Years ago disruption arrived onto the shores of the real estate industry and began to transform it.
It’s here now and nothing can stop it.
If I were to use a Game of Thrones reference, Winter is HERE!
And after disruption is done with turning the industry upside down and on its head, real estate agents from across the country will not recognize this new landscape and way of doing business.
And agents will ask, “how could we have let this happen”?
But what agents should really ask is, “how did the leadership from NAR, state associations, MLS’s, and the top execs of all the major brokers let this happen”.
First, I love RE/MAX, and have no problem with Redfin
This is not an article of hate.
We are living through some interesting times today. Everyone has an opinion (and that is good), but there are many people who don’t like to listen to any opposing views.
This blog article, podcast, and video are not meant to disrespect either one of these two great companies. Both of these companies are real players in the current real estate world.
When writing and talking about a subject such as this, I only want to jumpstart a national conversation about the direction of where our industry is headed, because if we don’t: Tech companies who are not brokerages or agents are going to have a big say in what this industry will look like after disruption has hit. (and it will not favor agents)
Personally, I really, really, like RE/MAX and have some strong relationships with many RE/MAX agents and broker owners.
When it comes to Redfin, I find them to be a very interesting company. I have watched Redfin evolve and shift and survive over the last several years. I believe they are playing a long game and building brand awareness, like Uber, Amazon, or Netflix, in order to eventually dominate and shape the real estate industry.
The Redfin Value Proposition and the RE/MAX Value Proposition
My opinions on Redfin come from reading Investor presentations and quarterly reports which you can access for yourself on their website.
But one thing that you cannot deny about Redfin is that they offer a great User Experience on their website for real estate searches.
They continue to invest heavily in this and it’s given them a competitive advantage over every other brick and mortar brokerage.
Today, the UX (user experience) they offer viewers for a real estate search is directly on par with Zillow. (remember this for later)
To me, it’s clear that Redfin is focused on the customer experience/journey and finding ways deliver more value to them. Although I don’t agree with the 1% Listing Fee program it’s their way of trying to develop value into the transaction for the home seller.
I believe this is why the original Redfin Partner program was created. They have struggled in the past with trying to retain good agents to work directly for them under their commissions/payout structure and discovered that they could make more money just charging a 30% referral fee to “partner agents” from other brokerages.
However, I don’t believe RE/MAX is really trying to offer more value to the end consumer (home buyers and sellers). They are still playing the same game that all of the other national franchises are playing.
They are competing for retaining and growing an agent base. The product they are selling is not a more successful real estate transactions and a great home buying/selling experience.
Like the rest of the big box brick and mortar franchises they are fighting each other to bring in more agents because their bottom lines are tied to the amount of transactions they can get.
Bring in more agents, you increase the amount of transactions.
It’s all just about the numbers and not the User Experience that is being delivered to homeowners and home buyers.
Go to any big box brokerage in the country and pick two different agents to work with at the same brokerage and you can have a completely different home buying or selling experience.
Redfin is not perfect here either, but most of the traditional big bog brokerages are still operating under a 1995 mindset. They are focused on things like Logos or national TV advertising campaigns, instead of the delivering a better User Experience.
The Good, the Bad, and the Ugly of the Redfin and RE/MAX Deal (but first the Good)
I encourage you to go online and read the details of this deal directly from Redfin or the press release of this arrangement between Redfin and RE/MAX.
Here are two direct links from the original sources:
CLICK HERE: To read about the deal on /RE/MAX’s website.
One more remember, these are my opinions and thoughts on this deal.
The best way to break down this deal is to look at it in terms of the Short and Long term benefits of it.
I believe in the short term this deal will open up an opportunity for RE/MAX agents to participate in a lead generation program that actually works. Redfin does produce good leads from their website due to the highly effective User Experience they can deliver.
This is also what Redfin and RE/MAX both say in their announcements of the deal. So here we are in total agreement.
Furthermore, RE/MAX agents will pay 25% referral fee for these leads. Which is, 5% less than what current Redfin Partner Program agents pay, they pay 30%.
Many of the Redfin Partner Agents that I have met over the years have overall been satisfied with this referral program.
In truth, I also believe that the Redfin Agent Partner Program can deliver better leads and is more cost effective than Zillow’s Zip Code Advertising and Realtor.com’s crazy leads program.
Bottom line: In the short term this is not a bad deal for both Redfin and RE/MAX agents.
RE/MAX agents do have to voluntarily enter into the program and there some standards which must be met and maintained when handling Redfin leads.
(But shouldn’t that have been happening already if they were to become a RE/MAX agent?, think about it. It’s all about the User Experience)
The Bad and the Ugly
The problems with this deal will not surface today or even this year, but we could begin to see the negative impact of it over the next 2 to 3 years and it won’t be only limited to RE/MAX agents.
This deal has the potential to affect every real estate agent in both Canada and the US.
Over the past few years Redfin has invested heavily into both online and print advertising campaigns during the spring and summer markets to promote their 1% listing program.
This is a strategic marketing campaign for Redfin. Part of their strategy is to dominate and reshape the real estate market currently operates and the 1% listing program is a major part of it.
To get an idea of how this program is being rolled out you can read this press release from Redfin on February 25, 2019 which outlines Redfin bringing this program into new markets.
CLICK HERE to Read the Press Release: Redfin Brings 1% Listing Fee to Philadelphia, Delaware, South Florida and Wisconsin.
Here’s what Redfin believes and says to it’s investors about what they do: “Our mission is to redefine real estate in the consumer’s favor. In a commission-driven industry, we put the customer first. We do this by pairing our own agents with our own technology to create a service that is faster, better, and costs less. Since our launch in 2006 through 2018, we have helped customers buy or sell more than 170,000 homes worth more than $85 billion”
That part about “costs less” is the 1% Listing Program.
In 2018, Redfin’s net loss was $42.0 million and they are expecting to lose more in 2019.
They are playing a long game and building brand equity and loyalty with home buyers and sellers.
But unlike other “discounters” Redfin is offering a very compelling value proposition for listing your home with them.
They are doing quite a bit more than the typical cut rate fee broker does.
Redfin’s 1% Listing Program is a reduction in commissions typically paid and sets a standard for what a full service Real Estate Agent should already be doing..
There is some fine print to read, like, the Buyer’s Agent Commission is not included. Plus, the listing fee can be higher than 1% in some markets and there is a Minimum Commission rate, but Redfin is making a compelling argument for a homeowner to list with them.
Redfin’s Value Proposition for Homeseller’s includes:
- Professional Photography
- Professional Flyers
- 3D Scans with a Matterport
- A Full Service Agent who will: Prep a CMA, meet with homeowners to get to know the home and their needs, plus recommend the target list price and prepare a marketing plan. (That’s a listing presentation for 1%)
By conditioning homeowners that all of this can be done for only 1% has the potential to destroy one half of an agents business: Listings.
(I know not everyone has an equal amount of buyers and listings but it’s to make a point)
This business is built by helping buyers buy homes and sellers sell homes and this deal has the potential to wipe out selling homes as a viable business strategy for many agents.
Meaning we can get to a place where agents won’t want to list homes any longer because homeowners won’t want to pay more than what they can get Redfin to sell their home for.
How long can you compete as an agent at listing homes if you’re going to offer your services at 1% Listing Fees?
Can you imagine a marketplace where you didn’t even want listings anymore because they were not profitable and only took on buyers.
Or worse, what if an agent had to adopt the same strategy as Redfin and take a loss on Listings in order to produce more buyer leads for a profit.
That is FUCKED UP.
The Future of the Real Estate Industry and Disruption
What is so frustrating about deals like this one is that the leadership from NAR and all of the top brokerages is that they are still in this 1995 to 2005 mentality.
They are unwilling to make the hard changes to protect this industry from technology driven companies who basically all want to cut the total amount of commissions paid to agents because they believe it’s too much.
Instead NAR and now in this RE/MAX deal they have choose to just accept things as they are and make deals with the Zillows and Redfins, and whatever happens to the agents, well, they will be ok, RIGHT?
Disruption will forever change how real estate agents are compensated.
This will mean that the possibility of building a successful and profitable career as a real estate agent will no longer exists.
Agents will be capped or limited in how much they can earn on the sale of a home because the tech companies, in partnership with our current leadership, will redesign the whole system as we know it.
And it’s not a matter of if, it’s a matter of when now.
Disruption is centered on what the real estate industry does about the MLS…
The MLS is the single most important tool that EVERY real estate agent has, it belongs to the agents, and it’s the agents who are paying for it.
However, the MLS’s have been mis-guided and mis-led by industry executive-level insiders and beurocraats who are resistant to change.
The reason why we have a Zillow problem is not because of Zillow, it’s because of the MLS’s, NAR, and the rest of the industry leadership did not change when the world around them changed.
They have monopolized control and are going to great lengths to maintain the status quo in order to save their own jobs.
Consumers have access to every bit of information out there on their fingertips via a mobile device, except for listings data. And this is a good thing.
However, a consumer cannot go and search directly in any MLS there is no national database of properties (data) where a consumer could go. Instead, consumers have no choice but to go to third party portals like Zillow for this information.
This is the same 1995 mindset that took down Blockbuster Video and ever travel agent in the country.
By not delivering listings data directly to the consumer, our industry has elected (without your input) to just let 3rd party tech companies like Zillow and Redfin to distribute this information for you and they will build their brands off of your listings, and expect you to pay them in return for the leads they generation with them.
So what can we do?
The Case for a National Public MLS, Owned by the REALTORS@ who actually pay for it.
The way to beat disruption is to eliminate a need for it in the first place.
If our industry wants to be lead by real estate professionals, then we need to begin building one single national public MLS with a front facing portal for consumers, and a rear facing portal for agents to access and upload data into.
If our industry continues down this current road, then it will be tech companies and venture capitalists who will shape what the future of real estate looks like and more importantly what your job as a REALTOR® will be.
Thanks for reading
The DANGER Report
In the podcast I mentioned the DANGER Report. It’s a comprehensive research report and study that was conducted by NAR and it’s what opened up my eyes as to what is coming. I encourage you to download and check it out.