Online brokerage Redfin wants to transform home buying. It hopes an IPO will help

Online brokerage Redfin wants to transform home buying. It hopes an IPO will help

Redfin has many of the hallmarks of a “disruptive” tech firm.

It pledges to transform the home buying experience. It drives down costs through online software. And it has high-profile investors, including the investment arm of Microsoft co-founder Paul Allen, despite a history of losses.

Yet, if the 11-year-old online brokerage completes its planned initial public offering Friday as expected, the Seattle company will likely sell its shares for no more than $14, which would value the company at $1.1 billion.

While that makes it a so-called “unicorn,” compare that to the IPO of Snap Inc., the L.A. parent of Snapchat which went to market in March with a valuation of $22 billion â€" after just si x years in business.

The disparity reflects the harder slog Redfin has had as it goes up against an established industry built on personal relationships tasked with helping people make the largest purchase of their lives.

“Wall Street, they have been trying to disintermediate our industry for 30 years; this is their attempt to do it again,” said Steve Murray, president of REAL Trends, a research firm for the residential brokerage industry.

For Redfin’s part, it looks to do so through online tools meant to speed the home-buying process for both buyers and sellers.

Potential buyers, for example, can schedule tours through an app and track escrow deadlines through a personal “Deal Room.”

There’s a 3-D tour of Redfin listings and the company recently launched efforts to become a one-stop shop. They include originating loans and even an experimental program called Redfin Now, in which the company buys homes directly from sellers, then puts them on the market.

Redfin’s website and app also let users search a map for homes on the market, regardless of the listing brokerage, and they provide an estimate of what homes are worth, even if they are not for sale â€" the same features of popular website Zillow.

But unlike Zillow, which is not a brokerage, Redfin has its own agents. And the company even does that differently than most brokerages, employing them as salaried employees, rather than as independent contractors paid through sales commissions.

Redfin says its online tools mean it can spend less on marketing than typical brokerages to find customers. And that allows it to demand less in commissions, resulting in savings for clients of $3,500 on average last year.

The company is now in more than 80 markets across the U.S., including Southern California, Seattle and San Francisco.

“Redfin is the first kind of truly disruptive technology company that is changing the way people buy and sell homes,” said Rohit Kulkarni, managing director of private investment research for SharesPost Financial Corp.

Many in the traditional brokerage community disagree, even while praising Redfin for having a superior website.

The firm had just a 0.58% share of U.S. existing home sales by dollar volume in the first quarter this year, according to its IPO filing. It has a slightly smaller share of the L.A. County market, where Redfin launched in 2007, according to Real Data Strategies, which excluded the Antelope Valley in its analysis.

The L.A. market leader, Coldwell Banker Residential Brokerage, had a 6.1% share in the 12 months ended June 30.

“When was the last time you saw a Redf in sign?” said Syd Leibovitch, president of Rodeo Realty, a traditional brokerage with offices countywide. “They haven’t had any impact on my market in Los Angeles.”

Some of the things Redfin offers â€" such as rebates to clients, reduced commissions and salaried agents â€" also aren’t new, said Murray of REAL Trends.

Even the concept of Redfin Now â€" in which Redfin purchases homes directly from sellers â€" is a new twist on what some brokers have done for decades, agreeing to purchase homes if they couldn’t sell them, he said.

Indeed, as much as Redfin has sought to pioneer changes in the brokerage business, it has tweaked its business model to adapt to the market.

In 2006, Redfin offered steeper discounts than today, spurring a backlash. Its CEO Glenn Kelman testified before Congress, calling the company a “radically different service at a radically different price.”

“Competing agents have threatened us with violence, intimidated o ur customers and tried to block their offers,” he testified at the hearing on the industry.

When Redfin arrived in L.A. a year later, The Times characterized its agents as part-time, with buyers doing “much of the groundwork of finding homes via the Web,” while the brokerage “handles the paperwork and conducts negotiations, usually over the phone or via e-mail or fax.”

When real estate agent Kameron Eliassian started working at Redfin last decade, he said the main agent on deals was “behind the desk all day long sending out emails and writing offers,” while other Redfin employees known as field agents showed people houses. A client often had different employees showing up at different showings, he said.

By the time Eliassian left in 2016, he said, clients spent considerable face to face time with their main agent, rebates to buyers were reduced and the bonuses agents received for closing a deal increased.

“The idea in the beginning was you don ’t need meet your agent … and in the end, no, you can’t do it that way,” said Eliassian, who now works with Coldwell Banker but said he has stock options in Redfin. “The market, they didn’t conform to Redfin, but Redfin conformed more to the traditional brokerages.”

Redfin declined to comment for this story, citing Securities and Exchange Commission rules banning publicity prior to an IPO.

Still, for all its challenges and its inability to make an annual profit, Redfin’s market share is on the rise and revenue surged 43% to $267 million last year, according to its prospectus.

During the first quarter, Redfin said it averaged more than 20 million monthly visitors to its website and app. It’s developed a partnership program where outside agents pay a referral fee to take clients, because the company can’t handle all the inquiries stemming from its website.

Analyst Kulkarni expects growth to accelerate as people who “grew up with a smartphone in their hands” increasingly enter prime home buying age. “This is kind of a generational shift,” he said.

Though its brokerage market share is small, Redfin â€" along with the Zillow website â€" has changed the home-buying experience, even if the industry remains firmly intact, agents say.

Amber Dolle, a San Fernando Valley agent with John Aaroe Group, said the websites have had a positive effect. Previously, buyers often wouldn’t believe her when she said nothing was available in an area.

Now, she said, buyers are more willing to expand their search, because they can easily see not much is for sale in their preferred location. And they stand a better shot at getting something that fits their needs, because they are the ones picking what homes to look at.

“The biggest change these websites had when they came along was people could do their own searches and bypass what previously was considered a Realtors job and expertise,” Dolle said.

Kristin DiCenso, 31, said she’s been using the Redfin app for years to “stalk” real estate, even in cities she was just visiting. So when she was ready to buy her first home and had a bad experience with a traditional brokerage, she thought: Why not Redfin?

This year, the b usiness consultant purchased a Brentwood condo for $890,000. She said her Redfin agent was responsive and she got a roughly $5,000 rebate to put toward closing costs.

The app, she said, also allowed her to do something she and other millennials crave.

“We want information at our fingertips and want to have the information to make decisions on our own,” she said.

andrew.khouri@latimes.com

Follow me @khouriandrew on Twitter

ALSO

Home prices in parts of Southern California are at record highs â€" and keep rising

U.S. home sales fell in June; shoppers couldn't find houses to buy

Mortgage broker rolls out another online way to assess what your house is worth

قالب وردپرس

Tweet

Subscribe to receive free email updates: