Redfin Turns Profitable, Real Estate Industry Shudders

2. I'm pissed at the arrogance and ignorance of some consumers.

You simply don't know what you don't know. You know how some people who know essentially NOTHING about programming will offer to pay you $500 to create, say, a "better" Google, and then are shocked when you say there is more to it than that? In their minds, it's a simple thing. ("Jeez, all you need is to put everything into a database somehow, and then have people be able to search it in a little box, except faster and with better results...?" !!!) That's what it is like for good real estate agents when consumers assert that agents shouldn't get paid for what they do or that it could all be automated with a computer. ("I can find the homes myself on the internet, why am I paying you?") If you think a website can do everything a good agent can do, then you simply don't understand the process. Finding a house to go look at is just a tiny, tiny part of the process. The average consumer is completely ignorant about buying or selling a home, and they allow themselves to be taken advantage of by lazy and crooked agents, and by other consumers. People put less energy into researching the process of buying or selling a home than they would put into buying a new phone or stereo. Stupid agents and stupid consumers go hand in hand down the path together, ruining the industry for everyone else. Real estate is a specialized field, with thousands of things that can go wrong, and hundreds of state-specific and federal laws that govern it. Most agents, even GREAT agents, find it difficult to keep up with all the details and to cover every eventuality, what makes you think you can do it with no training? Most deals are straightforward, though, right? Few transactions have issues and "technicalities" are rare, right? (Well, I know people who have lost tens of thousands of dollars in earnest money because of "technicalities." I know people who have lost the home of their dreams because of "technicalities." I know people who thought they bought 'their' home years ago that actually didn't, because of "technicalities." And, I know a friend who recently saw about $2 million of his home value evaporate because his "private" lake access is no longer private, because of a "technicality." America is the most litigious nation on earth, and homes are the largest purchase people make. A recipe for disaster, yes?) Fortune 500 companies and real estate attorneys often use real estate agents. Do you know something they don't? Too many people think they do, but it can be an expensive and shocking discovery when you realize you don't. Specialization is a good thing. Ideally, you're paying an agent for their time and expertise. So you shouldn't begrudge them the right to make a living doing something you wouldn't do for the same money and/or something you couldn't do properly anyway.

Most agents make much less money than people assume. IIRC, the average "guess-timated" earnings for a real estate agent are 2-3X what they ACTUALLY are. Many agents make less than $10K, and the average earnings are usually in the mid-30s to low-40s. (Brokers make more, but they also have more headaches. It's a tough industry.) And agents pay ALL their own taxes and usually all of their insurance costs out of that. When you become an agent, your car insurance may triple or quadruple. You have to get E&O insurance, maybe bonding, etc. There is no consistency in your earnings, so managing your money becomes more critical than in salaried careers. You will LOSE money on some deals. Slow months you may have no income at all. Some customers are unbelievably demanding and will lie through their teeth. Blah, blah, blah. Basically, it isn't like taking money from babies - as some would have you think. Some of the blame for all this arises from the fact that there are way TOO MANY agents chasing the same deals. Especially during the boom times. The industry needs culled.

So, are many agents overpaid? YES!!!! Why? Because the incentive structure for the industry absolutely blows chunks, and because there are far too many ignorant and lazy people with real estate licenses. But you can negotiate the price you pay for real estate services. If an agent says there is a "standard" fee in the industry, then they're wrong. That gets into antitrust and price-fixing. They can personally turn you down at a certain price, but there is no "standard" price. You should always know what you're going to pay in advance.

Heh, thanks again. I had no idea that was actually the case with regard to legislation... a commercial Redfin was just one of my random ideas where I was wondering why nobody was doing anything given the kind of interest there might be in such a service. Now I know the possibly unfortunate answer :(

My experience is unique to me, I can't speak for this being status quo, but I'll answer your points. My wife and I have been looking for the last year and a half or so, the first 8 months with a realtor, the last without. We're looking primarily in SF in the 800K range but at some houses in the East Bay and Marin. Note that in this area this is not the large end of the spectrum 800K will get you a nice condo and if you are lucky maybe a single family home. This isn't like some areas where you're looking for a premium property at that price.

We're also doing this in a buyers market - which gives us a lot of leverage and we also know the area. My wife has lived here for 8 years, I've lived here my whole life, so we don't benefit from getting a locals input from an agent as we would moving to a town where we are not familiar, this would be a benefit to many.

In the first months, working with a realtor, we never saw a house not listed on MLS, (which we used via Redfin).

Second we we're always able to call a sellers agent and get a showing. If you tell them you are not currently working with an agent we found we got a very responsive agent who see's the opportunity to get both sides of the commission. Again its a buyers market so this may be easier now then in the past.

If you found the worth in using an agent by all means use one, its your prerogative. But the point is that the amount of work required of an agent doesn't really change with the price of the house. A commission basis for a buyer's agent is a piss poor model, and I'm at the end where its ridiculous.