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Redfin Direct vs Faira

Imitation is the sincerest form of flattery. This week, Redfin released a new tool to enable buyers to make offers on homes online without an agent. Some top news publications covered the story:

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The tool is available for Redfin-listed homes in Boston at this time. I personally test drove the process yesterday (May 9th).

The very first impression I got is that the tool is designed by real estate brokers for real estate brokers. It can potentially be used by a frequent home buyer, e.g., an investor. Let’s be clear: the primary purpose of the tool is to generate additional revenue for Redfin, rather than to help home buyers easily purchase online directly.

I tried the tool on a home listed by Redfin for $849,000.

The very first thing Redfin presented me with was that with this tool, the seller will save $8,490 (1% of the asking price). A primary question is that buyer's agent are typically paid 2--3% commission, so if the seller is saving only 1%, who is keeping the remaining 1--2%? The answer is obvious, Redfin is getting this additional commission on top of their 1% listing fee. As per Redfin's website, if the buyer does not have an agent, then Redfin charges an additional 1%.

An offer from a buyer's broker: An offer from Redfin Direct
Buyer pays $849,000 Buyer pays $849,000
Redfin gets $8,490 Redfin gets: $16,980
Buyer's broker gets: $16,980--$25,470 No buyer's broker present
Remaining for the seller: $823,530--$815,040 Remaining for the seller: $832,020

 

Key takeaways about Redfin Direct

  1. Redfin made twice as much on the sale than if a buyer’s broker had participated.
  2. It is a huge conflict of interest for Redfin. Let us say there is a potential $860,000 offer on your home from a buyer’s broker of a competing firm, and $849,000 offer from this tool. Redfin makes more money when your home is selling for cheaper, even after accounting for $8,490 savings, via this tool. Can a seller trust that Redfin is going to put its best effort to get $860,000 offer from a buyer’s broker when there is a $849,000 via the tool? True that Redfin is a trustworthy brand, but then trustworthy brands do not put themselves in such a conflict of interest position. No where in their offer flow did Redfin say that they will be making more money if the buyer makes an offer via this tool.
  3. This tool is anti-broker. Why? Because Redfin makes more money when a buyer’s broker is not present.

Compare Faira's online offer process 

  1. In case there is a direct buyer, Faira makes about the same income. In fact, Faira makes slightly less income when a direct buyer purchases the home, due to the fact that the sale price is now lower, while the seller gets the same.
  2. Since Faira makes the same income whether the buyer has an agent or not, Faira is not under any conflicting situation. Faira always wants the best offer for its sellers.
  3. Faira’s tool is not anti-broker. Brokers are encouraged to use Faira tool for free, in fact they are encouraged to use it for their own listings too. When brokers use Faira for their sellers, their sellers benefit from Faira’s superior technology. 

If Redfin really cared about its sellers or the direct buyers, it could have simply enabled digital offers feature for Redfin homes on Faira. In fact, if you are trying to buy a Redfin home, you are better off using Faira to buy it.

On the same home, here is how the numbers would work:

If you make $849,000 offer on a Redfin home using Redfin Direct your offer is worth $8,490 more to the seller.

So let us say you make a $857,490 offer using Faira. For the seller this offer is also worth $8,490 more, but Faira will give you $16,980 [1*] in rebate, thereby costing you only $840,510. Why would you use Redfin Direct, which cost you $8,490 extra and still requires you to hire an attorney as suggested by Redfin.

 [1*]: We do not know how much commission Redfin offers to buyer's brokers in Boston. Faira is not in Boston. The cashback scenario is from Seattle, where Redfin typically offers 3% commission to buyer's brokers. Faira keeps only 1% commission for its services and refund the rest back to the buyer.

Kamal Jain

Written by Kamal Jain

Kamal is the CEO and Co-Founder of Faira.com. A technologist and economist, Kamal specializes in designing business models for the internet, which he did for both Microsoft and eBay. Kamal now wants to align the interests of home buyers and home sellers with Faira.

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