Real estate brokerage, Redfin, is currently active in 80 US markets, after raising nearly $170M in VC-funding. The company was launched in Seattle in 2006 with the mission to reinvent real estate to benefit consumers and has steadily expanded to 80 major US cities. The Redfin model is different from traditional brokerages in how it combines its advanced technology with full-service agents who are paid a salary, receive benefits and earn bonuses based on customer satisfaction. All reviews for every Redfin agent are published on their online profiles. Despite its massive success, up until now Redfin wasn’t operating in New York City, but that is just about to change.
Can the Redfin model work in New York City? Their brokers, who receive a good paying salary, do not receive a traditional commission. Instead, Redfin hires brokers and generates revenue by keeping a portion of the sales commission fee, part of which is also refunded to the buyer. This is the commission split. That’s not going to fly, especially with the fees that the brokers are currently getting in New York City.Redfin does not list rental properties which is a huge market in NYC. Everywhere across the country (except NYC), the fees are 4%-8%, (wherever applicable) and it is paid for by the owner. New York, however, is a completely different animal, the fees are 10%-15% and paid for by the renter. The traditional brokers here are used to being paid much more than the rest of the country, and it makes a lion part of many agents commision
What is Redfin? Redfin is a licensed real estate brokerage that originated in the mid-2000s and is among several firms that are modernizing brokerage services for their customers. Redfin clients can take virtual tours and sign documents online which is great, but in a city where the median sale price just crossed $1M most transactions are happening after a few showings and face to face negotiation. When it comes to real estate and brokerages, then NYC is not like the rest of the America. Redfin will need a separate system that works within New York City alone. This city does not use the National Association of Realtors like the rest of America and when it comes to online marketing, Redfin uses the ones that many people are very familiar with like Zillow, Trulia, and Realtor.com. The main site for NYC real estate, however, is StreetEasy, and Redfin will need to incorporate if it wants to thrive in the Big Apple.
Most of America has “single family homes and some condos” in its cities and towns, while New York City tends to have “many co-ops, condos, and some single family homes.” It is a very busy city with very little open land for single family homes, which in and of itself should be a luxury. “It is the only major city not to have a widely-used multiple listing services, with a highly complex and unique property tax system.” Of course, understanding any property tax system is important. New York City “also has the lowest vacancy rates, the highest rents, and the highest prices per square foot.” Low vacancy rates also no help in a turnover of places to live which in effect means less sales plus the highest prices per square foot puts a damper on people wanting to run out and move into another place.Can the Redfin model work in NYC? No, not as the model stands currently. Redfin has the drive and money to succeed if they are willing to switch gears quickly and try something different when they notice that what they do will not work the in New York City area. No one should ever enter a city thinking that he/she knows it all or that they have the system down pat. What if you come across something that does not fit into your structured plan for running your business? There are aspects of the real estate industry that are true for the rest of America but not in New York. Admitting that your idea won’t work is a good thing because a company cannot grow without learning as it goes along.
In another situation, Compass started out by having its agents on salary. Does that sound familiar? Seven months later, the company changed to the more familiar brokerage concept. Compass now has about 50% “independent contractors working on commission and the rest of the agents remain on salary.” Clients used to get 7.5% of the annual rent on a direct deal – less that the standard NYC brokers’ fee of 15%.” Their “agents are no longer bound by neighborhood restrictions; previously, they worked with clients in a single neighborhood, and them on if the apartment hunters wanted to look elsewhere.” There is also no commission cap for agents.