Redfin's Real Estate Revolution?

Is there really a revolution going on?

Elizabeth Rhodes, Seattle Times business reporter, tells us that Redfin, the industry's first online real-estate brokerage, is causing a revolution. Rhodes states:

“In the year since it began its crusade to revolutionize the way real-estate companies operate, Redfin has caused concern, bordering on backlash, within the highly competitive real-estate industry as it demonstrated its model can work."

Many have lauded the Internet as a revolution. But real-estate? It seems to me that the real-estate industry is certainly ripe for a revolution. However, it is much more likely to be lead by the Urban Blogosphere, where bloggers provide economic and industry analysis from varied, yet often well-informed, perspectives.

The release of the Multiple Listing System (MLS)—or real estate industry’s ‘sacred text’—for public consumption seemed to do little more than inspire virtual real-estate agencies and irritate traditional real estate agents. Early research on the subject (1) shows that online access to real estate information did not particularly influence how people made real estate purchases.

Looking at the Seattle urban market, in addition to MLS listings, information about new development projects and Seattle's comprehensive development plan has been available online for quite a while. However, it is of limited use to individual consumers without significant analytic resources.

So, if there is indeed a real estate revolution going on, what can we attribute it to? Before learning about Redfin, I had the occasion to play with a similar service offered by ZipRealty. I compared the two, to understand what’s so special about Redfin.

Table - Redfin vs. ZipRealty (websites accessed 25 February, 2007)

While both Redfin and Zip offer really similar informational resources, the key functional difference between them seems to be the ability to make online offers. On the Redfin website, I can fill out an offer form, which is then facilitated by a Redfin agent. And of course there's the money difference. Both services offer discounts and rebates but Redfin's fee structure is much more attractive. According to Rhodes:

“The payoff: Redfin-represented buyers get a rebate for doing much of what real-estate agents traditionally consider their work. Sellers who use Redfin pay a flat $2,000 fee, rather than the customary 6 percent sales commission."

Sharing the commission is a nice innovation, and it seems perfectly reasonable given the amount of research work that is transferred to the consumer. But it doesn’t yet seem revolutionary. There was another article in Saturday’s Seattle Times that I think points to steps towards a real-estate industry revolution.

Michael Liedtke, of the Associated Press, writes about Facebook and its founder, Mark Zuckerberg. The article addresses, among other things, the commercial volatility of that elusive Internet holy grail—free user content.

“Web 2.0 startups have emerged as hot commodities because they are drawing more people away from television, newspapers and other media traditionally used for advertising. Online video channels and social networks, a catchall phrase attached to sites that enable people with common interests to connect and deepen their bonds, are particularly hot.”

Generally, Web 2.0 is understood from a technology/functionality standpoint (2). However, recently the Digital Ethnography group at Kansas State University published an interesting video on YouTube that introduces its social implications. The piece is titled, "Web 2.0 ... The Machine is Us/ing Us."

While a social network service for real-estate seems a bit far fetched, It is suggestive of Web 2.0 characteristics that could support revolutionary changes. If you are here reading this blog, you will likely recognize the emergence of an Urban Blogosphere in Seattle as the beginnings of just such a revolution (more on this later).

Facebook is the latest social networking service to find itself in the limelight, following in the footsteps of Friendster, MySpace, Orkut, and many others. The commercial hype about social network services is centered on the detailed personal information and media consumption habits of users who engage in the site. A quick tour through Facebook will reveal surprisingly intimate information about personal relationships, political persuasion, media consumption, and identity construction. However, social networking content is only part of the Web 2.0 picture.

The other sort of Web 2.0 user content is that which is directly developed and/or organized by users. Social tagging (or folksonomy), for example, reverses the direction of how information on the Internet is organized. This reverse of direction is significant on two counts. First is the issue of 'who' decides how information is organized and prioritized. A benefit of this is increased diversity in the information resources we seek on the Internet.

The second is related to 'who' does the actual work. The significance of this is best conveyed by Liedtke's statement that Facebook "is expected to generate revenue of more than $100 million this year." Like YouTube, purchased by Google for $1.65 billion, Facebook content is entirely user produced.

There are also a variety of hybrid applications that incorporate traditional web services with aggregated user content of the Web 2.0 sort, such as Amazon’s product recommendations and eBay’s peer reputation system. Even Google search, I would argue, fits the hybrid condition. Their algorithm is trained on delivering search results based on the aggregate of users’ information behavior.

But what about user content in real-estate services? Here’s where blogs (also considered Web 2.0) play a role. As is the case here in Seattle, and in many other cities, bloggers with a variety of professional skills are providing informed economic and industry analyses, as well as personal buying experiences (see: urbnlivn, seattle condos and lofts, seattle condo review, and 360digest). While Redfin, and ZipRealty, both seem to be doing well or at least moving toward doing well, it is bloggers who in aggregate provide the revolutionary dimension. Bloggers share information and critique industry players in addition to analyzing local trends.

Moreover, developers and city planners coordinate a seemingly endless backlog of new large-scale residential projects with little public involvement. Of course, the public is invited, but the permitting and design review processes are complicated and typically occur over a long planning phase that can span multiple years. Bloggers are increasingly playing a role here by providing some measure of accountability.

Once again, if you are here reading this blog, you are likely familiar with the mysterious process of new condominium development in Seattle. It is unclear yet, what, if any, influence bloggers have on larger scale urban design and development issues (such as the viaduct issue). However, there is certainly more (user-generated) information available for real-estate consumers because of the emergence of Seattle's Urban Blogosphere. Much of what I have learned about how to engage new condominium development projects, I learned from reading the blogs identified above.

Thinking about online real estate in this way begs the questions of automated recommendations and peer-produced reputations. Will it be the bloggers or the online services that provide peer-produced reputation metrics and automated recommendations? I suspect bloggers are better equipped to deal with reputation of industry players based on personal experience and the leverage of a particular blogger’s own reputation. In fact, this is already occurring to some extent. While it’s true that many of Seattle's urban bloggers are themselves real-estate agents, who are in some way supported by a brokerage firm, they show a surprising degree of innovation, and willingness to share insights and information.

My take on the second part of this question is that online real estate companies, such as Redfin, are better equipped to provide recommendations based on the aggregate of user content. Currently, I can setup automated search strings that notify me via email the movement a property is listed that meets my criteria. But thinking about the Redfin article, I wonder about ways that consumers can benefit from aggregate of consumer content.

In the same way that independent agents are innovating online, I can imagine a time in the not-so-distant future when online brokerage firms take competitive advantage of their user-produced content by sharing it with the people who created it. I can also imagine that there would be a fee for this service.

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(1) Littlefield, J, et al (2000) Internet Real Estate Information: Are Home Purchasers Paying Attention to in? Journal of Consumer Marketing, Vol. 17 NO 7 pp. 575-590 MCB University Press

(2) O'Reilly, T. What Is Web 2.0 - Design Patterns and Business Models for the Next Generation of Software. Retrieved February 23, 2007
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