Sunday, September 3, 2006
redfin spins the new york times
I sell real estate now, but I was in the business of design and Web development for years. There is a old saying and a glib truth in selling and buying design services: “you can have it good, cheap and fast; but you can only get any two of those at a time.” I think that applies across many industries including real estate services. In his New York Times story "The Last Stand of the 6-Percenters?" writer Damon Darlin tells us everything Redfin wants us to know about their business; a new discount broker that reduces its fees by offering less services. He explains how they work and quotes Redfin's investors and selected customers. It would have been nice to see some balance and real analysis of the business models here, but the silence is deafening. The spin sounds like a persuasive argument, until you stop to think about it for a moment. As Jonathan Miller wrote in Matrix, "NAR needs Redfin's PR firm".
There is certainly evidence that networked businesses can change things. The ability to transform an industry, as the Expedia/Zillow guys did to travel agencies, is possible, but also quite rare. I’d ask you if the customer has actually benefited from it? Are air fares significantly cheaper because of it? I haven’t noticed; and it now costs my time to find the best fare and route. Discount, on-line stock brokers did not put the full service firms out of business. The smart ones that offer real knowledge and guidance are still around. Amazon did not kill Wallmart, Ebay has not replaced Christies, and Yahoo did not see Google coming. There is probably room in the market place for multiple business models. The perception of value in the services rendered is what’s important. Cheaper does not mean more effective.
I disagree that Redfin "...realized it was not primarily a tech company, but a real estate broker". They haven't quite discovered that yet. The big lie in all of this is the inference that people are getting the same services for less. They are not. What’s missing from the Redfin service proposition is any claim that they will work to get a seller the highest price possible. That’s what brokers actually do. Redfin's model is based around doing it cheaper, not better; and you generally get what you pay for. The article states that "Agents don’t find and recommend homes — customers do that on their own". It later states that "Redfin can also work the seller’s side of a real estate transaction...The customer is responsible for showing and advertising the home; Redfin handles paperwork and negotiations". So what do they do besides put themselves in a position to encourage a transaction, any transaction; and handle the paperwork to make sure they get paid their reduced commission? The answer is nothing. They are not advocates for the seller, and they do no work for the buyers. Why would anyone pay them anything? They mistake an information system for knowledge; and salaried clerks for professionals.
"They (the brokers) have not, as yet, fought back by reducing their commissions...they are unlikely ever to do so."
Of course not Paul, that's not fighting, that's letting an inferior product win. The question for those of us who offer full service brokerage is not should we cut our paychecks because someone has an entirely unproven idea. It sounds more like, "how do we continue to innovate and improve the value of our services to our clients"? My studio for example, provides clients with exceptional custom-made marketing programs, that distinguishes properties I represent in the highly competitive New York City luxury market.
As a matter of fact the Internet is strewn with the road kill of online, discount brokers. The disinter-mediation of traditional industries by the Internet is a pretty old idea from management 'experts' that sell consulting services and books like ‘Blown to Bits’ or Steven Levitt’s ‘Freakanomics’. A tech consultancy I worked for in the late '90s was developing software and business models for this same kind of play. But just because it failed for that 'innovator' back then, does not mean that something won't ever stick. What they discovered was that the deals and the product is quite complex. That it is not a click of the mouse transaction. Rob McGarty, Redfin’s director of West Coast operations, is quoted in Darlin's article as saying, "Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com". I think anyone with common sense who has bought a home, and books at Amazon, understands that they are indeed quite different. The Internet works great for highly commoditized products like digital music, packaged goods and computers made of standard components. But the more complex the product and transaction, the more it requires professional help. I'd suggest that each parcel of real estate is a highly unique and complex product.
A shakeout of agents in a slowing market will insure survival of the fittest. The caricature of the overpaid, lazy, real estate broker, is spin that serves Redfin and others who would like us to believe it. As an industry, full service practitioners and the NAR could probably do a better job at communicating. Adding value for our clients through technology is something that The Corcoran Group has already created a legendary online business with; including a high standard of personal service. Innovation is not the particular domain of any one player. In NYC, real estate brokerage is an industry largely filled with smart and highly motivated people. Competition fuels change.
Running a story that editorializes on about an online discounter, while neglecting the differences to what real brokerage is about must certainly reinforce the pride that the New York Times takes in the separation of the business and editorial sides of the paper. Those same full service brokers, who are still buying a lot of advertising in their classifieds and special magazines, are themselves gaining significant efficiencies by moving promotional resources to networked environments and away from print. Articles like Mr. Darlin’s serve as a reminder to me that there are those out there who’d like to eat my lunch. But it’s far from a done deal.