Wanna Go Solo? Redfin Would Help

By Dave Fratello | May 10th, 2019

Let's stipulate: This seems like a really bad idea.

But the cuddly, IPO'd innovators behind that real estate app that you have on your phone are thinking about a whole new way for buyers to offer on properties.

Redfin has been testing an online offer tool called Redfin Direct, which allows unrepresented buyers to make an offer on a Redfin listing directly.

The hitch: The buyer remains unrepresented throughout the process, saving the seller on a buyer's agent commission.

The buyer in such a scenario must imagine that this process will mean a lower purchase price. And the buyer also must believe that having one's own formal representation is of little value in a home purchase.

Paul Reid of Redfin said to Inman news (paywall), "There is a growing contingent of folks out there that are very comfortable with the home buying process, they’ve bought three or four homes, maybe they’re downsizing, they’re very familiar with the process and in some cases may be more familiar than some new agents that might be in the industry... They don’t necessarily want or need the assistance of a buy-side agent but the industry and Redfin has pushed them towards that representation in the past and they’ve begrudgingly gone along with it."

The test has been confined to the Boston area so far, but Redfin will soon begin to roll it out bigger, starting in Virginia. Redfin indicates that five (!) of their Boston listings have accepted a "direct" offer through the website during the testing period.

Now, some thoughts.

Online offers may sound really cool, until you consider the details. Redfin says they've set up a 55-question form to steer the offering process in the right direction, so there won't be spammy, half-hearted offers flooding in. Still, there is a lot to a standard purchase contract that is hard to convey in an online form. And there's no consultation on what it all means.

That big wall of boilerplate contract language we work with in real estate can cause eyes to glaze over, until it turns out later that you really needed it.

And the role of a buyer's agent is very easy to diminish when either of two things is true: 1) You're one of those savvy buyers who's been through it all before, and 2) You wind up dealing with a very new agent as your buyer's agent, who may be learning on the job (your job).

As you know, here at MBC (and Edge real estate) we put a very high value on clients having their own agent. And this is what makes it hard to swallow Redfin's plan - and any suggestion that it's the wave of the future.

Pricing is an inexact science. It's great when sellers price to market and we all have that feeling that there's value in the home. But sellers also play games. Some knowingly overprice and hope for a less-savvy buyer and/or out-of-town agent to come along. The online buyer had best be very confident about pricing before trying to "save" money with a website-driven offer.

Disclosure and inspection issues can be huge. As a buyer, you rely on the seller to make faithful representations about the property, and on your own team of inspectors to find issues such as needed repairs.

If you speed through disclosures and inspections and miss something, it can bite you later. A true buyer's representative is looking at everything carefully and a bit skeptically, thinking ahead to "what if this becomes a problem?" Knowledge of local building codes and typical inspection issues is something an agent brings to the table that an online buyer might lack.

And there are the inevitable bumps in the road during the purchase: Issues with timing, lenders, contingencies, the occasional argument that breaks out over a high-stakes multi-million-dollar transaction. We love a smooth transaction, but often there are pain points that come with some screaming, and it takes work to hold it all together.

From this seat, it's hard to imagine someone choosing to go it alone in the hope of saving a few bucks on the purchase. It's daring and could be self-defeating.

We had a dialogue going a while back with an MBC reader who had hired the listing agent on a home to buy it, and later had a wide range of issues with the property. The family now feels that they didn't have real representation, the kind of skeptical, inquisitive approach they deserved during the purchase. Once problems emerged, the agent seemed conflicted and slow to act to try to solve the issues. The reader said several times that hiring the listing agent was one of their worst mistakes ever.

Imagine the fun of never having had an agent at all. You'd have only yourself to blame.

It's funny, in a way, to see Redfin pioneering the agent-free experience. So many people once viewed the company as one that was empowering buyers with lots of free information and a nice website.

But the business of real estate, as we've observed many times here, tends to skew toward the interests of sellers, and away from buyers. It's crazy, because approximately one-half of all parties to real estate transactions are buyers. (Wait, wait, we checked our math, and it's exactly half!)

Under the online-offer model, sellers make more money and buyers heap huge risks onto themselves. Maybe it seems fun because it's online, and you can compare it to Amazon or Expedia or name-your-favorite-disruptor. It's a way to convert one's skepticism toward real estate brokers into an (online) action.

Bravo to Redfin for getting the headlines (again). Boo to Redfin for innovating in a way that could cause untold harm down the road to the very people using their service.

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