NEW YORK — Some common labels land on various breeds of real estate companies — such as “discount or “traditional” — that seem to stick even though they don’t quite fit, said panelists Monday during a session at the Real Estate Connect NYC conference. The terms can result in adversarial connotations, including the perception of an uneven playing field that pits newcomers against a backlash from industry veterans.
While the labels may be misnomers, new low-cost business models can still feel friction from established companies and organizations, said Glenn Kelman, CEO for Redfin, a brokerage company that offers rebates to consumers while automating some aspects of the real estate transaction with Internet-based services.
Kelman, who debated Allan Dalton, president of real estate search company Move Inc., during a session at the real estate conference, said his company has experienced some pushback, including the threat of lawsuits and buyers who said they worry that other companies will ignore their offers made through Redfin.
“I don’t think entirely we’re imagining some kind of opposition here. I don’t think we’re inventing an enemy that doesn’t exist,” said Kelman, referring to a variety of “legal machinations” and letters from multiple listing services that the company has received since launching brokerage services last year. Any opposition to the company’s business model is not warranted, he said.
“We just have no interest in screwing up the industry or hurting other people. But we do have an interest in protecting our consumers and protecting ourselves from legal attack.”
Dalton, meanwhile, said that Redfin has announced savings over traditional real estate companies — which implies that so-called traditional companies are charging a fixed rate. Commissions are, by law, negotiable. Dalton’s Move Inc. operates several prominent property-search Web sites, including National Association of Realtors-affiliated Realtor.com.
“When you suggest to the consumer that they are saving something — that implies that there’s a standing rate — and I’m concerned from an ethical, even legal standpoint that I don’t think we should be implying to consumers that there’s some type of commission-fixing cabal and that there’s a set fee, and I think you’re in danger of basically conveying that to consumers. I think you’re on very slippery ground there,” Dalton said.
Also, he said that Redfin’s strategy appears to be “basically attacking what people are making as opposed to increasing the value,” and that could lead to talk of overpriced stockbroker, doctor and lawyer fees. “We have to make sure that we make a distinction between serving consumers and trying to put consumers out of work. Nothing should ever be at the expense of consumers,” he said, jokingly referring to a doomsday scenario such as that in the film “Escape From New York,” with out-of-work people text-messaging and e-mailing from caves and “breadlines for bloggers.”
The real estate industry should move beyond its perception as a service industry and be realized as a skilled profession, Dalton said. “We need to empower our industry to go beyond holding the (consumers’) hand during the transaction — the high touch, the high feel, the nurturing of consumers — and empower them … to a skilled Realtor who can help them plan their entire life as opposed to receiving calendars and refrigerator magnets,” he also said.
Realtors, he said, offer skills such as negotiating, marketing, networking, merchandising and staging that can add to the sale price of a home. “That’s a skill — that’s an acquired skill that has been developed — it’s not a service.”
Kelman argued that real estate consumers may not be well-served by the long-standing commission structure that awards real estate agents with compensation that is typically based on a percentage of the sale price of a home. He criticized a system that rewards buyer agents more money when their buyer clients pay more, saying “there’s no way that your advice can be objective” in that situation.
While skilled work is needed in real estate transactions, many processes can be automated. “We think we can combine real estate agents with Internet technology to make the process more efficient,” he said, adding that most of the “traditional industry hasn’t necessarily been interested in automating the business.”
“So we’re just trying to introduce a competitive force in the market such that we can use technology and let the agents focus on what they really want to be doing, which is negotiating the deal on the house,” Kelman added.
Dalton questioned Kelman’s view on the industry’s standard compensation structure using an analogy: “I want my sports agent to have an incentive to have a greater outcome. You think it’s not right that real estate agents don’t want homes to sell for more?”
While agents may believe their most valuable service is in finding a “dream home” for their clients, Kelman said that consumers are capable of finding a home on their own and just want an agent to seal the deal for them.
“We do think that real estate can be more efficient. We think that most of the technology sites that have been developed in the real estate industry are really designed to benefit the real estate agents and not consumers,” Kelman also said.
“People automatically assume that we have it out for real estate agents, and first of all we are real estate agents. We want to be good partners in the industry because we’ve got to work with all the other brokerages,” Kelman said.
Consumers can potentially save thousands by working with a Redfin agent, he said, and the company’s typical agent completes 10-20 real estate deals per month.
Dalton, who earlier referred to “some of the zeal that’s been manifested here for this Redfin reformation in the country,” said that consumer choice is a good thing, and he also said that consumers will ultimately decide which business models succeed.
“Sometimes we have people who … get so venomous, and they shouldn’t. It’s great that the consumer finally has more choices … and that’s what it’s all about. Let the consumer decide,” he said.
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