Why Warren Buffet does not reproduce the REDFIN model

by Wildrosebeef, Wiki.Answers.com

Redfin agents are paid via a salary and bonus structure. The company states that the benifits and expenses they cover total 44K per year although they inflate many of those costs and do not take into account that most of those fees might not be paid by individual agents (such as 10K in marketing) and that they are tax deductible on an individuals tax returns as business expenses. In addition the bonus structures are set at .003% of the sales price. In a typical transaction of a 300K house the gross broker commission would be 15K; in the Redfin model the bonus would be $900 to the agent.

Redfin gives 1% back to the client and keeps 1.97% for themselves! In other words, as a Redfin Agent you have to close 17 Redfin sales @ 300K to equal 1 – 300K sale in the traditional model. Furthermore they do NOT hire experienced agents or agents with entrepenuarial experience as they know that they will ultimately leave! They tend to find agents with little to no experience with the salary mentality. If you look at the pictures of the agents online you will note that they are all depicted wearing gray shirts loosely fitted and laid back as they want to attract that certain client model that they believe will garner they greatest return without sharing it with the agents in their down line. The area manger in the SE region is a former Best Buy manager and his team members wreak of inexperience. Most have less than 3 years of experience in the industry and come from backgrounds that do NOT make them in anyway experts in the field. In other words to make under 100K as a Redfin agent you have to produce 15MM in closed sales for Redfin!! This creates earnings for the company 295.5K and the agent receivess 45K in bonuses plus the 20K salary. Obviously if this model had traction a wealthy,savy and famous investor like Warren Buffet would be looking to replicate the model but instead haschosen to pursue the norm in the industry and is purchaing traditional brokerages like Prudential and rebranding them as Berkshire Hathaway Real Estate.

I believe that over time the traditional brokerages can and will adopt similar discount commision modeling where necessary and Redfin will eventually go the way of other internet failures like my space, freindster, etc… The team concept in Real Estate is now becoming more acceptable and the norm. If you google the company sites such as Glass Door has numerous comments from current and former agents attributing to the culture, bias, and inconsistencies in the corporate shenanigans and the fact that as the company grows the cracks are surfacing. One agent clearly states its a "churn and burn company" and their overall rating is a pitiful 3.3! They plan to someday go public and with a recent 50MM infusion last year are growing in many markets so that the company insiders can cash out big time!! In summary work for Redfin sell 15MM in Real Estate and earn 75-85K. You can chose to work in traditional Real Estate firm and sell 15MM dollars in the field and earn $450K (before brokerage split). If you want to earn 75-85K in the traditional market all you need to close 3MM (10-300K homes) per year so you do 5 times less business and make the same income.

The recent stabilization of the market predicts growth in the field in the coming years so to work for a salary you limit your income and work much more for muc less! Based on the revelations choese wisely!

 

Posted on July 6, 2014 at 2:45 pm
Steve Hill and Sandra Brenner | Category: Seattle Real Estate | Tagged , , , , ,

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