Computer vs. Realtor: Computer Wins. Twice.

Seattle based Redfin, a service that you use in lieu of a buyers broker or agent when buying a house.

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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