Glenn Kelman (Randy Stewart photo)

Redfin announced a plan today to cut rebates to home buyers substantially, a move that made me wonder if the Seattle real estate company was looking to juice revenues in anticipation of a possible IPO filing. After all, Zillow’s stock performance in recent months has been nothing short of astounding, with a market value topping $900 million.

And while Zillow and Redfin operate very different businesses, I can’t help but imagine that there’s an ongoing rivalry between the two companies which are located just a few blocks apart in downtown Seattle.

But Kelman tells GeekWire that there’s no plan to file paperwork in the short-term, saying he doesn’t think it would occur anytime this year. “We have some things we have to work out before we go public,” said Kelman.

One of those things is pricing, something that Redfin radically altered today with its decision to cut the established 50 percent rebate for home buyers to a tiered system of as little as 25 percent on a $300,000 home (about a $2,000 rebate) to 45 percent on those homes of $1 million (about a $13,000 rebate).

In other words, those buying homes at the lower-end of the market won’t save as much money if they use Redfin. (Had they tried to roll out those changes as a public company, Kelman noted that Wall Street would have “freaked out.”)

I asked Kelman if it was fair. And he said the lower-end homes have always operated as a “loss leader” for Redfin.

“A high-end customer in both the old model and in the new model subsidizes the business,” said Kelman. “And that is also true in traditional real estate. Basically, in the old model, we had a minimum, such that, if you were buying a $300,000 home, you got a very small commission refund anyway. You got half the commission, but first we take $6,000, and then give you what is left. I guess what I am trying to say is I don’t think that part is much different. It probably seems so, but in actuality it isn’t.”

Kelman said that “they make very little money” on the lower-end home buyer, but they are committed to continuing to serve that part of the market partly out of principle but also out of a desire to grow market share.

“There are all sorts of products that Amazon sells at a loss or at break even because they want to deliver value to the consumer and keep the relationship with the consumer,” said Kelman.

Nonetheless, some have started to question Redfin’s new pricing, including Findwell CEO Kevin Lisota who operates a rival real estate service in Seattle. In a blog post today, Lisota said that Redfin’s new pricing is not a straightforward formula. He writes:

“Depending on the price of the home you are buying, the fee that Redfin charges for their service is up dramatically compared to their previous rebates, with buyers in the $350k-$650k range looking at price increases of 20-39%,” Lisota writes. “While they remain very attractive at price points nearing $1M, the savings for the middle-of-the-road homebuyer is reduced substantially. I can’t help but think that customers are going to be turned off by the lack of transparency on how these rebates are now being calculated.”

Kevin Lisota analyzed the new rebate structure at Redfin in Dallas and Portland

Based on early tests, Kelman said he’s confident that the price changes will certainly bolster revenue, but also increase customer satisfaction as Redfin hires more agents and moves to an enhanced full-service model.

Asked what it means for Redfin’s initial premise of automating the real estate process, Kelman said that wasn’t necessarily the original goal. Instead, he said the goal was to build a brokerage that was all about the customer and not the commission. In addition, they set out to utilize online tools to make the real estate process “delightful” and “more efficient.”

Kelman noted:

“I still have this fierce … loyalty to consumer value, to making real estate more efficient. It is irrational the refunds we offer to consumers… Every great brand is built on irrational tenets, and I will never let go of this idea that real estate should deliver more value to the consumer. I think where we have made mistakes is striking the balance between value and service. There’s a segment of people who really just want someone to write an offer, and there’s another segment of people who want that but need access to the properties and there’s a third segment that really wants that one-on-one, face-to-face relationship with a real estate agent. And that third segment is very large. So, of course, we want to go after them.”

Previously on GeekWire: Here comes Redfin 3.0 … and price increases

Comments

  • Same ole

    In other words – Redfin “We don’t want the poor low lifes and will make our pricing so unattractive they won’t even bother us anymore”

    Uhh way to transform the industry sport.

    But hey at least their website has a lot of data on it!

  • Guest

    Zillow is not a real estate company.  They sell ads, and provide ridiculous information on stars and their gossip. 

  • Wiseguy

    Is it just me or does Glenny look like Cornelius from the original Planet of the Apes?

  • Wiseguy

    Is it just me or does Glenny look like Cornelius from the original Planet of the Apes?

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