Real estate is a market that’s full of inefficiencies, headaches, and price gouging. Thankfully, there are a handful of startups looking to fix it, one of which is Seattle-based Redfin.

Today the company — which has proven to be so disruptive that angry real estate professionals were harassing the startup in its earlier days — has just raised another $14.8 million for its quest to turn the industry on its head, saving both buyers and sellers money in the process.

The round was led by Globespan Capital Partners, with participation from previous investors Madrona Venture Group, Vulcan Capital, Draper Fisher Jurvetson, and Greylock Partners. This round brings Refin’s total funding to nearly $46 million (its last round was a $10 million Series D in November 2009). As part of the deal, Globespan’s Managing Director Venky Ganesan will join Redfin’s Board.

Redfin says that since the company launched back in 2006, its users have purchased or sold more than $6 billion in homes, with an average savings of more than $7,000 per transaction. In aggregate, Redfin has saved users $85 million.

Some other promising stats: the company says that 97% of past users would recommend the site to friends. Most users are buying and selling houses for the first time (i.e. they’re fairly young), but the company is also seeing more traction with customers over 45, who represent the company’s fastest-growing customer segment (the company didn’t say this, but I’d guess that the average transaction price increases with age).

Redfin, the online platform for real estate search and brokerage services, has made some noise in the past, building a service that’s currently being valued at $230 million, at least according to trading on SharesPost. It’s been a little while since we’ve heard some big news from the Seattle-based company, but this morning the real estate brokerage is releasing a cool new feature that puts real estate agents on notice and gives home buyers and sellers a nifty “hot or not” comparison tool.

Redfin is today releasing the “Redfin Scouting Report”, a way for users to look up the performance statistics for over 1 million real estate agents in 14 major metropolitan areas, with information on nearly every agent in these cities, according to Redfin CEO Glenn Kelman.

Of course, many of these agents may not have been active in the last few years, so the report offers users scouting statistics like, for example, the ability to see how many homes the agent has sold, over the past three years, and in the past 12 months, where on the map those homes are, pictures of the homes, the average number of price drops, median price of sale, how often they’ve represented buyers versus sellers, and more. Redfin’s report will thus serve stats for agents’ performance serving both buyers and sellers.

Redfin’s goal here seems fairly simple: With consumers being able to see how good their agent really is, they’ll be able to make fact-based decisions about which agents to use when selling their homes, tailoring a choice to their specific needs. It’s an interesting play, and could be an extremely useful tool to home buyers and sellers, and will certainly act as a wake up call to those less active (and perhaps shady) agents out there.

What’s more, with the real estate market as it is, the report also allows users to view how many distressed properties an agent has helped to buy — REO and foreclosure experience are very important to people right now.

In terms of the current outlook for Redfin at large, according to Kelman, the real estate company has now helped people buy or sell more than 10,000 homes and, though the site’s traffic is lower than Trulia and Zillow, Redfin only covers listings over a third of the U.S. — the downside to being a brokerage — yet it differs in its core business model. Redfin seeks to compete as real estate agents against other real estate agents, not as a media site serving traditional real estate agents.

The site’s value proposition also entails a more effective search offering than other sites, Kelman said, because the service offers all the homes that are for sale via a database used by real estate brokers. What’s more, instead of taking a percentage of sale, Redfin charges a flat fee to home sellers, paying agents customer satisfaction bonuses rather than commissions — and for buyers, it refunds up to half of the brokerage fee.

For more of TechCrunch’s coverage of Redfin, see Erick’s post on Redfin’s addition of data points here and Mike’s interview with Kelman and investor/board member James Slavet here.

You can also find the Redfin Scouting Report here.

“On Monday, federal prosecutors accused 11 people of being part of a Russian espionage ring, living under false names and deep cover in a patient scheme to penetrate what one coded message called American “policy making circles.””

They weren’t particularly good spies, apparently. They were directed to gather information on nuclear weapons, American policy toward Iran, C.I.A. leadership, Congressional politics and many other topics. But at least two of them chose to pursue these goals by working at tech startups.

But statistics don’t lie. Based on recent espionage data we’ve rigorously gathered (from the NYTimes article), fully 18% of all Russian spies also work at tech startups. Amazing.

It seems mathematically improbable to say the least that two of the people accused of being Russian spies are in our relatively small tech community. One is Anna Chapman, who was recently pitching her startup NYCRentals.com to just about anyone who’d listen.

The other spy (lol) who is also a tech startup employee is Tracey Foley:

In Cambridge, Mass., the couple known as Donald Heathfield and Tracey Foley, who appeared to be in their 40s and had two teenage sons, lived in an apartment building on a residential street where some Harvard professors and students live.

“She was very courteous; she was very nice,” Montse Monne-Corbero, who lives next door, said of Ms. Foley. The sons shoveled snow for her in the winter, Ms. Monne-Corbero said, but they also had “very loud” parties.

When Foley wasn’t throwing those very loud parties, Foley pursued her spy career by working as a field agent for Seattle-based Redfin, a real estate startup we’ve covered often. Foley’s job consisted of showing people houses for sale when a lead agent was taking a long lunch or something.

Redfin CEO Glenn Kelman sort of argues that his customers deserved to know the truth in a blog post he wrote disclosing Foley’s employment with the company: “since she has been accused of a grave crime, we have disclosed the facts of our relationship with Ms. Foley here.”

But what Kelman is really saying, of course, is “HFS, how cool is it that one of those spies worked for us! Redfin FTW!” I mean it’s not like he now has to worry about thinking up interesting anecdotes at cocktail parties for the next twelve months at least. He’s all set.

I just wish someone at TechCrunch – me for instance – was actually secretly a deep cover spy. Blogger by day, but at night I throw on a tuxedo and zip off to North Korea in a stealth jet to kick some serious communist butt. And then get the girl(s) and take off in the rogue nuclear submarine I just stole. My God, the links we’d get once I was finally arrested would be worth millions. And the book and movie deals…priceless.

err, sorry, back to my point. Which I do have one I think. And it’s basically this: WTF?

I sat down with Redfin CEO Glenn Kelman and investor/board member James Slavet to talk about the continued success of the Seattle-based company. Warning in advance – the interview was done at the end of the day and we were drinking beer from our new kegerator, and we rambled at times. Perfect for a Sunday afternoon viewing, in my opinion.

Kelman announced in the video that Redfin is now on a $30 million revenue run rate, up from $15 million last summer (and at that point they were profitable.

The company cuts real estate fees dramatically, by about half, for both buyers and sellers. Kelman called real estate “by far the most screwed up industry in America” on 60 Minutes a couple of years ago, But Kelman has cooled somewhat since then, and some of the death threats and hostility by realtors has now calmed down, he says.

We also brought up the age-old Seattle v. Silicon Valley debate again – something we’ve been arguing about since 2008. And we touched on his recent guest post about the need for founders to share the love with employees when it comes to distributing equity.

Side note: Slavet was also in our studio recently to talk about his investment in TellApart.

When we split the atom, Einstein remarked that everything changed but our way of thinking. You could make the same argument about acquisitions and option pools.

As Mark Suster recently noted, employees will never see a big payday at most startups unless the company shoots for the moon. This is probably why investors’ case for a company to sell early focuses exclusively on the founder: in most early-stage acquisitions, the liquidation preferences and deal-sweeteners only work for investors and founders.

Back when some companies sold at $50 million and others went public at $250 million, we could all agree that this was just how the cookie crumbled. But now that we live in a world where early-stage acquisitions are the only outcome to which most startups aspire, we have to re-allocate this smaller cookie.

The elephant in the room is that that founders and CEOs take almost all of it for themselves. I’ve looked at three or four deals recently as an adviser; in every case, the founder or CEO was taking more than half the company for himself, and leaving 10% for everyone else. Why aren’t we surprised when three months later that company can’t hire enough engineers?

Even when the company succeeds, the big-shot with the big payday may regret it. The difference between $10 million and $20 million in practical terms — whom you can date, where you can go, what you drive — is zero. But if you give an extra $10 million to the folks who fought shoulder to shoulder with you, everyone will feel better about what you accomplished together. You want your startup to end like Trading Places, with Eddie Murphy, Dan Aykroyd and their butler sipping drinks on the beach.

This has always been true, but now that more startups are being bought, it has become less common. Consider the proceeds of a $50-million acquisition for a 100-person company that has raised $14 million with a typical liquidation preference:

• Because of the liquidation preference, the investors get $14 million right off the top. The remaining $36 million is divided according to equity ownership.
• Investors own 50%, and get $18 million, split between two firms
• The two founders own 33%, and split $12 million
• The 3-person executive team, including a CEO if one was hired, owns 10%, and splits $3.6 million. The team gets another $3 million as a severance payment or an earn-out, to sweeten the acquisition offer.
• The remaining 95 employees split 7%, each earning $27,000. Unlike the founders, the employees have to wait until their grants vest, working at a company no longer of their choosing for two years.

Now consider what would happen if the same company raises another $10 million, expands the employee option pool to hire more executives and to support 300 people. It is worth $250 million at the time of a public offering.

• There is no liquidation preference, severance payment or earn out. Everyone is paid according to the number of shares he owns.
• Investors by now own 60%, or $167 million, split between three firms
• The two founders own 20%, and split $50 million
• The executive team still gets 10%, but now splits it among 5 people. Each executive gets $5 million.
• The remaining 290 employees own 10%, with the first 100 employees hired getting the lion’s share, of say $200,000 each.

The point is not that this is a better outcome for all. Any fool would take the higher price if he knew he could get it, but you don’t know when or whether you ever will. The point is that employees at least stand a chance at a nice gain when a company is built to last, whereas founders benefit disproportionately from a quick flip.

So in a world of more quick flips, we need to increase the size of options pools, eliminate liquidation preferences – which just get picked up in subsequent rounds of financing by new investors, who screw the old ones — and provide better acceleration for everyone.

Otherwise, nobody will want to work for a startup. But the reverse is happening. VCs want their pound of flesh, and entrepreneurs do too. In fact, the 20% of company ownership that was once considered the standard allocation for executives and other employees is now more likely to be at 10%.

If we’re all a little less greedy now, we’ll build bigger companies later and everyone will make more money, and feel better about it too.

For startups, Christmas comes in November. Partners come back from vacation in September and deals start closing a few months later; since the credit crisis deferred fund-raising for most of the past year, November 2009 will probably end up being especially busy.

Redfin is one of the companies that just closed a round. Already the process has resulted in a huge shift in our mindset: from just surviving to building a juggernaut. That shift is one every startup can try on for size, whether it needs capital or not, by asking itself the same basic questions that VCs asked us.

VCs are good at asking questions. They are unimplicated in your dumb decisions, unmoved by your original sense of mission and far less concerned than you that a blunder could bankrupt you. They re-imagine your business in terms of all the other businesses they’ve seen, pulling the arms off one doll and the head off another to create a perfect money-making Frankenstein. And since the stakes are high, the whole philosophical exercise tends to result in action.

Here are the questions VCs asked Redfin that changed how we think about our business.

1. What’s your deadly sin?
Sequoia’s Roelof Botha said he only invests in companies that let consumers indulge in one of the seven deadly sins. He rattled them off with alarming familiarity. “You don’t want to be the site that people should use,” Roelof said. “You want to be the site they can’t stop using.”

2. Where’s the real money?
Venture capitalists’ focus on the size of our company’s addressable market made us realize that half of our potential revenues lay in the eight markets we’ve already opened. “What’s the rush to open Orlando,” a VC asked us, “when you still haven’t cracked 1% share here in Silicon Valley?”

Good question. A startup with 18 months of cash is like Val Kilmer in the opening stick-up scene of Heat, with only 80 seconds to get the bearer-bonds from an armored car; as a detective on the scene later marvels, “they ignored the loose cash.” That’s the way to be about your addressable market: not just greedy, but disciplined. Time is short.

3. What are your unit economics?
The financial statements we look at every month don’t tell us what a small business will look like when it grows up: sure we need to account for all sorts of fixed costs like how much we spend on engineers or maps, but what really matters is whether we make more money from a customer than it costs us to get and serve that customer. So to see if a business works on a large scale, VCs first want to understand it on the smallest scale.

For us, this meant explaining what Redfin made this summer on a single home purchase, with a per-transaction account of what we spent on marketing to get customers ($27), on local data ($153), on customer service ($2,906) and so on. We also calculated how much annual revenue we got for every monthly unique visitor.

We knew our margin before, but hadn’t broken the numbers down into their most easily handled form. This is important. Numbers are just numbers if they aren’t simple enough to act on; a linebacker with a simple playbook can react rather than think during the game. Knowing that the big number is how much we spend on our customer-service team refocused us on making sure we hired the right team and invested in its happiness.

4. What are the explanatory events?
A money-raising deck mostly consists of graphs with lines going up and to the right, scrunched two to a page to make the lines look steeper. The only reaction we expected to our version of these slides was awe. But Roelof asked us to annotate each graph with what statisticians call an explanatory event. What change in our business had caused revenues to shoot up? We claimed that publishing agent reviews had sent conversion through the roof. But when we dug into the numbers, we found the real explanatory event was a change in our service a month before – unlimited home tours. Making a simple picture of a business trend and then correlating that with a big decision helps you understand what levers really move your business. When there are no explanatory events, you’re just getting lucky.

5. Why can’t you grow faster?
The most important question venture capitalists ask is what prevents your company from growing faster. At first, I thought it was a demand disguised as a rhetorical question, asking Redfin to raise projections beyond what we could deliver. But when I got testy, Greylock’s David Sze said, “We’re not asking you to lie.” He just really wanted to know what the rate-limiting factor was.

We cycled through a few lame answers: “We prioritized margins over growth.” “We wanted to be realistic.” Then Redfin’s Sasha Aickin quietly pointed at the headcount line of our projections and said our rate-limiting factor is probably how quickly we can hire top-notch real estate agents. Everyone nodded. We got back from that meeting and began thinking about scaling agent hiring.

6. What are the accelerating effects?
It’s easy to grow 300% in your first year or two, when you’re starting with nothing, and people first hear about your service. What separates a potential colossus from other businesses is the capacity to keep growing at that rate in years four, five and beyond. When Reid Hoffman looked at Redfin, his primary question was whether there were “accelerating effects,” where growth begets more growth. For Amazon, the product reviews and personalization history it captured from its first users accelerated its second stage of growth. For Facebook and Twitter, the community itself constantly recruits new users. For companies like Zappos and hopefully Redfin, it’s word-of-mouth about our customer service. This line of thinking made Redfin focus on our most sustainable competitive advantages: not the usability of the site itself, but the data we gather from visitors to that site, and the rave reviews we get from those visitors who become clients.

7. What’s your secret sauce?
One of the godfathers of venture capital is, we were told, obsessed with secret sauce; the man apparently hasn’t put mayo on a ham sandwich in 20 years. So in preparing for a meeting with him, we tried to think of technology that only we could build. Previously I’d always thought this challenge was silly. Grinders like me believe in the lunch-meat not the sauce; we just try to focus on the right problems, and run faster than our competitors. In this view even Google, if it stopped coding for a year or two, would be caught. But while Redfin has gotten far by being relentlessly incremental—letting users filter property searches by pools or parking spaces—the pressure on us to do something proprietary helped us prioritize game-changing features that we’d put off in the past. We hope to come up with Something Big in 2010.

8. How do you win?
Thinking constantly about world domination can give you a little vertigo. The way I usually get through my day is by limiting my horizon to serving the next few customers, or increasing revenues in the next few months. Which means that even though the story of how we win should be etched on the inside of my eyelids, it’s more often at the back of my mind, as a nagging doubt that I’m focused on the wrong thing.

But the essential job of a CEO is to tell that story, to everyone who will listen, making it better all the time. If you are raising venture capital, that story is by definition highly improbable, involving such an absurd overthrow of the order of things that it’s almost embarrassing to say out loud. Rehearsing the whole narrative naturally focuses you on the holes in the plot.

Just try, for example, to say with a straight face how Redfin wins: we get the best data, and build the best real estate website (maybe). We hire our own real estate agents and pay them to focus on customer satisfaction, not sales (that’s a little weird but sure, why not?). Customers appreciate the difference, and en masse fire the traditional agent who has been sending them a bottle of wine every Christmas for 10 years, giving us 20% of all high-value real estate transactions (no way!).

Way.

*~*~*~*~*~*~*~*~*

It’s hard to express just how much settling those questions has galvanized Redfin to attack the monsters under our bed. Sure, we were dimly aware of those problems before, but we existed in a state of seething, unacknowledged tentativeness. Weeks of contemplating what it will take for us to win prepared Redfin to swallow the red pill, stuff the TaunTaun, hack the Kobayashi Maru. At very few moments in a company’s history does it makes its way so deliberately. Like the recovered patient who saw while sick everything she had always meant to do, we want to make the most of our new lease on life.

This was a safety round, as Redfin announced profitability over the summer and have now exceeded a $20 million in revenue run rate (it was just $15 million last summer). They’ve roughly quadrupled in size since 2008, even in a down real estate market.

I used Redfin as a buyer over the summer when I was looking for a house. Here’s how it works, and why it’s so attractive compared to normal real estate broker deals: As a buyer you spend a lot of time on the Redfin site, looking at available houses and a rich set of data on previous sales, comps in the neighborhood, other homes listed in the same price range, etc. (or you can use their iPhone app, which the company says is the highest rated real estate app).

If you want to view a home you schedule online. They set it up for you and meet you at the house.

In all, it isn’t much different than the standard buying a house procedure. Except at the end they refund 50% of their commission to you. On a $500,000 house, you get a check for $7,500 at closing.

Sellers who use Redfin pay a flat a $5,000 – $7,000 fee, depending on services ordered. And if you’re also using Redfin to buy a home while you are selling, that fee drops by $1,000.

As you can imagine, real estate professionals aren’t thrilled. Nor do they love CEO Glenn Kelman, who said In an interview with 60 Minutes: “Real Estate is by far the most screwed up industry in America.”

But customers clearly love the service, and they have closed more than $2 billion in home sales since launching in February 2006. The total U.S. home real estate market is around $1 trillion, so they have some room to grow.

Redfin is currently available in Boston, Chicago, Seattle, Washington DC, Baltimore, New York’s Long Island and Westchester County as well as most of California, including the San Francisco Bay Area, Southern California and Sacramento.

Online real estate broker Redfin is revamping its website to add recent data and photos of recent home sales as well as links to blog discussions of a listing. The Seattle-based startup, which is profitable, represents buyers and sellers in home real estate transactions for far less than the industry rates that take 5%-6% of the sale price of a home and split it between buy and sell brokers. On the buy side they reimburse 50% of the fee they receive back to the buyer. On the sell side they charge a $5,000 – $7,000 flat fee. The normal broker fees on a million dollar house are up to $60,000, so the savings for the consumer can be significant.

With the addition of 9.6 million photos for 1.4 million recent property sales, the total amount of data and photos stored by Redfin has increased by 340%, empowering consumers with more information about the homes they are considering buying. With the upgrade, Redfin users can access sales information of properties within 15 minutes of the property’s being taken off the market, including the photos used to sell the property, and information about the properties’ amenities. Redfin mashes this info up with public records, giving the prospective home buyer greater insight into the history of a property.

The new version of Redfin’s site now also automatically links web pages about a property to blog posts about that property. For registered users, Redfin shows a link to the blog post with the post’s title and a brief summary; for unregistered users, Redfin shows a link to the blog post but doesn’t display the title or the summary. And Redfin launched a new version of its iPhone application that includes improved search filters on the year a house was built, lot size and days on market as well as the ability to exclude short sales and properties under contract from search results.

The ability to publish recent sales data and to incorporate blog links into the site are the result of a settlement that took place last year between the National Association of Realtors and the Department of Justice, that allows online brokers to publish the same information to the web that a real estate agent can share with his client, which was a huge win for the online real estate industry.

Redfin has been a disruptive technology to the real estate industry and has received backlash from the real estate professionals who are made unnecessary by Redfin’s model. The company’s CEO and founder Glenn Kelman told us recently, they’ve had to deal with “threats, stalkings and other disturbing behavior towards their employees and some customers from, apparently, angry real estate professionals.” And as Redfin adds additional information to its site, that real estate agents used to have a hold over, the platform is invading deeper into traditional brokers’ territory.

That’s great news for everyone except the real estate industry. The Seattle-based startup represents buyers and sellers in home real estate transactions for far less than the entrenched industry rates that take 5%-6% of the sale price of a home and split it between buy and sell brokers. On the buy side they reimburse 50% of the fee they receive back to the buyer. On the sell side they charge a $5,000 – $7,000 flat fee. The normal broker fees on a million dollar house are up to $60,000, so the savings are obvious.

The company was profiled favorably by 60 Minutes in 2007, but real estate agents and brokers have known about the company for far longer. Even as far back as 2006, Kelman told me, they’ve had to deal with “threats, stalkings and other disturbing behavior towards their employees and some customers from, apparently, angry real estate professionals.” Now that Redfin has shown that their model works profitably those threats will likely become worse.

Disruption is never fun for those being disrupted. The DOJ is hitting the real estate industry from one side, and Redfin is hitting them from the other. The result? A better deal for the rest of us.

For those who want to follow along live, you can find the video of the event here.

First up, restaurant recommendation service UrbanSpoon, which was recently bought by IAC. Some highlights of their slide:

• Of their visitors on the web, 74% come from Google.
• Of their visitors through mobile devices, 99% come through the iPhone (they have one of the more popular apps).
• They’re seeing more than double the revenue off of those mobile users versus web users.
• When they were featured in an iPhone commercial, they saw 300% growth.

Next up, online imaging editing service, Picnik (which has a partnership with Yahoo to edit Flickr pictures).

• 80% of their revenues come from paid subscriptions, the other 20% from advertising.
• About half of their subscribers do so on the first visit to the site, 75% of those do within 4 visits.
• “Partnerships are not nirvana” — obviously a shot at Yahoo.

Video slideshow maker Animoto (which recently raised a new round of funding):

• They have 700 paid users per 100,000 users, but are already cash-flow positive with that.
• They say their hybrid model (freemium + virtual goods) is working

And finally, online real estate company, Redfin:

The real estate slump is still dragging the economy down, but real estate sites that can help people save money or cut down the time it takes to find a decent home are still hanging on. Today, regional online brokerage Redfin is expanding into parts of New York for the first time, including Westchester, Long Island, and Queens (Manhattan and Brooklyn still remain beyond its reach). And in California, it now covers Sacramento and the Central Valley. These will be added to its existing markets of Boston, Chicago, Seattle, Washington DC, Baltimore, and the San Francisco Bay Area.

More significantly, Redfin is adding up to 200 additional data fields thanks to last year’s settlement between the Department of Justice and the National Association of Realtors, which requires multiple listing services to make data available online and share it more broadly. Anything a real estate broker can tell a client can now be put online. Redfin CEO Glenn Kelman is now finding that traditional real estate brokers are more willing to hand over the keys to the kingdom. Depending on the area, Redfin will now list property details such as price history, the sellers’ mortgage history, cumulative days on the market, lot square footage, and will display addresses on a map. Other sites such as Trulia are also taking advantage of these relaxed rules.

Unlike Trulia, though, Redfin is not just a real estate search engine. It is also a discount brokerage trying to with agents and partners. Redfin is trying to rewrite the rules of the real estate industry. Instead of taking a percentage of a sale, it charges a flat fee to home sellers of either $5,000 or $7,000. And for buyers, it refunds up to half the brokerage fee. Traditional brokers don’t like this, but in this economy some of them are even partnering with Redfin.

The downside to being a brokerage is that Redfin’s site only shows listings for the regions in which it operates. Nevertheless, traffic grew 300 percent last year to 1.6 million unique visitors, according to Kelman. ComScore estimates only 324,000 U.S. visitors in March, 2009, but shows a similar growth rate. (Again, remember that Redfin listings are not national, so compare these numbers to a collection of local brokerage sites).

In a surprising move, online real estate brokerage Redfin is entering into partnerships with real estate agents from more than a dozen other brokerages in areas that Redfin’s in-house agents can’t reach. Redfin appears to have changed its tune from its founding when the firm wasn’t really getting along with real estate agents. In fact, Redfin seemed to be founded with the mission that consumers could avoid fees associated with hiring and using a real estate broker.

With the real estate market contracting and credit tightening, Redfin has been forced to reconsider its business model. It seems that these partnerships with real estate agents was necessary for Redfin to expand throughout the country without having to hire more agents. Redfin was previously limited to showing listings in the metropolitan areas of Seattle, San Francisco Bay Area, Los Angeles, San Diego, Boston, Washington, and Chicago and will now be adding a presence in counties in Northern California, Illinois and Washington. Redfin laid off 20 percent of its staff in October of 2008 and reported slower revenue growth last year than in years before.

The firm is also hoping to make the real estate market more transparent by posting consumer reviews of in-house and partner real estate agents on its website. For every transaction completed by a partner agent, Redfin will earn a 30 percent referral fee (of the agent’s commission), but half of that fee is given back to the consumer. The returned fee to the customer averages around $1000 to $2000.

Redfin issued this response:

Redfin wasn’t forced to change business models because of the downturn.
Our partner program was a labor of love, beginning in summer 2008. And
we still plan to expand our direct service. Our goal is to create an
open market for real estate agents, similar to Amazon Marketplaces,
where Redfin’s own service, like Amazon’s, is often the primary choice.

Redfin’s mission has always been to use technology to deliver better
service, more information, at lower cost. We believe as strongly as ever
that the industry needs to reform, but this belief does not preclude the
company from working with progressive agents who agree to support our
mission: by using our technology for greater efficiency, agreeing to
deliver only the service requested, refunding thousands in fees,
publishing every customer review, respecting consumer privacy, and
rejecting industry rules tying a customer to an agent.

Here’s a look at a sample review of a in-house Redfin real estate agent (not a partner agent):

The economy is in the hole, and real estate is in an even deeper hole. What better time to invest in a real estate search engine? Shasta Ventures just led an $8 million series B financing in Roost, a real-estate search engine that is grabbing data from MLS listings (actually from something called the IDX, or Internet Data Exchange, which is a close proxy to MLS listings).

As a result, Roost claims to have more comprehensive and accurate listings in the cities it covers than competing real-estate search engines such as Trulia and Zillow. Roost offers 3.1 million listings in about 30 major metro areas.

Yet Roost’s traffic barely registers. It is much smaller than Trulia, Zillow, or Redfin (which I’ve charted as a comparison below because Redfin also is not yet nationwide). Roost was late to market, so it is a bit surprising that it was able to raise a second round in this environment. Direct access to the MLS listings is an advantage, but is it enough to get Roost over the hump?

Roost raised 5.5 million last January from General Catalyst Partners, the Cross Country Group and Geolo Capital. They all participated in the current round as well. Roost also just added foreclosure listings from First American CoreLogic, a pretty common feature on real-estate sites.

Startups can be the most conservative organizations in the world. We spend so much energy nurturing our delicate egos against naysayers and self-doubt that we can hardly admit mistakes. This is especially true of first-time CEOs. Thousands of new web companies were born in the last few years, and many of us just got the job.

We set off with the same directions: tackle a big problem, listen to customers, work hard, pinch pennies, hire slow, fire fast. Still good advice. But I think we’ll have different advice for one another once we’ve come through this downturn, about how we had to change to survive. Since real estate crashed before the overall market, Redfin (my online real estate company) has had a year’s head-start sorting out which changes seem to be working for us.

Not that we don’t still have a long ways to go.  We’re still on track for our first profits in 2009, but we’re going to have to fight to make it.

The time we have left to succeed or fail is really just the measure of how long it took to adapt to our downturn. If I had been more experienced, we’d have adapted faster. Here’s the survival guide I’d give my former self, the one just starting to face the storm:

1. Compete With Your Successor

I often think about what my replacement will do after I’m fired. She won’t have emotional commitments to decisions that I already regret. She’ll look at everything as an outsider—as a customer—refusing to tolerate problems that have lasted so long I’ve forgotten they’re there, re-considering initiatives we already passed over for want of imagination or energy. And she’ll have nine or even twelve months of leeway to build the business, so she can think long-term. Worst of all, she’ll get credit for turning Redfin into a successful, thriving business. I think, “I hate her! I hate her!” And then I try to be her.

2. Act Like an Owner

You’ve probably spent most of your life hating your boss, pleasing others (so you can blame them later) and spending other people’s money. These are hard habits to break. When I was still settling into being a CEO, I wasted a lot of time driving initiatives designed to please others, acting as if someone wouldn’t let me do what I wanted to do with Redfin. My moment of clarity came when a board member said, “as far as I’m concerned, you’re the owner of this business.” And he was right: you won’t own all the proceeds if the company succeeds, but you’ll certainly own a failure in its entirety. This sparked several reptilian impulses:

• “I can’t blame anyone else if this sucker goes down.” This made me feel powerful and savage, like Arnold at the end of “Predator.”
• “If it were all my money, I’d invest it in Redfin today — but there’d be some big changes around here.” We’re making those changes now. (This is about focusing on the part of the business that you really believe in.)
• “If we had to get our wallet out every week for that expense, would we?” (This is about focusing on the part of the business you don’t believe in.)

3. Get a Board You Connect With (Not Just One With Connections)

Startups have so much size anxiety that nothing can stop us from recruiting big shots onto our boards. But first-time CEOs need someone we can talk to about practical details, too. So in our case, Redfin chairman Paul Goodrich recruited Marc Singer for his experience with businesses run out of the cash register: restaurant chains, bean-bag manufacturers, installers of electronic animal fences. I used to be dubious that we had anything to learn from these companies. Not anymore.

Now I catch myself gazing at a parking-lot coffee cart and thinking, “what a great business” (it’s more profitable than most venture-funded startups). Marc has cultivated a nuts-and-bolts, make-money-now execution focus at our company. But there’s another benefit to working with him: it was easier from day one to think out loud with someone I wasn’t so anxious to impress.

Where I’d always imagined my board conversations would be like Richard Gere’s in “Pretty Woman” or even Willem Dafoe’s in “Spiderman” — conversations with Marc were more like telling a guy on a Greyhound bus about a bad breakup, where it all just came pouring out. In tough times, you need a board you connect with more than a board with connections.

4. Run Weekly Revenue Meetings

A job applicant from Amazon suggested holding a weekly revenue meeting, which has been an immediate hit. We focus on what we can do to drive revenue from week to week—tactical stuff, like hiring another field agent or changing a call to action on our site. We catch glitches that could otherwise last all month.

5. Automate Bad News

Bad news travels slowly—or sometimes just sits in your stomach—unless you pump reports straight out to the board, on revenues, traffic, customer service. Add spin if you like, but in a separate note so you don’t hold things up. This helps you avoid the-dog-ate-it board meetings.

6. (Just Ask to) Meet Your Peers

My natural tendency is to avoid meeting people outside of Redfin. I tend to measure my own work in keystrokes, and I begin to miss my computer after I’m away for 30 minutes. In hard times especially, it’s easy for a startup to become like a teenager’s basement bedroom: insular, stale, reeking of dude. Yet there are very few hours that have raised Redfin’s value as much as meetings with other entrepreneurs. A year before our cash-evaporation date, one CEO told me to start raising money. Another told us to get on the stick about our Google search rank. For someone wary of most consultants and experts, these meetings are one of my only sources of new information. And it’s important to gather new information: line managers have to focus on the jobs in front of them, but executives should be awake to what’s happening in the larger world. Anyone will meet you if you just ask for her help.

7. Create Simplicity

When Obama first heard the proposed slogan “yes we can,” his reaction was: “too simple.” But a leader’s job is to create simplicity. Over the past year, our real-estate executives slogged through ambiguous data on conversion rates, close rates, tour fulfillment. Decisive meetings felt like a math test where we ran out of time. Yet it never occurred to me to stop, step back and be precise and insistent about what we needed to know to make a decision. When something is hard to explain, you don’t understand it and you make mistakes. It’s a cliché to “keep it simple, stupid,” but the real challenge is to make it simple, mastering complexity instead of ignoring it. Entrepreneurs instinctively want to speed things up. What’s really hard is knowing when you have to slow them down.

8. Go on the Attack

Your competitors are hurting too. Be the aggressor, not the victim.

9. Be a Roman

What disgusted the ancient Romans about barbarians was their lack of discipline. Oxford Professor Peter Heather writes, “As far as a Roman was concerned, you could easily tell a barbarian by how he reacted to fortune. Give him one little stroke of luck, and he would think he had conquered the world. But, equally, the slightest setback would find him in deepest despair…” This is why, 2,000 miles from home, several hundred Romans could slaughter several thousand barbarians.

Startups are founded by barbarians. But to survive the ups and downs, you have to make yourself into a Roman. The most talented entrepreneur I know nearly self-destructs on the 18-month birthday of each of his ventures. By that point a startup isn’t brand-new anymore, and it isn’t Google either. The closer you get to becoming a real company, the less glamorous reality seems: you’re grimy from clawing for money and breathing hard now from exertion, which would be fine if you could convince yourself you’re not the only one struggling. Everyone struggles. Keep fighting.

10. The Journey is the Destination

Startups alternate between nostalgia for the garage and millennial longing for a lucrative exit. But what I always keep in mind is how disconnected and purposeless I felt before Redfin or my earlier startup, Plumtree. All I ever wanted was to get into a situation where I could win. Everybody has that dream. Even though you’re a second-string Little Leaguer, you dream that you’ll find a way into the World Series, that, with the game on the line, you’ll manage to hit just one major-league pitch. And if you do hit it, I promise you won’t be as happy as you were the moment before you swung. If you’re still playing, you can still win. And playing’s the thing. Enjoy it.

But they don’t hate it so much that they won’t compete.

MRIS is launching a beta version of a service called HomesDatabase that shows MLS listings. For now only homes covered in their region are shown, but they hope to partner with the other MLS systems to create a complete database covering the U.S.

They say they’ll compete with better and more up to date information. They can ensure this by simply restricting the data they release to third parties. Since they’re a geographic monopoly, that’s trivial.

MRIS CEO David Charron says “if you listen to the consumer, everybody wins.” But one thing they’ve left off the site are for-sale-by-owner listings, which cannot be mixed with MLS listings. Until that rule is abandoned, brokers and agents still have a ridiculous advantage over people who sell their homes directly.

But just how comprehensive are these sites, and how accurate are their listings? Trulia offers 3.5 million listings nationwide, and Zillow has 3.1 million. But people look for houses in local markets, not nationwide. What matters is comprehensiveness withing local market

A few hours after I put up that post, I heard from Roost, a competitor to both Trulia and Zillow (with only 1.4 million listings in the markets it covers) that differentiates itself by getting its data directly from the same Multiple Listing Services (MLSs) that real estate brokers use. They just happened to have study in their back pocket (which they commissioned and paid for) that compares the “accuracy” of search results in three cities (Dallas, Miami, and San Diego) across different real-estate search services (Roost, Zillow, Trulia, Yahoo, and Google). The study, which was done by real-estate industry consultants the WAV Group, defines accuracy as the percentage of listing results that match listings the MLS for that city.

The results are in the chart above and, not surprisingly, Roost comes out looking great. For each city, it returns between 95 and 99 percent of the listings in the MLS. Trulia’s accuracy in the study ranges between a pitiful 9 percent for San Diego to 61 percent for Miami. (Zillow generally does worse across the board, with its accuracy ranging between 12 percent and 36 percent across the three cities).

Trulia disputes these results. Heather Fernandez, vice president of marketing, says:

The data looks very questionable, and not in line with our internal coverage data. Our data shows that we have roughly 70% coverage in most major metros.

And indeed, if you do a search for homes for sale in San Diego on Trulia, you get 4,395 results, compared to 6,036 on Roost. That’s 73 percent. (Zillow claims 7,661 listings in the San Diego city limits). Even if half of them are stale listings or not accurate in some other way, it’s hard to get to the 9 percent that the Roost-financed study claims. That’s because for some reason, the WAV study only compared homes in each city with exactly 3 bedrooms and 2 baths, within a $50,000 price range.

That methodology seems random and flawed to me. Would Trulia’s accuracy be greater if the study had looked at homes in San Diego that cost $400,000 to $450,000 instead of $300,000 to $350,000? Comprehensiveness would have been a virtue in the study’s methodology as well as in what it was trying to measure.

Still 70 percent accuracy is not that great, and it doesn’t seem like Zillow is any better. If the MLS in any given city is the benchmark, both have a lot of work to do. And Trulia, for one, is striking deals with different MLSs to incorporate their data. But it only has 14 so far, out of about 900 nationwide. MLS-based sites like Roost and Redfin may have more listings in the markets they serve, but they don’t serve every market yet. For instance, in San Diego, Redfin tracks 6,300 homes for sale, better even than Roost. Yet neither has any listings in New York, and Redfin only has 473,000 listings total.

Yet Redfin CEO Glenn Kelman also balked at my earlier suggestion that either Trulia or Zillow are even close to comprehensive within any given market. In an e-mail to me, he said:

What got me was that almost any real estate site has more homes for sale than Trulia or Zillow.

Frenandez doesn’t think that having the most listings matters. She responds:

Listings are commoditized –there are dozens of sites that offer basic listing information in every city across the country. It’s not a competitive advantage for an Internet company.

What is more important, she says, is the filtering the site allows home buyers to do to help them make an informed decision. I’d say it’s both. Those filtering tools (heat maps, sales comps, local school info) are also becoming commodities. You want to cast your net as wide as possible before you filter down so you don’t miss out on that one house that fits all of your criteria.

We explained their model in detail when they launched in mid 2006. A year later the company was interviewed on 60 Minutes. And all along the way there have been lawsuits and litigation threats against the Redfin model – a home buyer replaces uses the Redfin service instead of a broker or agent. Redfin then refunds 2/3 of the buy side fees back to you. The average reimbursement has been $10,520.

Now, though, based on a report being released by the company tomorrow (the report is embedded at the end of this post), Redfin is able to get a second financial benefit to its buyers. Statistics show that Redfin buyers negotiate a much lower price than their broker competitors. They looked at two markets, San Francisco and Seattle, and gathered data from February 6, 2007 to February 5, 2008.

The data, says Redfin, shows that Redfin buyers paid an average of 1.015% below homes’ asking price, while brokerage customers paid .087%. Translated into dollars, the average Redfin buyer spent $5,048 less to buy a house that they probably would have without Redfin behind them.

So adding those two benefits together, a home buyer will save $10,520 + $5,048, or $15,568.

Digging a little deeper into the data they’ve supplied me, it seems that there are pockets of highly aggressive buyers that are a perfect fit with Redfin. In Santa Clara country the negotiating advantage was $16,107. Redfin also says that their business model, which keeps agents on staff for customer service purposes, are not paid commissions based on sales. They receive bonuses based on customer satisfaction surveys. That means they have to treat their customers well, and make sure they get a good deal.

The model seems to be working. Redfin has been involved in over 1,500 transactions (as of 1/31/08) and had reimbursed around $12 million to very happy home buyers.

As an aside, if anyone remembers a little rant I had last month comparing the working environments in Seattle and Silicon Valley, it was the CEO of Redfin, Glenn Kelman, that I was debating against.

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And while he isn’t an investor in Seattle-based real estate startup Redfin, I’m pretty sure he likes their business model. The company is doing its best to completely remove real estate agents and brokers (and their absurd fees) from at least half of a home sale. If you use them when you buy a home, they reimburse 2/3 of the broker fee to you, keeping 1/3 for themselves.

60 Minutes covered the company last May, which led to a surge in business. CEO Glenn Kelman told me today that, since launching in February 2006, they’ve been involved in 1,500 transactions and have reimbursed $12 million to customers. The average refund is $10,000. The company had 2007 revenues of $5 million, he says.

They’ve just launched a new version of the website that includes more frequent MLS updates and the ability to group home sales by neighborhood and download the data. They are also providing deeper data on homes currently on the market as well as historical sales (they compete with a number of other startups in search, including Zillow, Trulia and Roost).

If you want to use Redfin, check first to make sure they cover your geographic area, which include the San Francisco/Bay Area, San Diego, Orange County, LA, Seattle, Washington DC/Baltimore, and Boston. Chicago is coming soon.

And whenever we write about how screwed up that industry is, the realtors come out and start trolling in the comments. The profession seems to attract a fairly outgoing group; individuals that like the sound of their own voice. That may explain the success of Active Rain, a blogging platform for real estate professionals. It launched in June 2006, and by March 2007 had 20,000 bloggers, 12,000 of whom were real estate agents.

Now the service is in litigation with Move.com, a company with a collection of websites (including the official site of the National Association of Realtors). In late 2006 ActiveRain entered into discussions to raise money or be acquired by Move.com. In January 2007 the two companies signed a nondisclosure agreement. Two months later Move.com sent Active Rain a letter of intent to acquire the company for $30 million, although it isn’t clear that either side actually signed the letter and made it binding.

Then things started getting interesting.

According to a lawsuit filed by Active Rain, Move.com kept telling the company the acquisition was on track, and also kept asking them for lots of information about their business. Active Rain said they complied, occupying weeks of the owners’ and officers’ time. Move.com supposedly told Active Rain that the deal had been unanimously approved by Move.com’s board of directors and that the closing was contingent only on the tweaking of a few minor details.

Then the coup de grace: Move.com asked Active Rain for, effectively, a database download, including “highly sensitive information about its members and its network.” On May 3, 2007 Active Rain complied and sent the data.

Within “hours” Move.com notified Active Rain that they were pulling out of the deal. A few days later Move.com announced that they were “rolling out free blogs for realtors” and competing head on with the service. A press release on the new product was issued in August.

The $33 million lawsuit is pending. Move.com filed a answer denying some of the claims and demanding a jury trial.

There isn’t much more to go on at this point. Active Rain look like absolute fools for trusting Move.com with their core customer information before a deal was locked up, and Move.com look like serious jerks. It will be fun to see how this sorts itself out. Meanwhile, the good guys continue to disrupt the whole shady realtor business model. I hope, in the end, they win.

Redfin is doing their best to completely remove real estate agents and brokers from at least half of a home sale. The company combines MLS listing information (homes for sale) with historical sales data (homes already sold) into a single map. If you find a home you like and want to place an offer, Redfin will represent you in the buying process (they have a call center with licensed real estate professionals to guide you). They then reimburse 2/3 of the buy-side real estate fees to you on closing. The average home buyer saves around $10,000 on a transaction. The company will also represent sellers in home sale transactions.

The company has irked the real estate industry enough to get maintream attention. In May they were featured on 60 Minutes. Since then, the company has completed more than $350 million in real estate transactions and has saved customers around $6 million in commissions.

Realtors are fighting back mainly by trying to limit the MLS data that the company can show on its site, and trying to stop the company from showing customer reviews alongside that data. They’ve also seen an increasing number of realtors refuse to accept offers from Redfin customers, and a few “for sale” signs have been chopped down from yards.

I’m not surprised by any of this, given the disruptive nature of their business. Some of the comments left by realtors in our previous posts on the company have been venomous. Still, I have the feeling that the really big fight between realtors and Redfin is still to come.