According to the National Association of Realtors (NAR), the aggregate value of existing US home sales in 2016 was approximately $1.5 trillion. Researchers estimate that 5.5 million transactions were conducted for these homes by over 2 million active listing agents and more than 85,000 real estate brokerages. Overall, these agents would have earned more than $75 billion in commissions last year. Recently listed, online real-estate firm and Billion Dollar Unicorn Redfin (Nasdaq: RDFN), is looking to stand apart in this highly fragmented market.
Redfin’s Offerings
Seattle, Washington-based Redfin was founded in 2004 by David Eraker, Glenn Kelman, and David Selinger. The company was focused on becoming a technology-powered residential real estate brokerage. It represents people in more than 80 markets throughout the United States.
Redfin boasts of a technology platform that can leverage machine learning to recommend better listings to customers. Its platform helps keep costs low for the customers. Redfin’s customers can access the listing through its listings-search website and mobile applications. It allows homebuyers to schedule home tours and find details about the house they are interested in, through a few taps of a mobile-phone button. It helps sellers create an immersive online experience for the Redfin-listed home.
To attract a big customer base, Redfin tries to minimize the seller commissions. Redfin sell-side lead agents charge only a 1.5% commission, and in certain markets, like Chicago, Seattle and Denver, its agents charge even less – 1% commission. On the buy-side, Redfin still earns the typical 3% fee paid by the home seller, but it refunds a portion of this money to its customer in the form of closing cost deductions. This translates to a commission payout of 4%-4.5% per home sale transaction through Redfin, compared with the average fee of 6% charged by other brokerages. Redfin believes that it is able to charge a low fee because of its technology platform.
