Redfin rolls out first Chicago Insider Report

by Joseph Askins on 11/11/10

“There is no buyer urgency in this market. It’s all about the ‘deal.’ Buyers who don’t get their desired price move on to sellers who are more willing to negotiate.”

That’s Redfin agent Patrick Lusk’s take on the west suburban market in Redfin’s new Chicago-area Insider Report, published today. The report has a mix of market data and Realtor observations, as well as a link to a spreadsheet breaking down sales figures and comparisons for 14 counties, 136 neighborhoods, 240 cities and villages, and 295 ZIP codes.

One section of the report tracks the change in the number of homes sold between September and October 2010, and between October ’09 and ’10. The changes by county, adjusted for number of weekdays, are:

  • Cook: Down 15.5% from September 2010; down 34.6% from October 2009.
  • DuPage: Down 2.5% from September 2010; down 26.8% from October 2009.
  • Kane: Down 14% from September 2010; down 23.4% from October 2009.
  • Lake: Down 18.5% from September 2010; down 26.4% from October 2009.
  • McHenry: Up 9.8% from September 2010; down 31.7% from October 2009.
  • Will: Down 42.1% from September 2010; down 55.8% from October 2009.
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{ 21 comments… read them below or add one }

Joe Zekas November 11, 2010 at 10:17 PM

In most of the sub-markets the datasets are too small to provide any meaningful informaton for home buyers or sellers.

Take Northfield as an example. Seven homes sold in October of this year, and 9 in October of last year. The price of single-family homes varies so widely in Northfield that a very few sales can result in wild price swings from one period to another.

Redfin’s Web site is the clear choice of probably 8 of 10 of the North Shore buyers I meet, but I’ve yet to meet a buyer who’s working with a Redfin agent.

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Matt Goyer - Redfin November 12, 2010 at 7:53 PM

Hi Joe,

Matt from Redfin here. I agree that in individual neighborhoods the percentage changes on price and other numbers will be subject to wild swings, but as a home buyer (or seller) it is still nice to know the absolute number of sales and/or listings on the market in my neighborhood.

And I’m really happy to hear that we’re the clear choice of buyers that you meet! As for not running into a Redfin buyer yet, hopefully you will soon, as we have some of the top buyer’s agents in the area.

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Joe Zekas November 12, 2010 at 10:06 PM

Thanks for the link, Matt.

Perhaps the reason I don’t encounter buyers who work with your agents is that the agents appear to be covering such a broad area.

The only agent you link who serves the North Shore, where I’m typically talking to buyers, covers the following areas per your link: North Side, Far North Side, Far Northwest Side, Near Northwest Suburbs/ O’Hare, Near North Suburbs, North Shore. That’s a typical service area, from what I can see of your agents. And, your North Shore agent’s average price is at least $1M below the average home I’m seeing buyers at.

It makes sense for a buyer who only cares about the Redfin rebate to work with an agent who spans so much turf. I can’t fathom how any agent, no matter how good, can be aware of the subtleties that can make huge differences in value and livability across so many communities and price points. That’s especially true on the North Shore, where pricing can best be described as “chaotic” among properties that are not commoditized. For some buyers, I suspect, the Redfin rebate might prove very costly in the long run.

It’s fair to call the agents you link “top-selling agents,” but a misnomer, in my book, to call them top buyer’s agents. I always recommend that buyers work with agents who have lengthy experience in and deep familiarity with the community where they’re looking to buy.

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Mark Reitman - Redfin November 19, 2010 at 2:34 PM

Hi Joe,

We agree that local area knowledge can be helpful when selecting a location and valuing a home, which is why we have many more agents touring clients than are featured on the website, and we’re hiring more! Also, keep in mind that immediate neighborhood knowledge is only one component, of many, when judging the quality of an agent or his or her results in a certain locale.

At the same time, one can argue that an agent who handles the details for 50-70+ transactions, in a year, has a superior market knowledge than one who handles less than four (the average for North Shore agents over the last twelve months is approximately 3.97). Can someone be as aware of the subtleties, especially in this ‘chaotic’ pricing market, when they handle only one transaction per quarter?

Beyond current market immersion and experience, there are many layers to the advantages of using Redfin agents, not the least of which is how they are paid. Unlike the traditional model where agents can be paid thousands, solely based on the sale price, regardless of the quality of outcome for their clients, Redfin agents are paid bonuses strictly on client satisfaction, meaning their financial motivation is directly tied to getting the best results for their clients and not at all tied to the buyer’s purchase price. Plus, all of those reviews are posted publicly, right on the website (another motivation to get the best result). I suspect our clients are more qualified to judge our agents’ service and results than someone who has, admittedly, never met one of them, nor a Redfin agent.

If you choose to read the reviews, keep in mind that, in those reviews with as many as three out of five stars, the agent received nothing for that transaction. Therefore, we can’t just claim that our agents are top-notch. They need to BE top-notch. Their livelihood and reputations depend on it.

Many clients do come to us because of the rebate. However, in very short order, they realize that’s just icing on the cake.

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Joe Zekas November 19, 2010 at 5:33 PM

Matt,

You can certainly argue that an agent who handles 50 transactions in a year all over the map has superior market knowledge over an agent who handles four in a limited area, but you can’t argue that very convincingly, and Redfin’s market share on the North Shore is the best indication of how well buyers have bought your argument. Not so much.

The Redfin rebate on a $2M purchase in Winnetka would be about $25K, a significant sum of money to some.

Redfin’s suggested agent for Winnetka, however, hasn’t worked on a purchase in Winnetka during the past 12 months, and hasn’t handled a purchase at that price point during the last 12 months – if ever.

The value of homes with similar asking prices in Winnetka can vary significantly on a block by block basis and can vary widely based on architectural style, floor plan, local tastes in finishes, and many other subtleties that an agent only learns by being in the market on a constant basis and having exposure to other experienced agents in a locally-based office.

The $25K Redfin carrot can easily turn into a $250K stick for a buyer, especially in this market.

Your business model, and your agents’ ability to put lots and lots of gas in their car, is dependent on their handling a high volume of transactions each year.

Nice try at making a virtue out of a necessity, but I’ll take the agent who has handled four local transactions over the one who likely has to use Redfin’s great maps to find the home.

I ought to note for the record tht my firm represents the companies that have dominant market shares on the North Shore.

Reply

Mark Reitman - Redfin November 23, 2010 at 12:31 PM

Joe,

Focusing specifically on Winnetka, there are 369 licensed agents based in offices there. During the past twelve months, Winnetka saw a total of 213 combined single-family and attached transactions, totaling 426 sides. The 369 Winnetka-based agents handled 314 of those sides, or 0.85 per agent. Our area agent’s transaction side fits in line with the other agents in the area. The numbers simply reflect the state of the market there, right now.

Re: Market Share – Let’s dig a little deeper here, as well. In a market that has seen the number of transactions decline every single year, for at least the last five years, Redfin launched in the Chicago market in the summer of 2008. During this time, the number of closed transactions has increased from 19 (in only four months of the 1st year), to 143, in 2009, to a projected 244, this year, in the worst real estate market of our lifetimes. We’ll take that trend vs. the overall, any day.

Clearly, buyers have recognized the potential benefits of working with Redfin, used our services and have been extremely happy in the end. The virtue isn’t in the necessity. It’s seen in the results.

I appreciate your desire to stand up for your clients. However, there’s plenty of room in the ocean for everyone and there shouldn’t be anything wrong with consumer choice. Some will opt for the traditional route and others will opt for ours. That’s why they make 31 flavors.

While some (mainly those who have never engaged with a Redfin agent) continue in their attempts to discredit us with false information and unsubstantiated scare tactics, in order to “protect their commission structure,” those who have worked with Redfin or had us bring multiple buyers to their listings certainly appreciate it, for the benefit of themselves and their clients, as evidenced by the fact that, when many agents obtain new listings (including those in Winnetka), the local Redfin agent is on their primary call list…

In fact, most agents that have actually worked with Redfin agents have had excellent experiences. As one noted, on another similar thread, “I just worked with a very competent Redfin agent. If they bring me buyers for my listings, I don’t really care how much they rebate their clients.”

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Joe Zekas November 23, 2010 at 4:13 PM

Mark,

I can’t, no matter how hard I try, see the relevance of your Winnetka statistics to a home buyer.

A Winnetka (for example) buyer’s real choice is whether to be represented by a Redfin agent who has little or no experience in that community or price range, or a veteran who’s been in the Winnetka market every day, perhaps for decades, who may have 100s of Winnetka transactions to his or her credit, and who can tap the expertise of dozens of other experienced agents in his / her office.

You and I have both been around this business long enough to see many a discount brokerage firm gain a small bit of traction in the market, and then fade away. There may be a hung jury on the long-term viability of the discount brokerage business model, but the home buyer and seller jury has consistently voted 11 to 1 against it.

I wouldn’t dispute the proposition that working with a Redfin agent may make sense for some buyers, or that they’re happy with the level of service they’ve received. Some homes and condos are essentially commodities and determining the proper price isn’t an issue. Some of the buyers of those commoditized homes are far more sophisticated, focused and knowledgeable about them than many an agent.

I don’t think 31 Flavors is a good analogy. To me, it’s often more the difference between someone who buys the lowest-priced screws at Home Depot while his neighbor consults an expert at the local Ace and gets the job done better and faster for less money with a few nails.

As to your assertion that some traditional brokers set out to discredit discount brokers with “false information and unsubstantiated scare tactics,” I’ve found that to be more typically the approach of discount brokers whose only value proposition vis-à-vis the traditional ones is price-cutting. And no, I’m not suggesting that’s true of Redfin.

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Mario Antretter February 4, 2011 at 4:08 PM

Mark and Joe this is Mario,

I have lived, worked, and studied the market for about 8-10 years. Mark your spot on with your stats and the rebate tactic is a deal breaker especially now that home owners and prospective home owners are strapped for cash. Joe I understand a little of your stance in going the traditional route but in today’s society people are smarter. Good example is myself I have all the knowledge from trial and error, reading on the Internet, and watching real estate transactions from start to finish that I should have my license but I choose not to get one. I chose to be an investor with my knowledge and pretty much bypass the agent because I know what I need to know and can use Refin or Zillow. Agents need to be apart of the change i.e. join Refin and Zillow or bite the dust especially if they are not the top 10% of agents in the country making the best money.

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sophia klopas February 4, 2011 at 4:21 PM

My question for Redfin is how do you NOT tax the rebate? Isn’t it an IRS violation?

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Joe Zekas February 4, 2011 at 4:24 PM

Mario,

Must not be easy doing what you do while being in the US Navy stationed in Italy, where your IP address traces and your Facebook profile places you.

Doing a little moonlighting for Redfin or Zillow or one of their PR firms?

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Joe Zekas February 4, 2011 at 4:41 PM

sophia,

It’s been a long time since I practiced law but I suspect this would be treated for tax purposes as a reduction in the purchase price of the property and not as income.

The purchaser needs to reduce his tax basis in the property by the amount of the rebate upon a subsequent sale.

Any tax practitioners out there disagree?

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Sophia Klopas February 4, 2011 at 5:23 PM

Watch their video on their site or what used to be on their site…. Cartoon character thing holding up a sign that says No Tax on rebate.
I do not have any clients who have used them but if someone reading this has, could you clear up how the refund comes to you… Is it a reduction in purchase price or a check cut to you at the closing table?
I have always been curious about this. As many times I have agreed to refund a buyer, but they MUST be taxed BY LAW. As a seller rebate, that is much easier, a reduction in commissions….

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Sophia Klopas February 4, 2011 at 5:25 PM
Joe Zekas February 4, 2011 at 6:39 PM

Shophia,

The video you link to clearly says that Redfin cuts a check within 10 days after closing.

According to Redfin the IRS has ruled that its rebates do not have to be reported by Redfin on 1099s, indicating that they are not taxable income to the buyer.

It isn’t difficult to find this information.

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Dan February 6, 2011 at 9:24 AM

Can we just agree that Redfin is very helpful? In is a borderline disruptive online service that other local brokerages have yet to meet. Their sites pale in comparison and Redfin clearly is a leader in that space. I have actually shown the site to colleagues at work who are thinking about buying & selling, they are always blown away by the depth of data. They can pretty much run a market analysis of properties that have sold in the past 3 months up to 3 years.

If I had one wish, it would be to have the Redfin experience available nationwide.

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Joe Zekas February 6, 2011 at 12:28 PM

Dan,

If we’re talking solely about Redfin’s Web site, then I know from having spoken to many consumers that Redfin is their site of choice. It’s unrivaled in ease of use and depth of data, especially historical data. Including For Sale by Owner listings is a nice touch.

Unlike some other brokers, Redfin doesn’t hassle registrants with annoying drip-marketing e-mail campaigns.

That said, Redfin’s site does have some gaps that are relevant to consumers – in particular, the absence of rental properties. It has more complete open house listings than many other sites, but also has gaps in its open house coverage.

I’d recommend that consumers use Redfin, and also use sites from other major brokerages, preferably one of our clients. Blockshopper and the Tribune site are good supplements for recent sales data.

I find it interesting that none of the many buyers I’ve talked to who use Redfin’s Web site use the services of its agents.

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Greg Whelan February 9, 2011 at 3:42 PM

As a local Redfin agent, I can provide some insight into this conversation.

As noted above, the IRS has ruled “A payment or credit at closing from [Redfin] represents an adjustment to the purchase price of the home, and generally is not includible in a purchaser’s gross income.”

We offer our buyers a choice of how they would like to have the rebate applied. The buyer can have a check cut after closing, which typically takes about 10 business days to turnaround. Alternatively, the buyer can choose to have the rebate applied toward closing costs on the HUD-1 Settlement statement, though this can be tricky with lenders, as most do not have a “rule” for this type of credit. In either case, the rebate is always subject to lender approval. A third option is to donate the rebate to a charity or organization as selected by the buyer.

Regarding the potential gaps within our website, at this time we are not able to provide support for rental transactions, and as such, they are not displayed. Our open house information is pulled directly from the MLS, so any errors or omissions are a result of the brokerage inputting the information.

As noted above, our market share has increased from 19 transactions in 2008 (in only four months) to well over 200 in 2010. In time I trust you will meet one of our happy clients.

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Joe Zekas February 9, 2011 at 5:12 PM

Impressive growth numbers, Greg.

To put Redfin’s 200 transactions in some perspective, there are half a dozen individual agents listed here who did more transactions that Redfin’s agents as a group. And there are more agents not on that list who have also done over 200 transactions in 2010.

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Dan February 9, 2011 at 11:03 PM

Joe,

Do you have numbers on “dead man walking” agents? Agents who are licensed in Illinois, but have not closed any properties in 2010. It would be interesting to see how many agents were sitting out the market in 2010.

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Greg Whelan February 14, 2011 at 12:33 PM

Thanks Joe. I have done deals with many of those agents, and their teams work very hard to produce those numbers.

Dan, I have looked at the numbers through November of last year and I cannot accurately estimate the number of active agents who did not close a deal last year. However, there were 9,653 agents who did two or fewer deals from a pool of 21,775 who had closed at least one deal through November of last year.

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Joe Zekas February 9, 2011 at 11:28 PM

No current numbers, Dan.

I’d venture a guess that at least half the agents did no business in 2010. That’s pretty much always been the case, and one of the reasons for the high turnover. And almost everyone I’ve talked to believes the new licensing scheme will wash out many agents over the course of the next year.

The numbers are likely much better for experienced agents in the larger, more established firms.

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