Redfin's Anti-Consumer Proposal

By Dave Fratello | September 14th, 2017

Redfin is an online discount brokerage with a ubiquitous app.

Odds are, if you're reading this, you're a reasonably tech-savvy person with an interest in local real estate. Therefore, your phone likely has the Redfin app.

You may or may not know that Redfin recently IPO'd (IPOed?) to the tune of $138M on a $1.7B valuation. And the stock has almost doubled over the first 6 weeks.

So, with the influx of new money, new investors and new expectations, we all begin watching a process of Redfin trying to evolve from being everywhere, but losing money, to (some day) being a profitable online discount brokerage with a ubiquitous app.

Now watch what Redfin does.

They can no longer be the cuddly, cool, radical garage band that you loved when they were rough-and-tumble. They're going to have to start selling out arenas. From punk rock to corporate rock.

Do we all have secret sympathies for Redfin? Of course. What business is more ripe for "disruption" than real estate?

But is Redfin going to be a disruptor?

One recent proposal offered by Redfin CEO Glenn Kelman puts that "disruptor" label seriously into question. 

You'll need to join us in the weeds of MLS and IDX policy. MLS is the "multiple listing service," a catch-all name for hundreds of different services around the country serving regions at a time, displaying real estate listings to brokers and (now) the public. IDX stands for "Internet Data Exchange," and this represents the rules by which MLS listings go out to websites like MB Confidential.

Kelman's firm uses IDX (and a related set of rules known as VOW) to display all of the listings offered by brokers throughout its many coverage areas. This is completely legit.

The organized real estate industry may have fought IDX at one time, but the internet wants data to be free. Eventually the feds stepped in and forced the industry to allow publication of MLS data through IDX with relatively few constraints, as long as the publisher of the website is a real estate broker or agent.

Anyone with a site can come up with a framework for displaying the photos, details and data about listings online, all on their very own branded sites. Hence, MB Confidential has every listing in Manhattan Beach, constantly updated, framed in the customized manner that we've spent sweat and treasure developing so that it all looks just right. Similarly, Redfin has come up with artful ways of displaying listings online and in its app. Every listing looks the same, regardless of who the listing broker happens to be, because each site owner frames the IDX data in their own way.

That policy chat wasn't too dry, right? 

Now we come to Redfin's new proposal.

Speaking at a recent meeting of the National Association of Realtors, Kelman suggested a pretty major change to the IDX rules: IDX websites would be required to link directly to the websites of listing brokers to display each listing appearing on their site.

In an earlier version of the same concept, Kelman wrote:

"Brokerage sites, including Redfin, should drive more traffic to listing brokers... In the Internet Data Exchange (IDX) feeds shared with other brokerage websites, MLSs should include Google-friendly links to source listings. Requiring every MLS subscriber to link to the source listing will ensure that brokers with more listings get much more traffic, from other brokerage sites like Redfin, and from Google."

IDX websites and so-called "portals" like Zillow and should contain "a posted ad, with a few photos, a price, basic details — not the entire listing," under Kelman's thinking, and they should see to it that a website visitor "with a serious interest in a broker’s listings should end up on that broker’s site to evaluate the full listing."

What could this mean, in practice?

If the house down the block from you is listed by Fred's Super Real Estate Firm, even when using Redfin to look at it, you would click on that listing and wind up on Fred's website.

If Fred has a very bad website, you lose. The photos may not render well, everything may be a mess on mobile, the property history and listing history might be hidden. Is there a working map or open-house guide? Who knows. It depends what Fred has set up. Odds are, Fred's site (if he has one) is a limp 1990s relic that will prove to be a waste of your time.

But it's quite doubtful that Redfin's purpose is to boost brokers like Fred and his awful website.

Most listings in the United States are held under one of just a few-to-several large brokerages. You've seen this trend in Manhattan Beach as giant names have been sweeping into town, displacing, buying out or rebranding locally grown businesses.

So Redfin's proposal really could mean that all independently run IDX websites out there would have to link back to the massive firms out there and their corporate websites.

Even individual agent sites could be displaced, if the requirement is to link to the listing broker's site, i.e., the boss's site.

This is not punk rock at all.

For one thing, the very concept could punish innovation and independence. 

Nifty, highly customized websites like MB Confidential might lose any advantage that they have gained by being among the best to serve a local market. Do we need to make a disclosure on our feelings about that? It would suck! MBC would lose, and you would lose.

Regardless of your starting point as an internet user, as soon as you click to see more details on a home, you'd be stuck on the listing broker's site, whether it's Fred or Berkshire Hathaway. And if you wanted more info on the house, you'd wind up talking to the listing broker (the boss), not necessarily the listing agent, and definitely not an independent buyer's agent or broker.

Why would Redfin, of all the firms out there, propose a policy that could be so regressive? Couldn't this actually harm one of Redfin's distinguishing features: A nifty, highly customized display of listings online and in their app?

One interpretation could be that Redfin is trying to place nice with all the rest of the brokerage community, many of whom can't quite figure out whether Redfin is as "dangerous" as Zillow, for traditional ways of doing business, or worse. This proposal, whether or not it has any chance of being adopted, has a superficial appeal to mainline firms with healthy market shares so as to make at least some heads nod: Hmmmm, yeah, this Redfin thing could really work for us!

It's as if the outsider just came up with a way for all the insiders to clear out their competition, and to wind back the clock on a policy many of them despise already. Hey, nice guy!

And perhaps Kelman's notion comes from an assumption of greater market share in the future for Redfin. Maybe right now, today, they'd be shucking off large percentages of their online traffic to other brokers, because Redfin's own market share is pretty tiny (at least in our area). But if they envision a future where Redfin is taking 5, 10 or 20% of the listings in a given market, this change would advantage Redfin and other large brokers at the expense of smaller, independent firms. (Again, do we need to disclose our bias? Confidential Realty is a small, independent firm!)

It seems fair to interpret Redfin's proposal as one directed toward consolidation. That's a normal trend in any business with lots of revenue at stake. It's just peculiar to see the gasoline on the consolidation fire being poured by a would-be disruptive upstart. Oh, right, they're a big billion-dollar public company now.

What's Redfin's potential interest in having fewer firms and even fewer valuable, independent IDX websites?

They're discounters. In a field of fewer websites and greater consolidation to the market, they'll stand out as one of the major players with one distinguishing value proposition: You pay less. (For less local knowledge and less service, we must note.)

Do not get us started talking about the technical challenges of implementing the Kelman proposal. If it became national policy, there would be a way to do it. Independent brokers and websites could be trampled, and our voices wouldn't be audible as the tanks rolled over.

Luckily, Redfin's proposal met a frosty reception, at least for now. The panel discussing the idea said it was "interested in better understanding the rational[e] and benefits to such a change."

Here's an idea: Just say no.

Where Redfin's interests begin to overlap with big brokerages, consumers could lose, after years of feeling spoiled by the upstart's whiz-bang tech.

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