Walkscore and Redfin: Is Real Estate Tech Too Profitable For Distractions and Discounts?

This post was originally published on Geek Estate Blog:

Seattle’s technology brokerage, Redfin, recently acquired our local community metrics company, Walkscore. The guys who run WalkScore have grown their business into household name nationwide, and have remained the same gracious, humble, community-conscious entrepreneurs in the meantime.

You can’t help but feel happy that Josh and Matt are putting a little bit of money in the bank now. Walkscore’s products have always looked like a goliath in terms of long-term potential eyeball attraction that hadn’t received their appropriate financial payoff.  That chapter has now been closed.  (Let’s hope that WalkScore widgets on real estate agents’ sites don’t start harboring trojan horse links back to Redfin a la Zillow widgets, but I digress.)

Walkscore is now a part of arguably the most tech-savvy brokerage, top-to-bottom, in the country.  Franchisors have some outstanding technologies available, but the ability for Redfin to drive technology down through its silo business model makes for uniform adoption throughout its entire company.

The WalkScore acquisition shows that the company is willing to spend significantly to increase its lead in online technology over competitors.  If you talk to folks who use Redfin’s services, they’ll always first point to the unmatched listing display, discussion forums, and mobile app features that set the user’s experience apart.

Surprisingly few talk about the discounts/rebates.  Many agents from other brokerages’ clients use Redfin’s tools, but not their agents.  There’s no doubt that the discount is attractive to some, but its continual shrinkage in the business model points to something that might just be the future of the business:

Redfin is too successful generating investments with technology to be toying around with discounts.  The desire to change the pricing model of the industry (and the division of labor at the same time) may actually be a distraction from the path to the greatest profits.

Real estate insiders are well aware of how multi-tasking degrades a person’s ability to achieve great success in a single task.  Redfin is keenly aware of it.  They’ve divided up the real estate sales process into a production line of task-achievers that have specific roles.  Your showing agent is a field agent.  There are others back at the office who are better at paperwork and transaction coordination to take you through the next steps.  Redfin certainly wouldn’t have agents building their own websites, as many in the industry do.  More role specialization is designed to make the agent-client transaction more efficient, and make more room for profits (or discounts).

While we can certainly point out why clients prefer a single professional to walk them through the entire process, it’s a great insight into Redfin’s business mindset that they’ve set such specific focus on these tasks.  They understand the efficiency of role specificity so well at the individual employee level, that it’s confusing to see the multi-pronged attack on industry norms that make up the overall business model.

Redfin is trying to reinvent the online user experience in real estate.  They’re trying to break the pricing/commission model of real estate.  They’re trying to restructure the labor roles and divisions within the real estate agent sphere.  They also need to turn a profit for investors, theoretically , to go public (or be acquired).

These are all really attractive goals for a company that simply wants to break everything in sight.  They also take focus and resources away from one another.  They’re a herd of horses running tethered together, when the single, most exceptional one of the group would probably run faster on its own.

Redfin is a technology brokerage.  That’s how they’re know nationwide.  The fact that they’re known as a discounter in Seattle is just necessary collateral damage from the loss-leader strategy that has gotten them a foothold in the news media and the national scene.  They’re now acquiring other technology companies to emphasize their superior and unique technological tools for the real estate consumer.

Their downfall is still the inability to get listings.  Sellers list with people.  They list with friends, trusted advisers, and agents who’ve done a great job selling their homes in the past.  They’d prefer not to list with a production line, and they definitely don’t list with a technology.  Most would rather pay a higher commission to an experienced agent who they have confidence in than take a chance on a discount with an unproven entity.

Buyers, on the other hand, just want to find homes.  The technology that Redfin provides makes for an easy entry in to the showing process, and although the buyer might be less than satisfied with an inexperienced part-time field agent conducting the house hunting portion of the process, some will fight through it because they believe in the superiority of the technological process, or simply for the discount.  Others will just use the technology and call the agent they like when it’s time for a showing.

Why not forgo the sideshows and co-opt the profit model that has worked for every other long-term real estate brokerage?  With a unique and valuable technology platform that consumers clearly love, why not just eschew the discounts, bring on successful full-time real estate agents with existing local relationships, and reap a portion of the “full” commissions that come from experienced agents selling homes?  If consumers love the process/technology, and they love your agents, how could profits not increase?

There is, of course, an easier way to get to this point than hiring agents.  If one of the big boys were to acquire Redfin and provide its technology to all of its brokerages, the superior technology and agents would be matched with a well-known, established brand for the trifecta of consumer trust.  Just as Coldwell Banker is now adapting Zip Realty’s tech into products for its brokerages, imagine Keller Williams acquiring Redfin and applying its technology to all of its offices.  SEO, lead generation, and customer retention from the desktop and mobile tools could lead to huge efficiency and conversion improvements.

If, though, the real goal is to simply change the way real estate is done, Redfin could continue to use online lead generation to create a presence in more cities, getting commission referrals from partner agents as a paper brokerage until that location is ripe for a local discount office.  That might be the vision for some–but it can’t be the most attractive direction for the investors who have poured millions of dollars into the company looking for a return.

Maybe we’ll see a shift in Redfin’s strategy over time to what seems to be a more streamlined, focused, and profitable–if also more traditional–business model.  Maybe it won’t come from within, but from the right company acquiring them and effecting that change.  Or, maybe they’ll continue to trailblaze the road less traveled–by both real estate listing commissions and professionals.  For my friends at WalkScore, who undoubtedly have a newly-found financial interest in Redfin’s profitability, here’s hoping they don’t go down that lonely road.