We heard rumblings last week that Redfin — the Seattle online real estate broker — was out looking for new financing. Well, it’s official.

The company announced today that Globespan Capital Partners has led a $14.8 million investment, with existing investors Madrona Venture Group, Vulcan Capital, Draper Fisher Jurvetson and Greylock Partners also participating. Total funding in the company now stands at $46 million.

Redfin said it has represented customers in the sale or purchase of more than $6 billion in homes, returning some $85 million to consumers. It operates in 18 markets, covering about 30 percent of the U.S. population. With the new funding, Redfin hopes to cover roughly 50 percent of the population.

The financing at Redfin follows the botched launch earlier this month of a service called Scouting Reports which was designed to give a scorecard on the performance of individual real estate agents. But CEO Glenn Kelman said they’re not giving up on taking big risks, with several new products in the pipeline.

Asked about an online mortgage service, Kelman told GeekWire that mortgages are on the roadmap but not first on the list.

Glenn Kelman (Randy Stewart photo)

“In Globespan, Redfin has found the perfect partner: an investor committed to customer service as well as technology, who understands from its partners’ Zipcar experience how to grow neighborhood by neighborhood,” said Kelman in a statement. “Not many venture investors appreciate the different ways in which online and retail businesses grow, and even fewer think about the long-term competitive advantage you can create when the two work together.”

As part of the financing, Globespan Managing Director Venky Ganesan is joining Redfin’s board.

Especially in the wake of Zillow’s public offering, Redfin had been discussed as a potential IPO candidate. That still could happen, but Kelman and crew took the venture capital path for now because it was a favorable time to raise more money.

It’s unclear what sort of valuation was placed on Redfin in the most recent round. Last month, Business Insider estimated that the online real estate company was valued at about $230 million. Kelman declined to comment on the valuation.

We interviewed Kelman this morning, and will have more of his comments shortly. “This gives us the latitude to take more chances, and I love doing that,” Kelman told GeekWire.

Follow-up: Redfin’s Kelman considers new products, acquisitions: ‘It’s always good to have cash’

Comments

  • http://SeattleHome.com Sam DeBord, SeattleHome.com

    It will be interesting to see if the new board member has some directional goals for the company that are tied to that $15 million.  There have been at least a half-dozen business model changes in the past, and it’s hard to tell whether those are based purely on the company leaders’ vision or new influence brought on by each new VC investor.  Focus on profits will inevitably get stronger.

  • Guest

    Congratulations to Redfin on another big win! I know that a lot of Seattle Realtors are upset that they’re being disintermediated by this newcomer, but homebuyers and homesellers — the only people who matter in real estate — both benefit from Redfin’s cost-saving business model.

    • Alex Castro

      Actually, Redfin isn’t disintermediating brokers. They are a broker themselves, they are just what a broker would look like if someone creating an Internet age broker with a clean sheet of paper to fit in with a world where folks heavily use the Internet and smartphones as part of their daily lives.

      So the a Coldwell Banker broker should view them as a threat just as they’d view John L Scott as a threat. They are a substitute service but they are not disintermediating anyone, because they have agents who work for them. If they were replacing the need for agents and allowing direct buyer-to-seller transactions then they’d be disintermediating.

      • Guest

        Redfin is taking a lot of the work we traditionally expected a broker to do for a large commission, like searching for homes and putting one in touch with lawyers, and doing it much cheaper. Although they are an intermediary, they are a far more cost-effective one. Consider traditional book publishers who demanded over 90% in royalty payments with the App Store model which requires only 30%. Likewise, Redfin can take a process that normally cost 6% of a home’s value and perform it for much less money.

        Not a strict disintermediation, but traditional brokers everywhere had better start saving their money. (Not by buying real estate, I’d hope!)

        • Alex Castro

          That is correct. It is collapsing the market but that isn’t disintermediation. If Redfin can provide this value and do it for less money, less headaches, etc., then consumers will increasingly choose it.

          The are, I believe, more than 1 million registered brokers. I don’t see Redfin eliminating all those jobs. I also think that forking over 6% on a transaction seems excessive at a time where many Americans are under water on their loans, under employed, unemployed, etc.

          I don’t see how it is a net win for the country for real estate agents to continue to use their monopoly power, lobbying power, and anti-competitive MLS policies. There is nothing stopping every other brokerage in the industry to adopt many of the techniques Redfin has employed.

        • Alex Castro

          That is correct. It is collapsing the market but that isn’t disintermediation. If Redfin can provide this value and do it for less money, less headaches, etc., then consumers will increasingly choose it.

          The are, I believe, more than 1 million registered brokers. I don’t see Redfin eliminating all those jobs. I also think that forking over 6% on a transaction seems excessive at a time where many Americans are under water on their loans, under employed, unemployed, etc.

          I don’t see how it is a net win for the country for real estate agents to continue to use their monopoly power, lobbying power, and anti-competitive MLS policies. There is nothing stopping every other brokerage in the industry to adopt many of the techniques Redfin has employed.

        • Alex Castro

          That is correct. It is collapsing the market but that isn’t disintermediation. If Redfin can provide this value and do it for less money, less headaches, etc., then consumers will increasingly choose it.

          The are, I believe, more than 1 million registered brokers. I don’t see Redfin eliminating all those jobs. I also think that forking over 6% on a transaction seems excessive at a time where many Americans are under water on their loans, under employed, unemployed, etc.

          I don’t see how it is a net win for the country for real estate agents to continue to use their monopoly power, lobbying power, and anti-competitive MLS policies. There is nothing stopping every other brokerage in the industry to adopt many of the techniques Redfin has employed.

        • Alex Castro

          That is correct. It is collapsing the market but that isn’t disintermediation. If Redfin can provide this value and do it for less money, less headaches, etc., then consumers will increasingly choose it.

          The are, I believe, more than 1 million registered brokers. I don’t see Redfin eliminating all those jobs. I also think that forking over 6% on a transaction seems excessive at a time where many Americans are under water on their loans, under employed, unemployed, etc.

          I don’t see how it is a net win for the country for real estate agents to continue to use their monopoly power, lobbying power, and anti-competitive MLS policies. There is nothing stopping every other brokerage in the industry to adopt many of the techniques Redfin has employed.

  • Alex Castro

    @seattlehomes:disqus ,
    I am not sure what you are referring to regarding half a dozen business model changes. The company’s business model has been very consistent – they are a next generation broker and get paid when a home sells. Its pretty simple. It is the same business model brokers have had for every, they just don’t charge consumers as much money.

    They have experimented with a variety of consumer facing features. Some have worked and some have been learning experiences. That is the nature of consumer Internet websites and without experimentation and taking risks there is no innovation. Amazon has failed many times (e.g. tried to compete with eBay, their initial mobile efforts 10 years ago) but each of those ‘failures’ have created learnings that drove success later on.

    I’m not sure how much experience you have running a venture financed company (I am assuming SeattleHome is not venture backed but correct me if I’m wrong), but generally speaking VCs invest in the CEO’s and the company’s vision and agree to invest behind a plan presented to them by management. The VCs don’t come in and say “this is your new business model” because they are not operators, they are financiers. 

    Redfin is a pro-consumer and innovative model for what a broker should be in the Internet age. Doing something transformative doesn’t happen overnight.

    Alex “Redfin fanboy” Castro

    • johnhcook

      I think you’re right that there’s a difference between a business model change and experimenting with new features. 

      That said, you can look for Redfin rolling out new offerings in the coming weeks and months. I just posted extended comments from my interview with Redfin CEO Glenn Kelman who talks about innovation and new product offerings, and like you he points to Amazon.com as example of what Redfin wants to become in terms of the bets it places on new offerings.Here’s the story that I just posted: http://www.geekwire.com/2011/redfins-kelman-considers-products-acquisitions-its-good-cash

      Thanks for the comment Alex. 

      • Alex Castro

        I guess I view adding new products as not a change to the business model. Even if they add new products around the transaction like title escrow, etc., they may still be taking a cut from the transaction. Perhaps they will generate leads around mortgages. I’d view that as adding a new revenue stream and not changing the business model.

        When someone says a company has changed business models a half dozen times, that really comes off as a dig at the company and tries to imply that the company isn’t doing well. Glenn, as you’ve noted, tends to be pretty transparent. If the company was not doing well, they couldn’t raise this size round from a respectable investor while having all prior investors participate in the round.

        Glen is trying to go big and build a really transformative company. Seattle doesn’t have many and I’m rooting him on. 

        The comments from real estate brokers come off as folks who are afraid of change, want to keep their anti-consumer monopoly, and folks who are simply misinformed. Speaking from my own personal experience, I have found the home buying and home selling experience painful. Brokers do not provide much value now that everything is online, but they use anti-competitive practices to protect their position. 

        For example, we are landlords and my wife is a real-estate attorney. It didn’t make sense for us to use a broker to buy our house because my wife knows the law, but the seller’s agent refused to work with my wife unless we hired a buyer’s agent. Most people spend thousands or tends of thousands of dollars on agent fees when they could spend $1,000 on an attorney (who passed the bar, not a real estate exam), but brokers go to extreme anti-competitive lengths to block this.

        Not very consumer friendly. If you aren’t adding value, then in a free market system you should be displaced. If you do add value then you have nothing to worry about. Redfin is actually a broker, so Sam could go work for them if Redfin gets big enough. 

        • Cpmink

          Mr. Castro, you don’t understand the nature of a listing agreement.  Whether you hired a buyer’s agent or did a deal with the listing agent only, whatever the total commission negotiated was in the listing agreement likely stood.  There are protections for buyers (and, really, because of certain due dilligence items, in the longrun they protect sellers, too), and I wonder if an attorney can easily coordinate all of that?  The agents who didn’t want to work with you without an agent didn’t want to be dual agents on the transactions — many don’t feel they can effectively represent both sides of the sale.

          So, in effect, the cost of the attorney is in addition to the 6% commission that you reference as sacrosanct (it is not always the norm).

          Many agents give many concessions (I am one) to get deals done in this terrible market. You’re out of touch.  Has your wife cut her hourly rate since the recession?  Just sayin’.

        • Cpmink

          Mr. Castro, you don’t understand the nature of a listing agreement.  Whether you hired a buyer’s agent or did a deal with the listing agent only, whatever the total commission negotiated was in the listing agreement likely stood.  There are protections for buyers (and, really, because of certain due dilligence items, in the longrun they protect sellers, too), and I wonder if an attorney can easily coordinate all of that?  The agents who didn’t want to work with you without an agent didn’t want to be dual agents on the transactions — many don’t feel they can effectively represent both sides of the sale.

          So, in effect, the cost of the attorney is in addition to the 6% commission that you reference as sacrosanct (it is not always the norm).

          Many agents give many concessions (I am one) to get deals done in this terrible market. You’re out of touch.  Has your wife cut her hourly rate since the recession?  Just sayin’.

        • Cpmink

          Mr. Castro, you don’t understand the nature of a listing agreement.  Whether you hired a buyer’s agent or did a deal with the listing agent only, whatever the total commission negotiated was in the listing agreement likely stood.  There are protections for buyers (and, really, because of certain due dilligence items, in the longrun they protect sellers, too), and I wonder if an attorney can easily coordinate all of that?  The agents who didn’t want to work with you without an agent didn’t want to be dual agents on the transactions — many don’t feel they can effectively represent both sides of the sale.

          So, in effect, the cost of the attorney is in addition to the 6% commission that you reference as sacrosanct (it is not always the norm).

          Many agents give many concessions (I am one) to get deals done in this terrible market. You’re out of touch.  Has your wife cut her hourly rate since the recession?  Just sayin’.

        • Cpmink

          Mr. Castro, you don’t understand the nature of a listing agreement.  Whether you hired a buyer’s agent or did a deal with the listing agent only, whatever the total commission negotiated was in the listing agreement likely stood.  There are protections for buyers (and, really, because of certain due dilligence items, in the longrun they protect sellers, too), and I wonder if an attorney can easily coordinate all of that?  The agents who didn’t want to work with you without an agent didn’t want to be dual agents on the transactions — many don’t feel they can effectively represent both sides of the sale.

          So, in effect, the cost of the attorney is in addition to the 6% commission that you reference as sacrosanct (it is not always the norm).

          Many agents give many concessions (I am one) to get deals done in this terrible market. You’re out of touch.  Has your wife cut her hourly rate since the recession?  Just sayin’.

    • http://blog.findwell.com Kevin Lisota

      Alex,

      Sam is correct about business model changes, and I don’t believe he is referring to their tinkering with features on the website.

      Their business model has evolved considerably since their beginnings. Yes, they still get paid when a home sells, but when they started, their cut of the pie was much smaller, and their fees have gone up substantially over time. Related to that, they have been forced (by consumer demand) to actually go out an help consumers in the field. In their early days, they didn’t tour homes and later charged for tours. They’ve been forced by the nature of the business to provide a lot more in-person service and raise prices to pay for it. Their core service and agent staffing model is very different today from when they started.

      I think Sam’s question is whether increased funding puts increased pressure on their fees to achieve profitability goals needed for an IPO. They are experimenting with higher fees in Boston at the moment.

      • Alex Castro

        Changing your price is not a business model change. Providing additional services but still taking a cut of the transaction isn’t a business model change either. Maybe that is a strategy change, but strategy changes occur all the time – that’s the nature of business. Never changing a strategy even when the world is changing around you is only something you can do if you have a monopoly.

        Going from taking a cut of transactions to being advertising based like Zillow would be a business model change.

        Redfin has been remarkably consistent in their vision and business model while adapting and iterating along the way as any great company has to do.

  • Itzach Stern

    The other night I heard one of the greatest quotes about real estate investing saying it is better to invest for real estate now then wait than wait before investing for a real estate.

    Cheers,
    Singapore Property Agent

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