With surprisingly little fanfare, Redfin, that pesky little Seattle brokerage the real estate industry loves to hate, announced yesterday their “Redfin Select” program, which looks suspiciously more and more like … a traditional brokerage offering.

Redfin’s initial business model, which made great sense in the VC’s conference rooms, was to outsource a big chunk of the buying process to its clients in exchange for a big chunk of the buy-side commissions.  For better or for worse, however, that model has continued to run dab-smack into the middle of the reality of real estate:  the listing agent, though representing the seller, is not usually responsible for showing the property to every interested buyer.  That service is usually provided by the agent representing the buyer.  The problem?  In order to make offers on a property, Redfin’s clients have to actually, well, see it.  If they don’t manage to hustle there during an open house, then they’re SOL — unless a Realtor-magic-key-toting Redfin agent comes by to open it.  And just like that, poof! goes half the business model.

Fast forward to today.  If you’re a Redfin client and you want a regular set of property showings, just give up a portion of the commission that was coming due to you and have Redfin show you around, just like a traditional broker would do.  Instead of getting 66% of the commission back, you get 50% back.

Possible explanations come from two different fronts:

First is my “Innovator’s Dilemma” proposition:   Redfin as a classic disruptive company, will first figure out how to be profitable serving the lower end of the market, the price-conscious clients that traditional brokers don’t mind losing.  Then it will move upmarket, charge more, and offer more service — ie. become more like a traditional brokerage, but with fatter margins.

At first glance, Redfin’s move seems to fit this pattern.  However. by Redfin’s own admission, they’re not growing as quickly as they would like, their business model is not as scalable as they had hoped, and they certainly are too young of a company to have taken significant market share yet.

So perhaps the better explanation comes from Mike Simonsen over at Altos Research.  Mike suggests it’s a simple pragmatic response to the harsh realities of the market place and their VC backers:  they need to become a $100M company as quickly as possible, and doing it at $10000 rather than $5000 per transaction will bring that about more quickly.

Other commentary:

• The Bloodhound notes that the rules around home showing seem strict and, well, a bit school-marm-ish.
• Greg Tracy suggests Redfin is becoming what they hate: a traditional brokerage.
• Jon Washburn notes the progression leading to this model and wonders if Redfin may end up becoming simply a lean-and-mean traditional brokerage.

Tags: Business models, Consumer, Glenn Kelman, Industry, Redfin, The Innovator's Dilemma

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Insomniac Dustin Luther couldn’t quite stay up late enough last night to witness the launch of the US version of Dothomes.com. But here it is, yet another real estate search site: dothomes.com, already live in South Africa and the UK.

I commented yesterday that recent property search entrant Roost.com’s business model is clever, unique, and possibly illegal non-MLS-complaint.  [1/30/08 update:  I’ve been thinking about my choice of words, and “illegal” is definitely not the word I should have used.  “Illegal” is mugging somebody, or stealing something.  What Roost is doing is 100% legal and above-board.  It may — and I emphasize may — be viewed by some as being non-MLS-compliant.]

A first glance at Dothomes suggests a similar, though unfortunately more damning verdict: extremely clever, very unique, and definitely illegal non-MLS complaint.  [1/30/08 update:  What Dothomes is doing is absolutely 100% legal, but again may be interpreted by some as being non-MLS compliant.]

The clever and unique part is easy to see: they’ve managed to pull off what Google Base real estate could have been, and may well still become: a Google-ish type search experience — with a whimsical “I’m feeling wealthy” instead of “I’m feeling lucky” button — where instead of choosing your criteria from input boxes or sliders, you simply type in what you’re looking for.

Right-oh then, let’s give it a try, shall we?

And, as the Brits would say, “Bob’s your uncle!”

A quick glance at the 99 results confirmed that they all had 3 bedrooms and were under $850K. Pretty slick! (As a sidenote, many of the results were in South San Francisco, an entirely different city. But I’ll cut them some slack on what is, after all, a pretty new product.)

So that’s the clever and unique part. Here’s the (tragically) illegal non-compliant part: per their own FAQ/blog, they get their data from either a feed that a broker sets up or by crawling the broker’s site.

From a feed the broker sets up: So far, so good…as long as it’s only that broker’s listings.

By crawling that broker’s site: At most MLS’s this is strictly verboten.

Most of the first few pages contained only listings from Realogy brands Coldwell Banker and Century 21. Since Realogy has been fairly open of late with distributing their inventory online — e.g. with Trulia — it is possible that Dothomes has an agreement with Realogy, though I have not heard such news.

A few pages later I see a few listings from my ex-Broker Alain Pinel Realtors. Now the warning bells sound. Unless things have changed dramatically since I left a few months ago, Alain Pinel would never ever distribute its listings to a non-IDX site — Trulia being the exception (probably because Sami is such a sweet talker!)

My prediction: tragically, Dothomes will be forced fairly quickly to adopt an alternate and legal listings acquisition strategy: either MLS-by-MLS, or broker-by-broker.

Further commentary:

• Future of Real Estate Marketing weighs in.
• Mashable wonders if Dothomes will be able to compete against Trulia et. al.
• SearchEngineLand notes that in real estate search, just like travel search, there is no one comprehensive site with all listings. (Realtor.com could lay claim to the title of “most listings” by virtue of having most broker-listed homes, but it does not include FSBO’s…plus the site just, well…sucks)
• Todd Carpenter, in what I believe is a quote from Dothomes founder Douglas De Jager, says:
  

  Because DotHomes does not serve up those details pages, they do not need permission from the listing agents.
  

  I hope this isn’t Dothomes’ understanding of what most American MLS’s allow, because if it is, he’s in for a nasty surprise.

Tags: Alternative business models, Century 21, Coldwell Banker, Industry, MLS, Realogy

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