness and so actually we are growing faster now than we were 2 years ago or 3 years ago because the business is really getting critical mass.
Russ: Wow, congratulation. Let’s say I was a buyer – a home buyer – and that’s a very different part of the process than being a seller and having your home listed, but what would I experience if you were representing me as a buyer that’s different?
Glenn: Well, I think first of all we built the first map-based real estate search site so you can see all the listings for sale on our site and then the service is integrated there. So if you want to tour a property instead of calling a real estate agent and coming into his office and presenting your pre-approval letter you just hit a button. And it’s almost like the Uber of touring homes; we’re on-demand, you can get into a house on a couple hours’ notice. And an agent is gong to meet you there, tell you the good, the bad and the ugly about the house because the agent is paid on customer satisfaction; he’s a Redfin employee.
And then throughout the process we try to use technology to make every step faster and easier and more efficient; so if you want to make an offer on the house at the touch of a button on his phone the agent can start generating the paperwork for you to sign. And it just means that you’re going to get into homes faster, you’re going to see homes first and make an offer first; you’ll have the pick of the litter.
Russ: Wow, so when you said the agent is an employee, that’s still pretty unique in the industry is it not?
Glenn: I don’t know of another brokerage like that but it was the only way we could align the incentives of the agent with the customer. So the basic idea is that the agent earns a salary, gets healthcare benefits and all of that, but his bonus comes from you satisfaction. If you get a house but you’re not happy with it he doesn’t get a commission, gets a smaller bonus; whereas if you’re happy with the house that’s where the agent really earns money, so having those aligned incentives has been important. And what’s been weird about it for me is that I come from a software background – I founded Plumtree Software – and doing this, real estate, was new, working with a different kind of employee has been new and it’s really been new for our investors too because it has some components of a digital business and it has some components of a retail business.
Russ: So customer sat, I mean does that mean that there’s a pretty comprehensive survey done at the end of each transaction?
Glenn: There is. So even at the end of every tour, just as when you get out of a Lyft or an Uber we’re going to say how was that experience and then at the very end we try to find out how happy you are with the home and the price that you paid for it and everything else and that becomes the basis for the agent’s pay. And I would be remiss if I did not mention that we save people thousands of dollars because it’s vertically integrated where we run the website, we have our own technology and we have our own agents. All the efficiencies help us build a profitable business but also help us save the customer thousands of dollars. So when we sell a home we charge about half the fee, our fee as the listing agent is about 1 ½%. And then when we represent a buyer we save people about $4,000.00 in fees; we usually pay their closing costs.
Russ: Okay, so seems like an agent being graded on whether or not a buyer is satisfied in the end there might be an argument that they couldn’t have anything to do with something that went wrong with the house.
Glenn: It could be argued that and our agents often argue that. I think we try to ask the customer questions that distinguish between whether our service gave you the right guidance or not. The goal isn’t’ to just get an easy sale, the goal is to get the sale that’s in your best interest. So if people felt that they agent should have warned them that the floorboards were rotting or that the power lines were going to get everyone sick then we say hey, that was a concern for the customer.
And I think it’s a hard system to run; there isn’t really a fair way to pay real estate agents but we wanted to insist on some way that aligned the agent’s incentive with the customer’s. And when you’re selling a house the real incentive is to deliver on the price that you promise. There’s a lot of easy ways to sell a house, you can under price it. You can get the listing by over pricing it and then having to discount it later. We just try to create an incentive where the agent is motivated to be a truth-teller in the customer’s living room.
Russ: Impressive. So you mentioned selling a home; say I had a home for sale and I wanted to list it, you’ve already said – did you say one and a half percent?
Glenn: We charge one and a half percent as a listing fee, there’s still a fee that you have to offer the buyer’s agent who may work for a traditional brokerage or may work for Redfin. But what’s interesting about selling a home is that it’s easy to measure performance. So do we deliver on the price we promise? Do we sell the homes as effectively as other brokers? And it turns out that every year we’ve measured it – you can just go into the Multiple Listing Service that all of the agents use – we sell homes for thousands of dollars more and we’re about 10 points more likely to actually get the sale.
So I think that this year we sold about 80% of our listings and the industry average was around 70%. So I think the agent really feels an incentive at that moment to say hey, here’s what I can really do and not to over promise. When you’re comparing agents there’s so much pressure on the agent, as you know, to say oh, your house is worth a million dollars not $800,000.00 and that just means you’ll sell it for $700,000.00.
Russ: So this agent is both incented to win the listing and then to sell the home.
Glenn: That’s correct and what really helps us is just having the most highly-trafficked brokerage website. Redfin is by far the number one brokerage website so any other agent talking to you about selling a house is going to have newspaper ads or flyers or mailers or something like that, but the real channel for us to get your listing in front of serious buyers is our own website. And it gets more than 12, 13 million visitors every month and it gets very serious homebuyers. I think it’s the favorite of serious homebuyers because it has all the inventory for sale. So that advantage has just been overwhelming. The other thing that we really focus on is just pricing the property right. We’ve invested a lot of technology in trying to find the right comparable sales so that you really nail the pricing out of the gate.
Russ: Really cool. So it seems like this sort of philosophy might be real conducive for Redfin to represent both the buyer and seller maybe in a higher proportion than most brokers.
Glenn: Well I think when you have a website that can show your listings off to the greatest advantage – we’d have this virtual tour where you can spin around like a Google street view but inside a house – and then you also have the most buyers of any brokerage site it becomes a marketplace platform where you can put those folks together directly. And our challenge has always been that we haven’t had the inventory and the buyers to pair directly; we haven’t had that many listings. But now our listings business is growing 60 or 70 percent a year, it’s a major part of our overall business. So we think that part of our future is letting people access properties without an agent, letting people make an online offer where it’s an auction, but to rewrite the rules of real estate you really have to own the inventory and so that’s our next challenge.
Russ: Okay, how do other large brokers treat your model?
Glenn: Well at first we were rabble-rousers, we talked about disruption all the time and weren’t always respectful of everyone else that had been practicing the craft for decades. And now I think we’ve settled in where we have a lot to learn about real estate, we’re still in that process of learning, but we’ve also gained share. And so once you become an accepted fact on the ground – one of the top websites for real estate, a high share brokerage in some major markets especially with listings – in a sellers’ market you are accepted. So I think here in Seattle, here in Chicago, out in Washington D.C. we do really well. When we launch in a new market every once in a while people freak out.
Russ: Okay, so Seattle is your home, your base; is it your largest market?
Glenn: Seattle and D.C. are kind of neck and neck.
Russ: Real impressive. Okay I have to ask you this before I let you go too because I’m curious because knowing what I know about this space, how do you feel about the portals; the Zillows of the world or the Trulias – which I guess is maybe still there – and realtor.com?
Glenn: Well I mean obviously they get plenty of traffic and they’re great advertising platforms for traditional agents. In some ways we see them as the Google of real estate and ourselves as the Amazon but we mostly source business from our own site. Occasionally we’ll advertise on Google and Facebook but we haven’t been an advertising partner of those sites mostly because when we can meet customers on our own that savings can be passed on to the consumer.
Russ: Absolutely. Well Glen I really appreciate you spending time with us and updating us.
Glenn: Hey, thanks. I enjoyed it.
Russ: Well good, good. It’s really a unique model and I like to see it succeed.
Glenn: Yeah, I hope so.
Russ: All right, good deal. All right and that wraps up my discussion with Glen Kelman, the CEO of Redfin. And this is BusinessMakers USA.
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