Apart from both being in the real estate business, what could these two polar opposites — Glenn Kelman, Redfin CEO and industry maverick, and Russell Shaw, mega-producing Phoenix Realtor — have in common? On the surface — nothing, especially when you consider that Russell has been in the business for more years (29, I believe) than Glenn has months (about 13).

Here’s one thing they do have in common: they both aim to move a lot (and I mean a lot!) of real estate. Russell and his team currently sell about 400 homes per year but they’re aiming for 2000. The number of transactions Redfin has had is not public, but however many it is, they certainly also have ambitious expansion plans, including a future foray into Chicago, Boston, and D.C.

How do you do this many transactions? How do you scale any business, for that matter? It’s simple (but not easy): you find ways to outsource and you find ways to become more efficient. And here’s the other thing they have in common: they’ve both found ways to do these things…Russell primarily on the listing side, and Glenn primarily on the buying side.

Russell has apparently built his business the traditional way most large-scale brokers have, by leveraging the natural advantages of the listing agent in this business. You get a listing, put up a yard sign, toss it in the MLS, throw a couple ads in the paper, do an open house or two (or, more likely, get some other agent to cover for you)…and then have dozens of other area agents (your competitors) show the property to their clients and (hopefully) find a buyer for you. Sweet deal. Because of the way the real estate industry is structured, one listing agent can handle perhaps 10 or 12 listings at a time, and if you hire an excellent assistant that number can easily double.

You outsource much of the work to get a home sold to your competitors (for which you compensate them through the “co-broke”) and you increase efficiency by specializing within your team. Russell, for instance, appears to have 12 people on his team. Two of them are “listing specialists” — which I presume means their job is to go on as many listing presentations as humanly possible. They’re really good at it, and every listing they get, they probably hand it over to the “seller consultant” and “listings manager.”

Russell’s team also has three “buyer specialists.” Their job is (duh!) to service the buyers. But here’s the rub: achieving scale on the buy side is much more difficult. A really good full-time buyer’s agent, whose job is nothing but previewing homes and then showing them to the buyers, can perhaps handle 4-5 concurrent clients — and that’s a stretch.

Enter Glenn Kelman and Redfin. If listers can outsource a good portion of work to other agents, why can’t buyer agents also outsource? They can, and Redfin does — to its clients and to its competitors. The buyers themselves do much of the work that a traditional buyers’ agent would do — namely, keeping up with the MLS and viewing homes at open houses, in exchange for which they get compensated by getting a piece of the commission. The sellers’ agents, on the other hand are enlisted (often against their will) to show the properties when there isn’t an open house, in exchange for which their compensation is…absolutely nothing (except avoiding appearing on the “hall of shame.”) Now the buyers’ agent’s job is mostly at the back-end — consummating the transaction — and, voila! now you can scale the business. A Redfin buyers’ agent can probably handle as many concurrent clients as a smoothly running listing agent can: around 10 or 12.

Therein lies both the genius and the tension in Redfin’s business model. The genius is in recognizing that the Internet makes it possible for buyers to do a chunk of the work themselves, but the tension comes about when Redfin — without any compensation — outsources another chunk of work to its competitors.

The other problem is whether Redfin will ever achieve enough profitability to cover the costs of its smart programmers. We’d need more numbers to figure out exactly how many transactions Redfin will have to do in order to go cash-flow positive, but whatever that number is, it’s got to be pretty big.

Tags: Business of real estate, Glenn Kelman, Real estate, Redfin, Russell Shaw

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