Redfin just rolled out Redfin Direct, a new-old program that seeks to eliminate agents for buyers, and we have questions. Well, one big two-part question, really: Is this a disruptive move whose time is come or a way to fleece homebuyers who don’t know any better?
At this point, the jury is out. But people have some feelings.
What is Redfin Direct?
“Real-estate broker Redfin Corp. will allow visitors to its website to make an offer on a house with a click of a button, marking a renewed effort to reduce the role of real-estate agents,” said the Wall Street Journal.
It works like this, according to MarketWatch: “Homes listed by Redfin in a market where the program is available get a banner ad on the online listing explaining that the home can be bought ‘online without an agent.’ The listing agent, or person representing the seller, will be paid the standard Redfin commission, which is either 1% or 1.5% of the sale price of the home. Redfin Direct calculates 2% of the asking price of the home, which is the average of what a buyer’s agent might expect to be paid. That amount is split between buyer and seller, saving both money.”
Unrepresented buyers would answer 55 questions, which Redfin calls a “step-by-step guide” to generate the offer paperwork. A general inspection contingency is included.
So, in essence, Redfin is providing buyers with the tools they would have had if they used an agent, but without the guidance. Which is kind of important. Right?
Will it work?
The company first launched Redfin Direct back in 2006, but it was a bust. “Redfin didn’t have the huge volume of listings it does today — 25,000 in 2018 — nor the tech capabilities to make direct offers feasible,” said GeekWire.
Boston is the company’s test market, so let’s take a look at what’s happened there since the launch. “Of the 122 Boston Redfin listings that have accepted an offer since March 28, the company said, five were Redfin Direct offers,” said GeekWire. “Another 12 of those listings rejected a direct offer, though they were competitive. Redfin said 77 percent of the offers were within 5 percent of asking price and 30 percent were cash offers.”
Are we missing something?
But did the buyers feel taken care of? Listings and tech capabilities are great, but removing the element of representation feels…scary? Bad? Sad? Not in line with the whole facilitating the “American dream” thing?
Rob Hahn, a veteran real-estate industry consultant, echoes what many in the industry are saying about this program. “Most people buying a house would prefer to be represented,” he said to MarketWatch. “Given the current setup of compensation, buyers don’t feel like they’re paying for it. My gut feeling is, most people when they’re spending $200,000-300,000 or more want someone to hold their hand.”
Fast Company likened the program to “TurboTax for home buying,” which could either be a compliment or an insult; We’re not sure. It should also be noted that, on the earnings call during which Redfin CEO Glenn Kelman announced the program, he said “he believes the vast majority of people will still want an agent to guide them through the complex process of buying a home,” said Fast Company. “But the Direct program could appeal to a new kind of savvy consumer: People willing to do it themselves for a better price.”
So there’s that. Redfin has said their expansion plans include heading to Virginia next.