New players challenge traditional real estate model

Jeremy Krause, team leader for Redfin in Rhode Island, never thought of joining the real estate business before two hometown friends began working for the Seattle-based brokerage’s Boston office.
A Providence College graduate, Krause liked the idea of working for a technology company, and Redfin positioned itself as a digital-fueled, data-driven alternative to traditional agencies.
Now Krause leads three other agents in Redfin’s fledgling Rhode Island team, which launched in June, becoming the company’s 37th U.S. market.
“We are a tech company so we have amazing data to parcel out,” Krause said. “Our leads come through our website. There is no time cold calling or marketing, and we can be 100 percent advocates for our clients. That is why we have such a good value.”
Whether Redfin is primarily a technology company or a real estate company with an alternative compensation model is debatable. But either way, its business plan hinges on the Internet’s ability to reduce costs and undercut traditional brokerages.
By having agents work on salary, instead of commission, and operating its own lead and advertisement-generating property database, the company charges buyers and sellers less than the traditional 2.5 percent to 3 percent cut of a full 6 percent commission.
In many ways, Redfin is a hybrid of a real estate agency and the new online real estate data aggregators, such as Zillow, that have reshaped how people search for houses and apartments.
Online listings, along with eviscerating print real estate advertising, have reduced the role real estate agents play in connecting potential buyers to what’s on the market. Now anyone with an Internet connection or a smartphone can find nearly everything for sale in every neighborhood across the country, nearly in real time.
But whether that revolution in property data will fundamentally change the agent and broker professions is less clear.
While Redfin is challenging established agencies directly, some believe the biggest threat to traditional real estate companies is Zillow, which purchased rival Trulia earlier this year, making it the largest player in online real estate information. Neither Zillow nor Trulia are directly involved in property sales. Like a media company, revenue comes from advertising, sales of digital products to the industry and lead generation for brokers and agents.
In an interview earlier this year, Zillow Chief Economist Stan Humphries said Zillow has no intention of entering the transactional side of the industry.
“We want to match consumers with great real estate professionals, not sell houses to them,” Humphries said. “We have no plans to enter the market itself. We think the more relevant analogy is being the Google of real estate rather than the Amazon.”
Still, a “Google of real estate” would have a long reach and significant impact on the traditional way of doing business, particularly the now-prominent position of industry trade groups.
In the Ocean State, the Rhode Island Association of Realtors, which runs the State-Wide Multiple Listing Service database, is already competing with Zillow through its RILiving property website.
Realtors association CEO Susan Arnold said in the past year Zillow passed RILiving for the top spot in property searches in the state. That position would only be consolidated if joint ownership of Zillow and Trulia eventually leads to a single site.
A nonprofit like many other local associations across the country, the RIAR runs the MLS database and RILiving as a service to fee-paying member agents and brokers.
Arnold, who is retiring at the end of the year, said the association does not run RILiving or the MLS to make money, but because they provide the most efficient, consistent and accurate tools for real estate professionals to share information, including commission details.
In some areas of the country, MLS databases have feuded with Zillow and other aggregators, cutting them off or restricting their listing feeds. The disagreements have primarily been over linking to the listing agent of a property. The National Realtors Association has attacked the accuracy of websites like Zillow and Trulia, which have responded by seeking listings directly from brokerages.
But Arnold said that in Rhode Island listings are only kept off Zillow if the broker creating the listing requests it, which is extremely rare because of the exposure the website provides.
If the MLS databases and Realtors associations lose their central role in the industry, it could make it easier for companies like Zillow, Redfin or dozens of real estate startups to eventually push through structural change in the way homes are sold.
Unlike through the MLS, listings on for-profit websites present opportunities for the most aggressive agents to further enhance their position through online rankings or advertising.
One of the hallmarks of a career in real estate has always been the workplace flexibility and option for agents to juggle selling homes with other things.
Redfin’s salaried model cuts against that flexibility, including the tax benefits of writing off lunch with clients or gas to drive across the state, which holds significant appeal for many professionals, Arnold said.
“I don’t think [the Internet companies] have changed the way real estate is done,” Arnold said. “It may have changed the way people search. Working on salary still is quite rare and isn’t for everyone. Some people do part time and want that flexibility.”
In Rhode Island, Redfin agents may be salaried, but they are still operating as an upstart that hasn’t opened a physical office in the state.
Krause said he is still working to determine where the first brick-and-mortar Rhode Island Redfin location should be, but hopes to open one soon.
“We have had boots on the ground since June and are trying to determine where we should be,” he said. “We will place it where the most demand is.” •