What I hear you saying is...

So when I learned from Techcrunch that Redfin was going to be featured on 60 Minutes, I had to watch. It's an interesting clip, and the folks at Redfin are excited, as they should be -- the poor conventional agent 60 Minutes cast as the counter-point was about as appealing as Nathan Thurm.

The message was pretty clear: At 6% commission, the Redfin folks think that most Real Estate agents don't earn their keep. They see an opportunity in the same way that Amazon, Expedia and Dell were able to carve up their respective brick-mortar industries. In other words, "There are a lot of lousy, lazy agents out there, and we will make sure that thousands of your dollars will remain in your pocket."

The National Association of Realtors is clearly taking the interview seriously -- Prior to the airing, they released a brief (PDF) to 1.4M agents to help them answer questions their clients may have about the interview. But their stance is pretty weak:

...Bottom line is that we don't expect that the segment will make Realtors happy but it could have been much, much worse. Be glad that it's Mother's Day and the show will probably draw fewer than it's average 14 million viewers.

In other words, roll over and play dead. (I don't know if Realtors pay dues to the NAR, but if they are, they're not getting their money's worth.)

Anyhow, back to Redfin... I met their CEO Glenn Kelman once, way back about 10 years ago when he was helping Plumtree get off the ground, and he left a strong impression: He's a sharp guy with a great sense of humor. And that's a good thing, because I think he's going to need it. As much as I would like to see folks like Redfin dismantle -- or at least help correct -- what seems to be a pretty screwed up industry, I think they've got a really tough row to hoe in getting the public to make the switch.

Risk and Frequency
Redfin wants to disrupt an industry that is bloated. By cutting the margins on bloat and brick/mortar, they see an opportunity to become the Amazon, Expedia, Dell, etc., of the real estate world. This is a great MO when you have an industry that has a high transaction rate with a relatively low cost-basis. Books are probably the perfect commodity for this type of transaction. They don't get broken or lost in the mail, and if they do, big deal: You're out $12. You can still go down to Barnes & Noble and pick up and identical copy for $15. Low risk and high-frequency transaction. Travel is a bit more expensive, but if I know I want to fly to Maui next week and stay at the Four Seasons, what value could a travel agent possibly provide except another layer of obfuscation? If the flight is delayed or the room noisy, the agent can't do much about it. I travel often enough to make this transaction worth doing myself, with help from an Expedia. Moving up cost scale are things like PCs. Though the frequency of turnover and replacment not as high, if you have a family of four, you might average more than one new computer per year during the kid's teens and college. Plus, they're a pretty well-understood commodity. When you buy a Dell or a Gateway, there is (or at least, used to be) some level of quality associated with the brand. You pretty much know what you're getting.

Real Estate, on the other hand, is not a low-risk commodity, nor is it a frequent transaction in the same way that books, travel, and PCs are. The reason "a home is the largest single investment" you'll ever make has become cliche is because it's true. At best, people are switching homes every several years, and when they do, it's almost guaranteed that they're buying something that's quite different. either in location, size, cost, all of these... along with all the associated gotchas that come with their new property.

Adoption
Adoption is easy with low-risk, high-transaction commodities, and allows a company to build quick brand equity as a trustworthy source. Amazon was right to start with books -- I don't think they would have been succesful had they started with plasma TVs (or at least certainly not in the 90s, had they been available). So who are the most likely early adopters for Redfin? My guess is that it's probably someone that is pretty familiar with the industry. But here's an intersting stat: According to the brief released by the NAR, 1 in 86 Americans is a licensed realtor (reminds me of the old joke about lawyers per capita in NY city). As the US population approaches 300M, are we to believe there are 3.6 M realtors skulking the streets? I don't think so. I think the 1-in-86 number is probably the total licensed realtors that are in the US. A lot of them probably took the classes, got their certificate, found it to be a tough racket, and got out. But if these folks want to buy or sell a home, I'd say they're definitely better equipped than your average seller. And because they are better equipped, they are also the ones that are likely doing a significant percentage of the high-frequency transactions -- flipping homes and snapping up rental property.

Now take another look at Redfin's Value prop. The people they are most likely to engage in the heavy rotation of real estate are also the same folks that least need of any representation at all. Just because they aren't actively holding open houses and taking listings, doesn't mean there's not an armada of folks out there that can truly do this on their own, and often. Why would they pay Redfin even a 1% commission when they can do it themselves?

Perceived Value
$60K is a lot of money. It's a new Lexus. But is $60K a lot when I consider that I'm putting my $1M house on the market? I don't sell a $1M house very often (ok, never!). I'm a little bit scared. Do you think it needs a new coat of paint? What about staging? It it worth the money? Should I get an inspection and offer the disclosure package to buyers before offers are made, or after? What if someone wants to see the house while I'm at work?

I've been through a few home transactions now, and I am certainly no expert. That's why I rely on a good agent to help me sort through questions like these, and offer at least some peace of mind during a stressful time. Is my agent worth 6%? Probably not. But is there a viable alternative? Not yet. I think Redfin is a great alternative to a bad agent, but not yet a substitute for a good one.

Plus, 60k (or more like 15k for the average US home seller) is a relatively small amount, when considering both the overall price of the house and the seller's state of mind during the sale. Not a rounding error, mind you, but not quite a tangible figure either. The cold-cash -- although attractive -- doesn't appeal to the bargain hunter in me (if there is one).

What to do? Read part 2 :-)