Ready for a Restart: How Redfin Plans to Dominate Online Real Estate
2020 was a challenging year on many accounts — but the real estate market has arguably taken one of the biggest hits. Prime commercial real estate was swiftly abandoned and bidding wars for homes cooled down for a while.
Between April and May, residential housing sales in the US hit the lowest point since the housing and financial crisis of 2007.
Nationwide home showings per listing were down by 40% in April. In U.S. metro areas, the number of pending home sales declined by 33% on average — though asking prices remained largely unscathed. People felt compelled to shelter in place. Home flippers and real estate investors were wary of spending cash in such uncertainty.
Understandably, these market conditions put pressure on online real estate startups such as Redfin, whose entire business is built upon matching sellers with buyers.
But company leadership didn’t let this crisis derail its growth ambitions. On the contrary, it looks like Redfin used this temporary “cool down” opportunity to refine its priorities and prepare the brand for the market rebound — one we are seeing in late 2021.
Source: Redfin
To understand how Redfin not only weathered the crisis but re-emerged from it with a stronger brand than ever, let’s travel down memory lane. First, we’ll explore how Redfin got started, then we’ll take a look at what lessons other companies can learn from them to encourage their own brand growth.
What is Redfin?
In 2004, David Eraker decided that a career in medicine wasn’t for him. He dropped out of the University of Washington medical school and started looking for gigs in software development instead. And in the meantime, Eraker needed a new place to live.
Apartment hunting in Seattle wasn’t going great. Eraker was stuck with endless spreadsheets, comparing property location, prices, etc. Frustrated, he decided to code an automated real estate search tool. His two friends, Michael Dougherty and David Selinger, loved the initial idea and chipped in to add online map functionality to the tool.
That’s how Redfin MVP came about.
Almost two decades later, Redfin has evolved into a full-service real estate brokerage with an online-to-offline business model. Users can research properties on the website, compare prices, and schedule a virtual visit. Then they connect with a local real estate agent to tour the grounds in person.
The team majorly evolved its tech stack and now relies on advanced machine learning algorithms to recommend listings to buyers and estimate the home value for sellers. The platform is jam-packed with useful guides for listing, marketing, and selling your property, too.
Redfin’s main brand value proposition is convenience + cost-effectiveness. They charge sellers a 1% listing fee across most states. Customers save about $8,600 on average with them, compared to a traditional brokerage firm, thanks to a transparent pricing model.
Source: Redfin
Since 2017, Redfin has also been offering a competitive, tech-driven mortgage application solution for originating and underwriting loans in 20 states and Washington D.C. Using a combo of technology and human expertise, Redfin provides a fully underwritten mortgage pre-approval to its customers.
They also extend a 30-day closing guarantee — a promise that is paramount in the home financing world.
“We’ll track every aspect of the closing in a single system used by mortgage advisers, real estate agents, title experts, and the customer so everyone works together on an on-time closing,” said Redfin CEO Glenn Kelman.
Source: Redfin Investor Presentation
Again, the main idea behind this offering was to simplify yet another leg of a home-buying journey and cement Redfin’s brand associations of convenience, speed, and efficiency.
A year later, Redfin launched yet another “fast-track” service RedfinNow — an option to get an instant valuation of your home and close the sale in under 7 days. In such cases, your home gets purchased either by Redfin directly or by one of their institutional buyers.
As the latest numbers suggest, Redfin hold on the real estate market remains strong. In 2020, the company served over 64,000 customers and reported a sales volume of $37 million, ranking them 5th US-wide among brokerage firms.
Who’s Redfin Competition?
The real estate market is large, lucrative, and jam-packed by traditional firms and digital-first startups.
Redfin assumed a brand position of an orchestrator — a tech-led “middleman”, connecting buyers with sellers (and vice versa) via local real estate agents or directly with some value-added services sandwiched in between.
Its closest competitor for a long time has been Zillow — an online home listing website, boasting the highest brand awareness numbers in the US. But that wasn’t enough for Zillow. In 2019, the company also decided to dive into the brokerage game and presented a Zillow 2.0. brand vision.
The re-imagined Zillow platform now lets users:
Next comes Opendoor — a pioneer in the iBuying market. iBuying is a business model where a buyer gets an instant property valuation and a cash offer from the company, something Zillow and Redfin also provide. Apart from an instant buy-sell experience, Opendoor also offers home financing options through partners.
Today, these three top online real estate companies — Redfin, Zillow, and Opendoor — offer very similar value propositions. Yet, each of them also possesses a host of brand differentiators, which allowed them to carve and maintain a separate niche on the market.
Redfin is valued at just $6.4 billion, compared to $31.5 billion for Zillow and $11.2 billion for Opendoor. Still, it’s a major power to reckon with in the brokerage segment.
Brand Growth Lessons from Redfin
Despite stressors on all fronts — the market, the competition, and consumers — Redfin maintains high growth levels and actively expands its services into new states.
So what drives Redfin’s competitiveness? We have some suggestions.
1. Active Customer Listening
Redfin started as a simple online listing website but progressively grew into a more sophisticated tool for selling and buying properties.
However, the team was initially reluctant to pursue the “ecommerce” route for real estate. In fact, the company already tried adding a “buy” button next to listings in 2006 but this idea never gained traction.
Fast-forward to spring 2019, Redfin made another attempt to enable direct sales. This time around, the idea worked. Why? Because Redfin audiences were ready for this step.
The company’s legal team reported that swashes of unrepresented people were approaching Redfin’s listing agents with rather good offers. But few agents knew how to respond appropriately.
So Redfin decided to try the “old-new” — create an online service for sellers who want to avoid buyer agent fees and receive offers directly. At the same time, Redfin also considered how it could best serve people who want to make those direct offers. The team created several tools in response:
Source: Redfin Blog
After successfully testing the tool in Boston, Redfin Direct expanded into new hot markets in California, Texas, and Virginia — all thanks to their active customer listening. The company reports that half of the unrepresented buyers now get their offers accepted.
2. Consistent Brand Experience
Customer experience (CX) is a complex but crucial element of branding — and tech startups need to get it right to succeed. Other “intermediary” tech brands like Airbnb, Grab, and Doordash made an early bet on delivering a stellar online experience — a convenient website and a handy mobile app.
But then there’s also the offline component of your product experience — ensuring that the service providers, home renters, drivers, or real estate agents also contribute to a consistent CX and branding experience.
Redfin recognized early on that its offline arm should be well-aligned with the image they present online. “Our relationship with our agents isn’t like Uber’s relationship with its drivers; our agents are my colleagues and friends, and many are shareholders in this company and the fiercest advocates for our mission”, the company CEO states.
And they don’t just talk a good game. Redfin real estate agents pass a strict vetting process during the application, then receive extensive training.
What’s more, they are empowered by a growing collection of tech tools for streamlining repetitive chores and advising homebuyers. Finally, despite operating on slim margins, Redfin agents receive twice the median compensation, plus most business expenses paid.
The compounding effect of these factors is a consistent brand experience Redfin provides at every touchpoint with a potential customer — be it a first-time seller, unrepresented buyer, or serial real estate investor.
Maintaining a consistent brand experience is also extremely important to brand perception — something that can and should be tracked regularly. And companies that use advanced brand tracking software to gather the consumer insights they need to constantly improve their CX are the ones that get ahead.
3. Focus on Sustainability
For 8 in 10 consumers, sustainability is an important criterion when considering a brand. Even when it comes to real estate purchases. According to a REALTORS® and Sustainability 2020 report:
Redfin caught wind of the “green” trends early on and added sustainability data to home listings in 2021. Buyers now see a ClimateCheck rating next to each property, indicating how susceptible it can be to extreme weather conditions — heat, droughts, storms, fires, etc.
The algorithm calculates possible risks using global climate models that assume both conservative and worst-case scenarios of climate change.
A home is a major financial investment. Oftentimes one you’d be still paying off in 20–30 years. Given the current state of climate change, it makes perfect sense why many sellers and buyers take climate risks into account when assessing a property.
Unlike many “greenwashing” companies, Redfin does not gloss over or overblow the potential risks but provides honest acknowledgment and helpful information to its customers.
4. Learn From Your Mistakes
Let’s be honest: no brand is perfect. Uncomfortable truths get swept under the rug — and re-emerge at the worst possible moments. Until recently, Redfin was not doing enough to address the race-based inequality in homeownership — to the point where matters got heated.
In 2020, National Fair Housing Alliance (NFHA) sued Redfin for real estate redlining and discriminatory practices towards people of color (POC). The legal battle is still ongoing.
Interestingly, however, Redfin yet again managed to turn this crisis into an opportunity to investigate and reflect on its operations. “I can’t pretend there’s nothing we can learn from the lawsuit, but I disagree with the premise of the lawsuit,” Glen Kelman said in an interview. But the CEO seems to be acting within the company’s brand values of “doing the right thing” and “admitting mistakes”.
But he also believes that the problem of racial inequality in homeownership runs much deeper than redlining and starts with lenders. According to Kelman, more financing options should be made available to higher-risk borrowers, which often include POC. But that is not an issue they can solve alone.
To prove the above point, Redfin conducted a study of Black homeowners in 2021 and found that:
Despite getting in a tricky situation, Redfin managed to own up to its wrongdoings (at least to some extent). They decided not to profusely apologize or dole out lavish promises to do better.
Instead, they decided to give the matter a holistic assessment and attempt to figure out the root cause of the problem before applying any remedies — which is a smart thing to do.
Final Thoughts
The residential real estate market in the US remains volatile in 2021 — with peaks and valleys in prices, inventory availability, and selling speeds.
Amidst this all, Redfin stands clear with its underlying brand purpose of listening to the customers’ issues and acting upon their evolving needs and preferences.
The team remains strongly committed to further simplifying the home buying and selling processes as remote workers escape high-cost living cities, move to lower-tax states, or change zip codes for other reasons.
And their success can be attributed to their ability to listen to customer needs, provide a consistent customer experience, and learn from their mistakes — all tips that other brands can take on board.
Originally published at https://latana.com.
