Ever since I sold my first house, I’ve thought that the real estate business was in need of a shakeup. The typical cost of buying or selling a house is 6%. The buyer’s agent gets 3% and so does the seller’s agent. On a $100,000 house that’s not a big deal. However, houses in the Seattle area average $430,000. That means the commission is $26,000. That’s a pretty big sum of money. The buyer rarely notices this cost because it is hidden from them. The seller, however, notices that they are only getting $400,000 from their $430,000 sale. The transaction costs are really high. That is definitely a scenario ripe for disruption.
A Seattle-area real estate company called Redfin is trying to be this disrupter. Redfin realizes that most homes are found on the web. In those circumstances, agents don’t deliver nearly the value they once did. Because of that, they offer a no-frills real estate service at a fraction of the cost. Redfin lets you do most of the legwork and in return refund most of the commission to you. That could save $10,000 the seller or buyer on the typical Seattle-area transaction. A friend of mine recently used them and found them to be quite efficient. Most people are already familiar with the area they are looking at and don’t need an agent for anything other than showing them the inside of the house and helping them with the paperwork. If you are comfortable with the process, Redfin could be very useful.
Scoble posted an interview with the founder. He (Scoble) spends a lot of time telling us about his recent move from Seattle to Silicon Valley but there’s a lot of interesting information in there too. There’s also a good article in the Seattle Times discussion the business model.
I’m very interested to see where all this goes. I suspect that in the next decade (real estate moves slowly), the way we buy and sell homes will be radically different and a lot more streamlined. Markets don’t like inefficiencies. The web likes them even less.