#410- Mail-Right Show: Redfin – Devil Incarnate or Saintly Enterprise?

Subscribe: RSS

Redfin: Devil Incarnate or Saintly Enterprise?

Uncover the truth about Redfin in this thought-provoking show that delves into whether it is a devil incarnate or a saintly enterprise. Gain valuable knowledge about how Redfin operates and its impact on real estate markets, then decide for yourself which side of the debate you stand on. Don’t miss out—now, to gain a deeper understanding of this contentious topic.

We discuss the similarities Betwen WeWork – Adam Neumann | Redfin CEO and Founder – Glenn Kelman business models.

#1 – Redfin has existed for 20 years. It has yet to be a profitable enterprise.

#2 – Even during 2021, the most extraordinary of boom years, the company lost $109.6 million.

#3 – Making payroll every two weeks for over 2,000 agents is a sobering reality. And while Redfin has referred out the business to “partner agents” for years and recently announced a goal to send 50% of its leads to such non-Redfin agents, a path to profitability has remained hard to discern.

#4 – Redfin CEO and Founder – Glenn Kelman

The estimated Net Worth of Glenn Kelman is at least $41.6 Million dollars as of 9 November 2023. Mr. Kelman owns over 211,111 units of Redfin Corp stock worth over $7,496,727, and over the last 5 years, he sold RDFN stock worth over $33,022,650. In addition, he makes $1,082,280 as President, Chief Executive Officer, and Director at Redfin Corp.

#5 – The future of Redfin?

Episode Full Show Notes

[00:00:09.240] – Robert Newman

Welcome back, ladies and gentlemen. It’s episode number 410 of The Mail-Right Podcast. Today, we’re going to talk about one of Mr. Donwood’s favorite subjects in the whole wide world, which is Redfin. If you tuned into our show last week, he’s looking all confused. But of our last 10 shows, Redfin has been brought up at least two or three of them. Oh, I didn’t know. He probably just doesn’t realize it. The title of today’s show is Redfin, Devil Incarnate or Saintly enterprise, which is a very English way of phrasing it, all that anyway. In case you did not know, I’m going to allow my co-host a moment to speak and introduce himself, and you’ll figure out pretty quickly. He’s an English bloke. Hold on. John, take it away.

[00:00:55.740] – Jonathan Denwood

Thanks, Rob. I’m the joint founder of mail-right. Com. We are a CRM lead generative platform that also provides a great website solution. Back over to you, Rob.

[00:01:09.730] – Robert Newman

All right, so today we are going to dive into Redfin, which has been making the news, as it oftentimes does. One of the reasons it makes the news so frequently is that in case you did not know, Redfin does not follow traditional model. Number one, they charge their customers like a flat 1% commission rate. So they have a lower commission structure. They put their agents on salary, which sounds lovely. All of this sounds lovely. Pay, customers pay less, the agents get a salary, what could possibly go wrong? Well, truth is that the point that John has put down that was number one, which I do happen to know. I am not the Redfin expert that John is, but Redfin has yet to be profitable. It’s existed for 20 years. John, why don’t you kick off the conversation there? You’re the one who created that title, so I’m sure you have something to say about it. Let’s hear what your thoughts are about that.

[00:02:12.730] – Jonathan Denwood

Thanks, Rob. Well, it’s linked to last week’s chat we had. Folks, you definitely want to listen to last week’s show, because obviously Redfin decided to leave the NAR before the lawsuits really hit the public media in some ways. I think the Redfin founder, Glenn, has always had a very—I’m looking for the right word, Rob. I’m struggling relationship with the NAR. But before we go into the business side, because I’m just fascinated to get your view on it, how would you classify their technology, their web technology specifically? Do you think there’s anything particularly special or that differentializes their web presence than some of the leading national franchise players and even some of the brokerage or clientele that you represent?

[00:03:34.050] – Robert Newman

Well, they’ve definitely had a unique spin on lead flow and lead assignment from the very beginning. Redfin had used to—this is not true anymore, used to have a much better job at landing pages and hyperlocal presence. I think that one of the challenges that Redfin has done is that from the very beginning, John, they focused on the small, long tail searches, and stayed away from competing against the major, like homes for sale in city name. That was always the top searches. Redfin understood that Trulia and Zillow had those locked up, and I don’t think they put as many of their resources in them, and they did instead, neighborhood searches, subdivision searches, things like that. And they’ve done a very good job. But what happened, though, is competition changed, and now Redfin has become more known for its commission model. They also lost the fight in producing anything unique inside the website space. In other words, their website looks and operates very similar to the way that Trulia does. It’s not that much different in terms of page design. I’m looking at when they’re landing pages right now, it’s identical to truly a landing page. The data points presented on the page are slightly different.

[00:05:08.140] – Robert Newman

Redfin does a slightly better job at doing the details, and then it, of course, points you in the direction of Redfin, Real Estate Agents, which is its interpretation in the digital age of what Century 21 did back in the ’70s and the ’80s. Do I think that they did a really good job with this? No, I think they fell short. I think they fell short through no fault of their own, because whoever started the company ran the company. They just couldn’t keep up with all the technological advances on the website side. That’s my opinion.

[00:05:47.770] – Jonathan Denwood

Yeah, I think that’s very astute. I think Glenn Carman background, he had a successful start-up at the start of his career, which was bought. Then he started Redfin and he still goes on a lot of startup podcasts and talks to the startup VC community probably as much as he talks to the traditional real estate industry. I think that… Would you agree that’s what surprises me? That is, in my opinion, that Redfin and the founder have been dealing with a broken business model for a very long time, but that’s just my opinion. But I think because of what we discussed last week, I think he blames or hints that it was the monopoly, in his opinion, the monopoly practices of the NAR and the more traditional national franchise brokerages that contributed to his broken business model. How would you respond to that, Robert?

[00:07:27.700] – Robert Newman

I would say that there’s probably some truth to that. I’d say that Glenn probably gave up the ghost on competing, and I think he’s given it 20 good years. From what I can see, the one thing that I’ve learned from being an investor is that you like, there’s a lot of companies that do nothing but track how much stock are the leaders of the company keeping, selling, stuff like that. Glenn has been selling his for a while, like a long time. He’s been selling and selling and selling and not rebuying. I think that tells you everything you need to know about Redfin. That’s the CEO of the company divesting himself of his stock, of which, by the way, he sold the largest percentage that he’s ever sold on November second of this year.

[00:08:15.280] – Jonathan Denwood

Yeah, that’s very insightful. Thanks for that. I didn’t realize that, Rob. What is the problem with Redfin? Obviously, discounting has been around a long time. Paying your agents directly, the research I did, he’s got over 2,000, they’ve been backing away from that model and increasingly, more of their agents are paid on the more traditional model of commission. Was that one of the leading factors? Because I think we both agree that we feel that there’s some fundamental weaknesses in the business model of Redfin. Was it that one of the key problems paying agents directly a salary rather than then a commission-based structure?

[00:09:22.440] – Robert Newman

If you were going to pay agents a salary, then there’s no doubt that you have to have an aggressive bonus compensation. There’s definitely a lot of… It’s a good thought to say that you’re going to pay somebody a good wage. In a very tight… I know of one broker that does that successfully, and he is a retired military guy who lives in a military city in Florida and hires only ex-military people, and he runs his operation like a military operation. It works in that environment that I’m mentioning, it works very well. He’s a very highly rated brokerage and agency and with very high success numbers coming in from their clients. But in every other environment that I’ve ever seen people try to do this, it fails. And the reason it generally fails is pretty simple. You take an agent who you’re paying 1% to, and it doesn’t simplify the real estate process. In many cases, and I’m sorry to my audience, real estate agents are overpaid for the effort that they deliver. But the reason that there is such a high compensation, John, is that every once in a great while you have a real estate client that you have to work for weeks or months on, as if it’s your only job.

[00:10:47.170] – Robert Newman

An old lady with health problems, and you all of a sudden have to move her, replace her carpet, and the list goes on and on. Basically, your life becomes moving this human out of their home. In those rare circumstances, like where you take a Redfin agent and say if they want a good review, do they have to work any less hard than a fully commissioned agent? The answer is no. They do all the same work and get paid literally a third of what somebody else would get paid. So any good agent providing a high level of service is going to look at that eventually and go, I’m making literally a third less, and in these problematic circumstances where I have these really high energy clients, I am just getting compensated so much less than what I should be compensated. I think that’s a problem. How does Redfin keep really high quality people when that becomes a reality?

[00:11:46.940] – Jonathan Denwood

Do you think it’s also linked? Because as you know, Robert, I’ve seen it in Northern Nevada, and obviously I’m sure you’ve seen it, that a lot of the regional large brokerages and also the national franchise brokerages, a lot of their model depends on having a very large group of agents. A lot of them are part-time, a lot of them might only sell three or four houses a year at the most. But the percentage that the brokerage takes from those sales is extremely high compared to the deals that they have to do with high-producing agents that part of their brokerage. I think that model in a buoyant market works, but it doesn’t work that well in a more settled market or a semi-declining market. What’s your thoughts about that?

[00:13:04.790] – Robert Newman

Can you rephrase that question for me?

[00:13:07.600] – Jonathan Denwood

Well, this whole business model, which I think a lot of brokerage is not exclusively, but I’ve noticed in Northern Nevada where they have a vast group of part-time agents.

[00:13:23.990] – Robert Newman

And a.

[00:13:24.500] – Jonathan Denwood

Lot of those agents only sell two, three, four houses a year.

[00:13:30.520] – Robert Newman

[00:13:32.220] – Jonathan Denwood

Don’t think agent handling that level of transactions can really have a feel for the market, and this is just my opinion, but it’s very beneficial to the brokerage in profitability. What do you think is going to happen to that model? Do you agree that is a model?

[00:14:01.960] – Robert Newman

That lot going on? Well, there is absolutely no question whatsoever. So if Redfin has 2,000 agents, then check this out. Keller Williams has 187,000. Exp has like 30,000. So the largest brokerage by age account is Keller Williams, and I think that Keller Williams has done an incredible job at creating value in the recruitment process. They’ve also got enough training material so that most new agents drift in the direction of working with, like a Keller Williams. But that model that you described, do I think they seek it out? Hell, yeah. Why wouldn’t they? Because when you have a model that can get 100,000 of anything, and that 100,000 people, let’s say, produce like two deals a person, that’s still like 200,000 deals a year with… There’s always complications, John, just like any other industry. The highest level, highest producing agents are going to make the brokerage operate at the narrowest margin, because they’re going to negotiate for their own salaries aggressively, and you’re going to have a very hard time turning them down, or because there’s so many no commission agencies, and by the time an agent is able to sell 20 or 30 properties a year.

[00:15:30.780] – Robert Newman

They’re probably doing their own marketing. They absolutely understand how to do the transaction coordination. You have to work pretty hard to provide them a service they can’t do themselves. So do companies like Keller Williams seek out these part-time agents? Absolutely. Is it a model that I see being sustained in a shaky economy? Not as much would be my answer.

[00:15:57.780] – Jonathan Denwood

It’s also linked, this is why I wanted to bring, because I think you were a little bit, I wouldn’t say puzzled, but you had some slightly puzzled why I brought this red thing in. Because I saw it very linked to our conversation last week, Robert, about obviously what happened with the lawsuit, which we only touched very little bit in the second half of last week’s show, we mostly talked about follow-up boss. But obviously, what has happened to the NAR, it might take years for that legally to go through all the processes. But you can, to some extent, see the writing on the wall with the 6% really, because I agreed with what you said last week that if you take a common sense position, that is a lot of money for what the average time needed for the average transaction. So can you see why? Because hopefully you can see where I was coming from in this discussion here a little bit.

[00:17:13.860] – Robert Newman

I mean, yes and no, I’ve never really considered Redfin to be a major player. They’re two thousands of agents comparatively to… Zillow has more agents than Redfin does at this point. They are so many, they’re one of the smallest brokerages by age and count that exists, and they have a very unique model, and I think that it’s dying on the vine, so I don’t pay too much attention to them. Is it worthy of a discussion, though, in and of itself, of course. I mean, Redfin is, Zillow is, Realtor. Com is every single one of these companies, and if you want to take this as a nod to their disconnection from the NAR, and/or Glenn trying to say that NAR is anti-competitive. Well, hell, yes, they are. Yes, they are. They are anti-competitive. Nar has been egregiously trying to maintain control over an industry that would absolutely, probably at this point, better be served by a more flexible or adaptable organization being at the forefront. Nar is 10, 20 years behind everybody in everything all the time. And is that serving the real estate industry as a whole? No, it’s really not. And is Redfin indicative of that?

[00:18:38.820] – Robert Newman

Sure. Is it a great indicator? Probably not. I think that Glenn Wishes it was, like the EXP is more of an indicator now, I think. Let’s go to a break, though, and discuss your response when we come back. Also, allow me a chance to try to fix my camera. All right, ladies and gentlemen, we’re going to go to a break when we come back. We’re going to talk a little bit more about Glenn, we’re going to talk about payroll, we’re going to talk about the financial situation of Redfin and some other points that John has brought up here. John, I will be right back as I try to do this one more time, okay? Do you want quality leads from homeowners and buyers right in your own neighborhood? Then you need mail right. It is a powerful but easy to use online marketing system that uses Facebook to generate real estate leads at a fraction of the cost you’d pay from our competition. We stand behind our work with a no-question-asked 30-day money-back guarantee. So don’t delay, get started today. Go to mail-right. Com. Welcome back, ladies and gentlemen, to the Mailright show. Today’s episode is number 410.

[00:19:46.270] – Robert Newman

My fearless co-host and I are talking… We’re doing a trail on… We’re doing a completion subject that came up for John when we were doing episode number 409, which I agree with John. It was a really good episode. So for those of you listening to the show right now, if you’re trying to figure out why we’re talking about RevPen and where does that connect in, we were talking about the lawsuits that NAR had lost and how that might affect real estate commission and a few other things that were all really great topics in episode number 409. So, John, we left off. You mentioned a few different things about the profitability, and you said, I think let’s pick up from number three. I don’t know that we really talked about that. So right now, Redfin is a little bit in trouble because even in the best year that they’ve ever had, they’ve lost $109 million. Part of what you… The reason for that is they’re making payroll for 2,000 agents in a slowing real estate industry, so most likely they’re going to be hemorrhaging Red Ink. I don’t even know where they’re going to come with the money.

[00:20:53.150] – Robert Newman

That’s a lot of money to come up with. So what was the thing that you wanted to talk about surrounding that idea?

[00:21:03.000] – Jonathan Denwood

Well, I think first of all, I’m going to make a quite controversial statement, but it’s my opinion. I think Glenn is very media savvy and I think Silicon Valley love him. Obviously, they’re sharks, they just go by the money, but his ability just to keep having access to more and more capital. To me, he’s very similar to Adam Newman. I think he’s the Adam Newman of the real estate industry, basically. If you don’t know who Adam Newman is, listeners, he was the co-founder of WeWork. To me, Glenn obviously is different, but they are similarities. The whole business model of Redfin from top to bottom is broken as far as I’m concerned. I’ve just been amazed how this dog has just kept on going. But what interests me, and I thought why I would bring it up this show, is where do you think the industry is going in the next 2-3 years? I’m just interested in… Because I think in some ways the national chain are going to have their problems. You can never say no, but I just cannot see how Redfin can keep on going. But I think there’s going to be for smaller agile boutique, brokerages, power teams, solutions.

[00:23:01.730] – Jonathan Denwood

I just see the market being very disrupted. What’s your own views, Robert?

[00:23:10.900] – Robert Newman

I agree with that. I think all the national companies are in trouble, except for the ones like RealT One and eXp that are going to virtual models. I think that we’re going to see fewer and fewer real estate offices with physical locations. I think we’re going to see more more of a branching out, more hyper local brands becoming more and more relevant inside the real estate industry. I think that the big brands have gotten a bit out of touch with what? What is needed to maintain a strong foothold in local places? There are exceptions, but it usually is office-to-office and centers around a very small handful of agents that have been with the same brokerage for a long period of time that do add a certain prestige. The Coldwell Banker office in Beverly Hills is an incredibly strong example of a very traditional brand that is falling out of step in many places, but maintains like a lock on Beverly Hills because the agents that work out of that office, like they’ve been there for 20 or 30 years. So you still go to them regardless of where what the shingle is outside the door.

[00:24:35.300] – Robert Newman

But other than that, you’ve got Beverly Hills Realty, which has really been on the upswing and is competing quite handily against Tilton and Highland. Same thing with the Agency RE doing the same thing. I’ve been watching that happen more and more in different marketplaces, and I don’t think it bodes well for the big brands. I think it bodes very poorly, and if they happen to lose a major lawsuit, the people that are targeted in that lawsuit are the big brands, not the little local companies. So I perceive that it’s going to be a difficult environment for big brands over the next three years, and I think that we’re going to continue to see a proliferation of low cost, high digital services companies spring up that emulate the eXp model. That’s what I think.

[00:25:28.350] – Jonathan Denwood

Yeah. I think that’s… Yes, I agree with you there. Where I see, and I might be totally wrong about Redfin, because of the ability of Glenn to get more capital and to pivot Redfin or… He’s a great storyteller and he’s ability. But I just feel that the runway is shortening quite a lot. But the other thing is I also think this other business model, which we touched on in the first half of the show, of the national franchise chains and the large regional, there’s two in Northern Nevada you got Chase International and you got Dixon in this part of Northern Nevada. They both, in my opinion, utilize the model of having 400-500 agents. Many of them only sell two, three houses. I really see those regional brokerages and the national chain being really hit hard. Would you agree with that?

[00:26:47.450] – Robert Newman

Yeah, I would agree with that. I would also say that part of what you linked to us was an article talking about the shift to traditional commission splits, and that is a reality of the cyclical nature of real estate that Redfin definitely doesn’t take into account. It is a retarded model when you look at the way that real estate works in the US, because it goes white hot for its own reasons, and then it does have periods of rapid decline. What are you supposed to do? Keep 2,000 people on staff? No, it is better to disperse that risk in a pay-for-play compensation structure. If you sell stuff, John, I will pay you. What you should be doing is making it a no-brainer for agents to want to pay you that split. Right now, the only coin of the realm for most agents is, Can you give me qualified leads? That’s going to be very difficult moving into a down market. I think that right now, just commenting on this article and really giving it a little bit of thought, wow, is that an upside-down model? It was always upside-down. They’ve never made money. But now to say, Oh, we’re going to give you a discount and we’re paying our team a salary.

[00:28:13.730] – Robert Newman

No, it’s idiotic.

[00:28:16.120] – Jonathan Denwood

It truly is, isn’t it? But to finish off, what do you think are some of the skills that agent is going to need to build up and foster in the next-three, in the next 2-3, maybe four years to be successful? Because I still think with the right skills, our agent can build and be really successful, even in this environment. What are some of those skills that you think they need, Robert?

[00:28:49.100] – Robert Newman

Like.

[00:28:49.650] – Jonathan Denwood

Agents? Yeah.

[00:28:51.160] – Robert Newman

I think that agents are going to have to be more and more digitally savvy. So skills is going to be learning rapidly, keeping up with a rapidly shifting digital landscape. Now, just to be clear with you, John, because you and I talk about the marketing side, and I think that for the nature of this show, we’ve said that ad nauseam. What we haven’t talked a lot about is that also changing at the same time as the way real estate agents are marketing, it’s the way they actually process their deals once they have them. That is changing rapidly too. The way that commissions are dispersed, the way that transactions are coordinating, more and more that is becoming digital. So these agents that are super established have oftentimes two or three assistants to keep up with all of that for them, but let’s say you’re not in the position to hire two or three assistants. Being a fast learner, being willing to embrace digital technology in general, being forward thinking, these are all skills that I think are going to become more and more relevant to being an agent, John, and I don’t think that we cover that, a lot of that.

[00:29:57.660] – Robert Newman

Are you forward thinking? Are you looking to embrace digital? I’m not telling everybody to go do this, but if I was an agent, I would be carefully and closely examining little bits of AI to see if there was something that was mundane that I could cure with autonomous learning or autonomous intelligence, which is really not what it is. But I would be looking to see if I could shorten my process up using AI, and if I could, I would use it.

[00:30:30.340] – Jonathan Denwood

I think we’ve got our topic for next week actually, ain’t we? Is it Thanksgiving? I’m losing track of Thanksgiving is all a weakness if we are having a show.

[00:30:40.120] – Robert Newman

But I think next week’s show should be this. Let’s talk about what a bleeding edge new Millennium agent looks like, because we don’t address that too often. What does that look like? Who is that? What would you and I say that that agent looks like? If we could construct a perfect real estate agent in our heads, what would that person look like?

[00:31:04.230] – Jonathan Denwood

Well, it’s not going to be next week because it’s Thanksgiving Day, but the following week, the 30th, that’s all because I doubt if we’re going to do a show on Thanksgiving, but the show on the 30th before we have our break, I think that’d be a great ending show, weren’t it?

[00:31:21.610] – Robert Newman

I think it would. I think that’s the last show of 2023 for us, and I think I can’t think of a better subject for us.

[00:31:28.790] – Jonathan Denwood

Right. I think it’s time for us to end this show, Rob.

[00:31:33.600] – Robert Newman

Yeah, absolutely. Thank you, everybody, for tuning in. We really appreciate it. If you’d like to learn more about me, you may do so at Inbound, R-I-M. That’s the word, Inbound, rabbitedwardmichael. Com. I have training courses currently up there, which I will be taking down soon enough and charging $99. I have stuff that’s equivalent to what Levi does, Krista Mayshore. I’ve got it up there for free. Just look under my recent blog post. I will teach you and train you how to do video. I will teach and train you how to do hyperlocal. I would do it all for free. Check it out at inboundirm. Com. John, how would you like people to reach out to you?

[00:32:07.680] – Jonathan Denwood

I’ll just go to the mail-right. Com. We’ve got a load of resources on the site. We are a CRM, lead-generative CRM. We provide the tools to not only manage your clientele, but help you get digital leads. I love the opportunity to have a chat with you and show you how the MailRite system can help you. So just book a free demo. I normally take most of the demos. You have the pleasure of having a chat with me. Back over to you, Rob.

[00:32:45.340] – Robert Newman

All right, ladies and gentlemen, John, take us offline. I’ve got nothing else to add. We’ll see you at the next show. We’re looking forward to it. We’ll wrap up 2023 strong.

The Hosts of The Mail-Right Show

Jonathan Denwood

https://www.facebook.com/mailrightusa

————————————–

Robert Newman

InboundREM

https://inboundrem.com