Real Estate Industry Cringes As Redfin Takes $15 Million In New Funding #seattleiswinning

Redfin has a classic disruption model. Find a huge inefficient industry (in this case real estate broker fees) and then rip it apart to make consumers happy. The overall size of the market shrinks. But there are huge profits to be made. Investor Josh Kopelman calls it “Shrink a Market!”

Back in 2006 when I first wrote about Redfin this was all just a dream. The company had sold a few homes in the Seattle market, representing buyers instead of traditional brokers and dealers. They then reimbursed 2/3 of the fee back to the buyer, averaging $11,402.

They’ve grown substantially since then. Redfin is now available in twenty or so areas. Since launching in 2006 they’ve represented buyers and sellers in more than $6 billion in home sales, returning a whopping $85 million to consumers. The average reimbursement is now $7,000.

The company is announcing a new round of funding today – around $15 million from Globespan Capital Partners and previous investors Venture Group, Vulcan Capital, Draper Fisher Jurvetson and Greylock Partners. To date, the company has raised nearly $46 million. See TechCrunch for more details.

A good day for the Seattle tech scene, and a great day for Redfin. A bad day for the rest of the real estate industry. Adapt or die, because the real estate broker/dealer scam has gone on long enough.

Here’s the press release:

Redfin Raises $14.85 Million Round Led by Globespan Capital Partners

Oct. 27, 2011 – SEATTLE – Redfin Corporation, the technology-powered real estate brokerage, today announced that Globespan Capital Partners has led a $14.85 million investment in the company. Previous investors, including Madrona Venture Group, Vulcan Capital, Draper Fisher Jurvetson and Greylock Partners, also participated in the financing. Prior to this investment, Redfin had raised nearly $31 million, so the new total is almost $46 million.

Redfin, a company of local real estate agents and software engineers working together to give people a smarter way to buy or sell a home, will use the money to launch its service in new cities and to deepen its investment in research and development.

The funding caps another successful year for Redfin. Even as fewer homes have sold nationwide, the company has grown fast. Since launching its service in 2006, Redfin has represented customers in the purchase or sale of more than $6 billion in homes, saving consumers more than $85 million in commissions, an average of more than $7,000 per transaction.

Ninety-seven percent of customers would recommend their Redfin agent to a friend; though Redfin is still most popular among first-time buyers and sellers, the company’s fastest-growth customer segment is now among customers over 45. According to Hitwise, Redfin.com is the U.S.’s fastest-growing brokerage website. Since Redfin tours homes with its own agents, it can publish to its website more than 80,000 notes per year about active listings, which in turn has accelerated traffic growth.

“In Globespan, Redfin has found the perfect partner: an investor committed to customer service as well as technology, who understands from its partners’ Zipcar experience how to grow neighborhood by neighborhood,” said Redfin CEO Glenn Kelman. “Not many venture investors appreciate the different ways in which online and retail businesses grow, and even fewer think about the long-term competitive advantage you can create when the two work together.”

“Globespan invested in Redfin for one big reason: service,” said Globespan Managing Director Venky Ganesan. “We had used the site extensively, and talked to customers, so we knew that this was one of the few companies that could deliver consistently higher-quality service than any of its competitors. The more we learned about Redfin’s single-minded service focus, the more we became convinced that Redfin was building the foundation to lead a market that generates $40 – $60 billion in brokerage fees every year.”

As part of the financing, Globespan Managing Director Venky Ganesan is joining Redfin’s Board of Directors. Before Globespan, Mr. Ganesan founded Trigo, a successful product-information company sold to IBM; he also worked as a consultant at McKinsey in Los Angeles and Johannesburg, South Africa.

Alan Smith of Fenwick & West represented Redfin in the financing.

About Redfin
Redfin is a company of local real estate agents and software engineers working together to give people a smarter way to buy or sell a home. Redfin’s agents handle every facet of a transaction, including tours, pricing analyses, negotiations, inspections and closings. The company pays its agents customer-satisfaction bonuses, not commissions, and surveys every client, publishing each survey alongside the agent’s complete deal history.

Redfin’s service is available in the metropolitan areas of Atlanta, Austin, Baltimore, Boston, Chicago, Dallas, Denver, Las Vegas, Phoenix, Portland (Oregon), Seattle, Washington DC, New York’s Long Island and Westchester County as well as most of California, including the San Francisco Bay Area, Sacramento, Los Angeles, Orange County, San Diego and Palm Springs. To keep track of our daring exploits, subscribe to blog.redfin.com or our Twitter feed @redfin.

13 thoughts on “Real Estate Industry Cringes As Redfin Takes $15 Million In New Funding #seattleiswinning

  1. Jason Nazar says:

    Great company, love the model. At some point for fun I got my brokers license. Way too many yahoos in this space. And in LA everyone wannabe actress has a real estate license. A really good real estate broker is still really valuable, but having the option to bypass the process and save thousands…. I’m rooting for Redfin here.

  2. We’re actually house hunting right now and Redfin is a clear winner. For the self-directed buyer the traditional “Realtor” model/monopoly doesn’t work. I do prefer Estately’s site for searching/browsing properties though.

  3. Chris says:

    Have a look at http://www.daft.ie, cuts out the agent completely at home in Ireland.

  4. The Redfin model still incorporates a broker / agent into the equation. Is it possible to fully remove an agent from the model and create a peer-to-peer platform / marketplace for real estate? Seems like there is a big opportunity to disrupt the commercial real estate space as well…

    • Daniel Kim says:

      I think there still needs to be a “real estate” expert in the mix to help with the consumer as buying a house is not the easiest thing in the world. If it is a real estate agent at a discounted rate that has just as high or higher customer service than the old model, I am all for that. It is valuable to be guided by a trusted source through the process as a buyer doesn’t want a lot of “lesson learned” moments in the home buying process.

      • Derek Krantz says:

        because you are saving money, you think you are getting a discounted service. not so in my case. I bought a home in berkeley, and was expertly guided by redfin’s brokers around the maze of regulations here. I can’t imagine a full service broker doing better, plus i got a huge check immediately after close

  5. Pareto’s Principle applies to eighty percent of the rank and file membership of the NAR. Bad Realtors abound and are not only a public menace, many are borderline criminals, who use misrepresentation, nondisclosure and deception to rip-off the public to the tune of tens of millions of dollars annually. My Web site, http://www.avoidbadrealtors.com and upcoming consumer protection book, How To Avoid Being Screwed By Bad Realtors, provides real estate consumers with reliable, up-to-date information and no-bullspit advice, so they don’t end up being the equivalent of Realtor Roadkill!

  6. While the Redfin model is bringing competition in price, it is not going to disrupt the commission based pricing or challenge the control over the information market. True disruption of the real estate brokerage industry will cause the “information market” to be broken from the “professional services” brokers provide. Redfin may lead to a reduction in broker profits, but in the Clayton Christensen sense, not “disruptive.”

  7. “Adapt or die, because the real estate broker/dealer scam has gone on long enough.”

    +100

  8. Danny Losch says:

    I can definitely see two things:

    1. The industry, traditional brokers in particular, are going to resist this for as long as they can. Especially virtualizing, and cutting their gains. I would bet that Redfin is going to find themselves in a lawsuit pretty soon.
    Old-school industry + progressive business models = resistance to change.

    2. Despite the resistance of traditional agencies, the industry is going to continue to drift towards similar business models like Redfin’s. Commission rates are dropping in many states already, realtors are rated one of the least-trusted professionals, and there is less of a demand for the exclusivity of the MLS data because of the popularity of home search sites and IDXs. Technology reduces (but doesn’t eliminate) the need for a professional. All that adds up to this: real estate sales are going to become much more streamlined, simplified, systemized and automated – despite the fact that real estate is a “people business”.

  9. oron says:

    Ya really nice post man glad you run the whole show now

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 14,452 other followers

%d bloggers like this: