Bonzai Real Estate Blog

When I first got into real estate in 1996,  I started as an exclusive buyer agent for an exclusive buyer agent company, Buyer Agent of Savannah. There were three agents in the office, Jerry, the broker, Dottie, his wife, and me. I worked there for four and a half years and during that time Jerry averaged about 40 transactions a year, I averaged about 45 a year and Dotttie averaged around 30. We had experiences with discount brokerages (Redfin hadn't come along) but didn't consider ourselves a part of that model; however, we met some resistance to EBA because it was a fairly new concept in this area. Once the good agents discovered we had plenty of buyers, they bought in quickly and would call us lobbying their new listings.

The company's average take was 2.4% of the sales price. I was on a graduating split that went from 50/50 to 75/25 as I met certain levels. Since we never got both sides of a transactions we had to make it up in volume. I was always amazed to see some downtown agents, selling high dollar properties with many on both sides, who did 15 transactions a year bring in the same amount of commissions as I did, and some more. Yet their office had many agents who did far less. Per agent, our company was ahead of everyone, but we had only three agents.

Could Jerry have gotten ten, twenty, thirty agents averaging 40 transactions a year? I don't know, he started having heart problems, slowed down and eventually had a major attack and died. But it go me thinking. I also had heart problems shortly after Jerry, so I haven't tried it either. :)

One reason we could handle volume was we were a small team with a great system that Jerry took from a Memphis franchise, then went independent and further developed it into a team that worked together in a very efficient way. I could have handled more volume within this system and was headed that way, increasing every year. I could have handled 80-90 transactions. I've heard of agents doing more with an assistant. I began thinking about teams of ten with a great system handling very high volumes, then recently started thinking about the Redfin model of compensation and online technology.

But to handle that type of volume you have to attract that type of volume. We attracted clients through superior service. At some point we could have lowered our side of the commission and still made good money, through volume. However, comparing a little three agent company in Savannah to a potentially nationwide model leaves much to be proved in regards to whether certain concepts can be implemented on a large scale. Can superior service at a low price attract enough volume (and can the volume be handled while keeping costs down) to be profitable and sustain a large nationwide operation.

This is where I see Redfin's opportunity -- maintaining their price and technology advantage while stengthening their service offering and producing high volumes of transactions in small teams around the country. But one of the challenges I see is -- will the Seattle attitude play in Atlanta, Dallas, Charlotte, Kansas City or other such cites that ain't Seattle, Boston or San Francisco. Even before that, though, they have to play profitably in the cities they're in. But if they can produce volume/profit where they are, will they be able to grow to the midwest and south?

The south and midwest will be harder nuts to crack, and the way I see it to get respect  they will have to compete on equal quality of service. I'm sure the way the service is provided will be different coming from a company like Redfin whose mindset is geared toward innovation -- but if Redfin is seen as cutting services in order to give rebates, many agents and companies will feel like they are gimmicky and I'm not sure they can attract enough volume from consumers.

I understand the Redfin idea is to have the consumer do some of the work in order to save money in the process, but I see this as the weakness. I think THIS is what hasn't caught on and delivered enough business to make a profit. It's too easy to be attacked as "pulling a fast one". Redfin may hold on to this part of their business model as an attraction to Gen X buyers and sellers, but I don't think it's necessary and could actually be down-played as only one piece of the model -- an option for do-it-your-selfers. I think Redfin, or any company who chose to, could provide full service along with the price and tech advantage and the compensation model by creating great teams/systems to handle huge volumes efficiently.

The image of "superior service at a lower price" is more powerful image and deserves more respect than the image of "you do-it-yourself and we'll lower the price and help out a little bit in the process."

Even if Redfin gained ground in the areas they are in, it would be too easy for a full service company to adjust their prices to compete as a full service model at a slightly higher price than Redfin's discount causing consumers to prefer to pay the little bit extra for full service. Then Redfin will be in even a more awkward position of catching up on service. It's easier to work from the price side with adjustments than it is to start way down the road trying to rebuild a service model.