Redfin cuts home buyer’s refund to 33 percent in Boston

Redfin’s Boston customers won’t be walking away with as much cash in their pockets thanks to a new pricing model that the Seattle online real estate company announced today. Redfin said that it has enhanced its agent service in Boston, matching a single agent with a customer throughout the home buying process. But, as a result of that elevated service, it has reduced the rebate from 50 percent to 33 percent. (When the company started, it offered a 66 percent rebate but changed to 50 percent in 2008).

The fee for selling through Redfin remains unchanged at 1.5 percent of the home price.

Obviously, not all potential customers are supportive of the move. (The company said the old 50 percent rebate will be honored for existing customers in Boston until October 1).

“It was a no-brainer to go with you guys when the commission was 50%. Now we are all going to be under pressure to sign a deal by October and that is very un-redfinlike,” wrote one. “I vote for the old model where customer has all the information, and gets the most bang for the buck when they buy or sell with you.”

Redfin continues to move closer to to a full-service real estate agent model, and the changes in Boston could portend alterations in other markets as well. (See Update below).

Historically, Redfin has mixed-and-matched its agents with home buyers, an experience that some home buyer’s don’t necessarily enjoy. But, after a trial in the L.A. area, Redfin decided to maximize personal (and individual) service between agents and home buyers.

“You still get an agent on your side, paid to put customers not commissions first, using tools that keep you in the loop at every step,” writes CEO Glenn Kelman in a blog post explaining the move. “But now that agent can really get to know you and your needs along the way.”

It will be interesting to see if the change in commission structure drives more revenue into the business over the long-term. Customers may like more personalized service, but they may also decide to go elsewhere now that the rebate has fallen to 33 percent.

In 2009, Redfin raised $10 million in financing in 2009 from Greylock, Madrona Venture Group, Draper Fisher Jurvetson and others. Total funding at that time stood at just over $30 million.

UPDATE: Kelman tells GeekWire that the 33 percent rebate in Boston is “an experiment, in our smallest mature market” and there are no plans to bring the rebate reduction to other markets at this time.

“I know you’re probably worried about whether this is more or less traditional, but I’m not: the goal is to make real estate better, not just cheaper,” Kelman says. “I’ve always thought we can do both.”

Kelman added that if the experiment works, and they decide to try it elsewhere, the pricing “would not be a simple 50 percent or 33 percent refund, but something in between.”

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

    This is an acknowledgement that Redfin’s original goals of “upending”
    the real estate industry do not entirely mesh with the average consumer’s
    desire for help and expertise throughout the home buying process. Consumers
    love the website and the web has transformed the home search process, but the
    in-person part of a transaction remains largely unchanged. When it comes time
    to write an offer or inspect a property, they want their agent to see the
    property with them, not one of their part-time assistants. They also want a
    consistent relationship with their agent throughout the process. A certain
    percentage of consumers are OK with a DIY-style approach to save money, but
    that is not the norm.

    Redfin has tried to optimize its service model to keep the
    high-paid agents behind the desk processing as many offers as possible, while
    utilizing lower cost transaction coordinators and contract agents to take care
    of the more time-intensive parts of the business out in the field. Their
    customers are telling them that this isn’t what they want.

    Whether it is a move towards a traditional agency or not,
    it is a response to what consumers want in a real estate transaction. I’m guessing that they
    also want to juice their revenue stream in a lead up to their stated goal of
    having an IPO.

    I would bet that this gets rolled out relatively soon in
    other markets.

    • Guest

      Customers value a service that puts them, and not an agent running a simple database query for them, in the driver’s seat. Redfin’s model is working in many markets in America today and it will continue to grow. I don’t need an agent to help me buy a share of stock or an airline ticket, but a generation ago such “stock brokers” and “travel agents” were de rigueur. A generation from now, we’ll all look back and marvel that a $400,000 house cost $24,000 in commissions to sell. (Twenty-four thousand dollars!)

      I will take your bet, Kevin.

      • Guest

        Comparing the purchase of a house to an airline ticket?

        I will take your bet, Guest.

        • Guest

          Brilliant. If Redfin maintains its current buyer’s refund through the end of 2011, I will receive a monetary tribute.

          A house is an investment just as a stock or a bond is. Acquiring one is a simple matter of reducing searches and forms to computer objects. There’s no emotion or human element except among buyers who become irrationally fixated on unsustainable ideals.

  • Guest

    There are other impressive rebate models out there. Empoweredbuyer.com is a group where you get a traditional agent willing to give up to 50% of commission and the agent is right there throughout the entire process.  Home buyer rebate’s are part of the future for many

  • http://twitter.com/crenelle MichaelBrianBentley

    Hi! Sorry, um, “rebate?” “Refund?” Rebate of…what exactly?

    • Guest

      The commission, Michael. Traditional Realtors feel entitled to a total of 6% of a house’s value: 3% to the buyer’s agent and 3% to the seller. For example, a Realtor expects to be paid $12,000 for selling a house that costs $400,000. Redfin has disrupted that business model by refunding a portion of its agent commission to the homebuyer/seller.

      I know it sounds stupid to get a rebate of money you shouldn’t be spending in the first place, Michael. A lot of men such as Mr. Lisota are upset at Redfin for denying them the money to which they feel entitled. For others, such as myself, Redfin’s “rebate” is simply a harbinger of things to come.

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

        Umm.. Please check the company I founded and what I believe about commissions. Nothing could be further from what you are implying.

        The point of this story is that Redfin’s “disruption” of real estate commissions is going in the opposite direction from what you are hoping, as the rebate has shrunk from 66% to 33% as their business has grown.

        • Guest

          Providing dedicated agents is inherently a more cost-intensive approach, and that’s the demand Redfin currently faces in Boston. As a new generation of home buyers enters the fray, though, I expect Redfin’s model to win and its profit margins to increase. I would gladly accept more “do it yourself” aspects in exchange for a few thousand dollars in commission rebate, but I understand that some buyers do not want that yet.

          Kevin, if you would like a premium independent analysis of your company, please contact me off-line. I do not work with Redfin; I only analyse them.

  • http://www.judygraff.com SFVrealestate

    Umm, Guest, what state are you in? Commissions here in So. Cal. are around 5% and have been so for a decade. And in my many years in r.e., I have yet to meet a buyer or seller client who could do it all themselves.

  • Paul

    “Paid to put customers first not commissions” what a pile of whoee.  Relationships are where the gold is for all concerned.  Redfin was designed for volume not taking care of people.