More Data on Real Estate Agents

Redfin is a discount real estate brokerage in Seattle that has put together some interesting data analysis from their first year in business.

Their numbers suggest that clients who use their discount brokerage firm pay a lower percent of the list price than the typical home buyer in Seattle (99.329% of the listing price with Redfin vs. 100.233% with other agents). That difference in price is worth more than $4,000 per purchase, on top of the already discounted fees/commission sharing.

Of course, it is hard to know exactly what to make of these results. Redfin would like you to believe it is that they have crack negotiators doing the bargaining. Another possibility is that the home buyer that seeks out a discount broker is cheaper and more savvy than the typical home buyer to begin with. It is possible (although there is no direct evidence to support such a claim) that these homebuyers could have made even better deals if they had worked with a full-service agent.

It is not easy doing data-driven research that is completely convincing. This research is not completely convincing. I do think it is sensible and interesting, at least, so hats off to Redfin.

Although the data here do not show it, one of the legitimate fears a client should have when using a discount broker is that lower fees translate into even weaker incentives to do well for the client. This is why I think that the real-estate market is more likely to move towards a flat-fee system (where a fee is paid to list houses and then agent compensation is based on an hourly wage as opposed to a share of the sale price), rather than to a discount system which is still tied to sales price.