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Redfin is cheaper and better than a real estate agent. Will you be the Redfin of legal?

A version of this article appeared in the NW Lawyer magazine of the Washington State Bar Association.


This February my wife and I decided to sell our house, give away many of our possessions, move in with my mother, and spend more time traveling the world. That’s all well-trodden territory these days,[1] except for the house-selling part. In lieu of a traditional agent, we sold through Seattle-based real estate startup Redfin. Not only did Redfin offer a superior client experience, we netted a substantially higher value through their lower fee model. Fellow lawyers, I submit there are some lessons to be learned from these folks.

When my wife and I decided to sell, our first stop was the traditional agent we had worked with when we bought our house in Tacoma’s Proctor District. A traditional real estate agent would have cost us a full six percent of the selling price. For a property selling at $346,000, the price tag for such services comes to $20,760. That’s equivalent to over two 40-hour weeks of billable hours for an attorney who bills at $250. Some agents will offer marginally lower commission, but the paradigm is essentially unchanged. Sure, a property owner doesn’t have to use an agent at all. But with a baby on the way and law practice to manage, I just didn’t have the bandwidth to tackle the project myself.

Enter Redfin. Balking at the prospect of a six percent commission, I followed the lead of a tech industry friend and contacted Redfin. The reason: at three percent total commission, Refin charges exactly half the typical industry rate for its services.

Redfin launched in 2006 with a rosy mission to “reinvent real estate in the consumer’s favor.”[2] Originally designed as an online discount brokerage, Redfin has since pivoted to offer a hybridization of technology and full-service professional services.[3] When all was said and done, my wife and I netted far more with Redfin what we would have with a traditional agent. Not only this, but the customer service was actually better than our experience with a traditional agent. How did they do it?

Salaried agents. Traditional agents work as independent contractors under a broker.[4] They pay a desk fee to the broker and also split their commission with her. The individual agent is responsible for paying out of pocket for all the costs of marketing a property (signs, mailings, etc.), which can easily run over $1,000 per listing.

Redfin turns this traditional approach on its head by paying agents a salary augmented by a bonus based on client satisfaction ratings.[5] In interviews for this article, Redfin declined to reveal its exact compensation structure. A chart disclosed in 2014, however, shows that agents earned a substantial majority of their compensation from Customer-Satisfaction bonuses.[6]

Traditional commission is presented to sellers as an incentive for agents to push for higher prices, but the incentive argument is demonstrably false.[7] In fact, Redfin’s bonuses are partially tied to the price point of a deal,[8] though the bonus is set by the listing, rather than sell price of a property. Ultimately, Redfin’s incentive structure means that agents are rewarded by making clients happy

I’m a cybernetic organism. Living tissue over a metal endoskeleton.[9] Redfin’s technology is visible to consumers mostly on the buyer’s side of its business. Potential buyers use redfin.com to search for and explore listings.[10] But much of the magic happens behind the scenes. Like an army of real estate Terminators, Redfin agents are augmented by technology that vastly improves their power. Redfin’s tech is developed by an in-house engineering team that allows close collaboration with agents, and quick response time to their input.

Agents each have access to an integrated dashboard for managing their caseload.[11] Agents can launch “activity series” in their dashboard. So when my agent, Michelle Koch, opened my client file, the dashboard automatically calendared all the events necessary to list the property. Clients are surveyed at several points during an engagement, and that customer satisfaction data pumped into the dashboard system. If things aren’t going well the agent will know it. Redfin recently launched “Book It Now,” an on-demand service for seeing homes for sale in person.[12]

The system puts all sorts of helpful data at agents’ fingertips, such as the pricing strategies of competing brokers. [13] Michelle suggested we price our property about 15% higher than our traditional agent had suggested. I can’t know if that was a result of data available through her dashboard, but together with the discounted commission it lead to an astounding net difference in sale proceeds.

What’s their bottom line? How does Redfin itself, or its agents, make money by charging half the industry norm for its services? The answer is no surprise: volume. My agent, Michelle, estimated her client volume was four times what it had been when she worked as a traditional agent.[14] A couple key features keep this from creating insanity. First, Redfin agents don’t have to spend time acquiring clients. Michelle guessed that she spent up to 40 percent of her time on business development when she worked in a traditional firm. Second, Redfin’s technology streamlines work for agents. At the onboarding stage for new clients, for example, all the required touchpoints for agents and their support staff are mapped out at the click of a button.

Who will be the legal Redfin? In 2006 CEO Glenn Kelman looked at the traditional six percent commission model and called the real estate industry, “by far […] the most screwed up industry in America.”[15] But if we’re honest with ourselves, the legal industry is far more “screwed up.” A vast swath of the American middle class – including lawyers themselves – cannot afford traditional legal services. Unlike homeowners who might grumble and then bite the bullet for a six percent commission, in legal services the losers often are left to fend for themselves. Here are some ideas we might borrow from Redfin.

  • Play with the compensation model. How could we rework lawyer compensation to improve client service? To co-opt the obvious idea, I love the notion of tying associate compensation to client ratings. What if associates prioritized client perception over recognition from a supervisor? A radical riff on this would be to allow clients to mark an invoice up or down depending on the perceived value they received. There are lots of possibilities here, but the question of incentives is one we need to tackle.
  • Delegate work to clients. Redfin recognizes that home buyers care a lot more about the market than their agents. So Redfin lets clients search listings on their own. Lawyers are fiduciaries and genuinely care about their clients, but we simply can’t care about client concerns as much as our clients themselves. What part of a representation could we delegate to or own clients, not just to reduce their costs but because they have stronger incentives than we do to get it right? Sure, some clients just want to hand off as much responsibility as possible. But others – like buyers who browse real estate listings late into the night – want to steer their own ship.
  • Volume is not a dirty word. At the recent WSBA Solo and Small Firm conference, attorney-blogger Ernie Svenson extolled attorneys to “stop being afraid of volume.”[16] “Volume” law firms are perceived to have lower quality and higher error rates. But Redfin shows that automation can lead to lower error rates and better consumer experience, even at higher volume. We need to applaud, not scorn, firms that accomplish more for less.
  • Automate workflow. It should be a no-brainer that lawyers need to implement stepwise workflows for all repetitive tasks. Practice management systems like WSBA-endorsed Clio allow users to replicate the “activity series” of the Redfin dashboard. While fully automated entry of event series is ideal, merely articulating the steps of such series would be a big improvement for many of us.
  • Become a cyborg. We need to get serious about augmenting ourselves with tech. Sam Glover of lawyerist.com suggests we ask the following question: look ten years into the future and imagine that an innovative firm has stolen your clients and put you out of business. Now ask, how did they accomplish that?[17] Chances are the answer will involve augmenting traditional lawyering with some bespoke technology. Obviously we don’t all have the resources needed for a technology initiative like Davis Wright Tremaine’s De Novo swat team.[18] But if you foresee technology disrupting your practice area, then you need to ask whether you have reasons or just excuses to not be the one building the tech. You may be surprised how easy it is to outsource tech projects online.[19]

It’s too early to tell if Redfin will succeed with massive industry disruption. Despite raising $166 million in eight rounds of funding,[20] the firm still boasts only a three percent market share in its own home turf of King County.[21] Yet the “screwed up” legal industry would do well to borrow some lessons from Redfin. In the legal industry – to paraphrase an innovator of an earlier era – “the old way isn’t working, so it’s on us to do what we gotta do, to survive.”[22]

Oh, and in terms of the lifestyle revision… Without a mortgage to worry about, Jules and I have been hitting the mountains many Wednesdays. We stopped spending $500-1000 and 10-20 hours per week on house projects. In September we head to India’s eastern states for a month with baby Kai. But that’s a topic for another day.

[1] Modern connectivity makes it relatively easy (in principle) to be a globe-trotting attorney. For practical guidance follow Lee Rosen’s blog, Divorce Discourses. https://divorcediscourse.com/ (last visited July 15, 2016).

[2] Redfin Press Center, http://redf.in/1ISIupO (last visited July 12, 2015).

[3] Cf. Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (2011) (coining term “pivot” to refer to strategic course corrections of a new enterprise).

[4] Telephone Interview of Michelle Koch, Listing Agent, Redfin (Apr. 3, 2015).

[5] Why Redfin?, https://www.redfin.com/why-redfin (last visited July 12, 2015) (“We hired real estate agents who are paid based on your satisfaction”).

[6] Teke Wiggin, Redfin rising: Still an industry disrupter?, inman, Nov. 15, 2014, http://bit.ly/1O2By8W (hereinafter Wiggin).

[7] Cf. Steven D. Levitt & Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, Chapter 2 (2009).

[8] Wiggin, supra note 6 (“We just had to pay agents who were selling multimillion-dollar homes more money; we couldn’t retain the best talent”) (quoting CEO Glenn Kelman).

[9] Terminator 2: Judgment Day (1991).

[10] It’s not obvious that the site is much better than services such as Zillow, though Redfin says its site is updated more frequently. Koch Interview supra note 4. See Zillow Homepage, http://zillow.com (last visited July 15, 2015).

[11] Telephone Interview with Kathryn Rion, Market Manager – Seattle East, Redfin (Apr. 3, 2015).

[12] Glenn Kelman, Real Estate Just Got Faster: Introducing Book It Now for On-Demand Home Tours, Redfin Blog, July 7, 2015, http://redf.in/1HJbWsd.

[13] Farhad Manjoo, Redfin Real-Estate Firm Gets Cold Shoulder in Silicon Valley; How Online Company Is Overcoming Tech VCs ‘People Problem’, The Wall Street Journal online, Dec. 8, 2013, http://on.wsj.com/1TsBYZa.

[14] Koch Interview supra note 4.

[15] Daniel Schorn, Chipping Away at Realtor’s Six Percent, 60 Minutes, May 11, 2007, http://cbsn.ws/1iMOn6A.

[16] Ernie Svenson, Seminar – Leveraging Technology at Washington State Bar Association 10th Annual Solo and Small Firm Conference (June 10, 2015).

[17] Sam Glover, Seminar – the Law Firm of the Future at Washington State Bar Association 10th Annual Solo and Small Firm Conference (June 9, 2015).

[18]Cf. De Novo Homepage, http://denovo.dwt.com/ (last visited July 12, 2015).

[19] My personal favorite is Freelancer. See freelancer.com (last visited July 12, 2015).

[20] Frederic Lardinois, Redfin Raises $70.9M To Expand Into New Markets, TechCrunch, Dec. 18, 2014, http://tcrn.ch/1z9htcM.

[21] Sanjay Bhatt, Redfin’s bid to overthrow traditional brokers still a house-to-house battle, The Seattle Times online, May 15, 2015, http://bit.ly/1AbtCQ6.

[22]

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Greg McLawsen

I’m proud to be the founder of Sound Immigration. My job is to work behind the scenes to ensure our clients have an outstanding experience at our firm. I’m passionate about reinventing the practice of law to make it work better for those we serve. I work hard to identify the best available technology to make our firm convenient for clients. I look to other industries, like real estate and the restaurant business, to learn about practice that will help serve our clients better.

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