One of the fundamental flaws in the current real estate process is the way financial incentives are structured.
In a typical home sale, they buyer and the seller each retain a real estate agent r represent them and their interests. The buyer pays the seller a sale price. The seller then pays 6% of that price to the realtors. The buyer's realtor gets 3% and the seller's realtor gets the other 3%. That 3% is then split between the realtor and the broker that employes them.
Brokers are very vocal about protecting that magic 6% commission but they rarely point out that both realtors are financially incented to agree on a higher sales price. The higher the sale price, the more they get paid.
On one hand this makes some sense since the seller is paying all of the realtor fees. The realtors essentially reward the seller with a higher price and they get a better fee in the process.
Forgetting for a moment about how much or how little realtors do to make the sale and their oath to fairly represent their client, the deck is stacked for higher prices. There is little incentive for a buyer's agent to fight hard for a lower price and that is the rub.
In 2006, there was growing concern about both the fixed 6% commission and the anti-competitive behavior used against discount brokers (ones who charge less than 6%). But there is a lot of money on the table and some real estate transactions really are simple which means there are sharks in the water looking for change.
Redfin is one of those sharks who is pushing a business model redeux. Can Internet companies change the housing business the way Amazon changed the retail business?
Redfin revolution: In competitive real-estate industry, Redfin model is working
Seattle Times business reporter
read it here
A year ago Redfin launched the nation's first online brokerage.
Its site gives buyers the tools to research neighborhoods, find a house (and lots of information about it, like how long it's been for sale) and make an offer, all over the Internet.
A Redfin agent, whom buyers don't necessarily meet, then helps them refine the offer and negotiates it on their behalf.
The payoff: Redfin-represented buyers get a rebate for doing much of what real-estate agents traditionally consider their work. Sellers who use Redfin pay a flat $2,000 fee, rather than the customary 6 percent sales commission.
