[REN #831] Real Estate: Online Home Buying Picks Up in California

Real Estate: Online Home Buying Picks Up in California - Real Estate News for Investors Podcast Episode #831

Redfin is making it easier for buyers who don’t want to use an agent. It recently announced the expansion of its Redfin Direct program to the massive California real estate market. With Redfin Direct, buyers can make web-based offers on Redfin listings, without the help of an agent. That saves money for the seller, and can make a buyer’s offer more competitive. (1)

Redfin introduced its online-bidding platform last May in Boston. It then expanded to Virginia and Texas, which is by no means a small market. But the rollout in California is the biggest one yet. It’s now available in most California markets including Los Angeles, Orange County, San Diego, Santa Barbara, Palm Springs, the Inland Empire, Fresno, and Sacramento.

Redfin’s Mark Bennett said in a press release, “Redfin Direct is a way to buy a home for people who are confident about making an offer without an agent.” He says, it will also help in a multiple offer situation because the seller won’t have to pay the buyer agent commission, and that will make the buyer’s offer stand out from the rest.

The amount of money a seller can save is substantial. Sellers typically pay 5% to 6% in commission fees for both sides of the transaction. On a $650,000 home, that would cost the seller between $32,500 and $39,000. If the seller lists the home on Redfin, and the buyer makes an offer with Redfin Direct, the amount the seller has to pay drops to about 2% to 2.5% or between $13,000 and $16,250. For Redfin listings that are sold with a buyer’s agent, the total amount the seller would pay is about 3.5%, which is still lower than the traditional 5% to 6%.

The Redfin Direct service is only available for homes listed with Redfin and not by other brokers. So, it’s not something that buyers can make use of across the board. It’s only good for Redfin listings. It’s also not meant to replace the work of an agent. As reported by Inman, CEO Glenn Kelman said in an earnings call, “We believe there’s a segment of customers who want full service and there’s another segment of customers who want to do it themselves.” (2)

In a previous press release about the Texas rollout, Redfin’s Texas broker, Tony King said the service could be good for people who have previous home-buying experience and want to use this service to make a more appealing offer. He said, “Today’s homebuyers are savvy, and we think they should be empowered to decide which option is right for them. Of course, our agents will continue to help buyers who want an expert to guide and advocate for them through the transaction.”

The Redfin Direct platform also guides individuals with a step-by-step process. It begins with an online questionnaire that’s filled out by the buyer. Redfin Direct then provides information on other offers in the surrounding area to help the buyer decide on an appropriate offer.

It’s just one of the ways Redfin is hoping to redefine the way people buy and sell homes. Buyers can also tour homes listed with Redfin with the Book It Now and Direct Access technology. Those features allow buyers to schedule a home tour online, and if Redfin also owns the home through its Redfin Now business, buyers can use their phone to unlock the home they’d like to tour, whenever it’s convenient for them.

Redfin still has a long way to go to substantially disrupt the market. As the Wall Street Journal points out, Redfin’s listings are just a tiny fraction of the five million or more homes that are sold each year in the U.S. It’s also not the only platform that provides a way for homeowners to sell their properties online. Opendoor and Zillow also offer that option but Redfin appears to be the first to cut the commission paid to buyer agents. (3)

The Wall Street Journal also reports that Redfin Direct hasn’t received the warmest welcome from real estate agents, but Kelman says, the company’s main objective is to facilitate the best possible transaction for clients. He says that includes saving them money in agent fees.

Links:

(1) Redfin Direct Press Release

(2) Inman Article

(3) WSJ Article

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