Redfin recently rolled out an initiative to drop their listing fees, significantly undercutting the average listing fee. The company tested the strategy in major markets, such as Washington D.C., Seattle, Chicago, Denver, and San Diego and, not surprisingly, saw a substantial increase in business. In many of these markets, the typical listing fees are around 2.5 percent, yet Redfin has lowered their fee to 1 or 1.5 percent. Redfin has claimed that their listing count has grown in every market where they’ve dropped their listing fee.
The new low-fee strategy is spreading into residential real estate, which is leaving many brokerages concerned about how they’ll compete. Lower listing fees will put pressure on your pricing, which is painful in an industry with already dwindling margins.
The pricing conversation
The first step is to coach your agents on how to handle the pricing conversation. While a low listing fee will, in theory, save the seller a decent chunk of change, in reality, it’s important for any consumer to look at the whole picture when making a decision. When agents educate their client, buyers and sellers better understand exactly what these low listing fees mean for them, and how they can shop around to ensure they get the experience they’re looking for.
Provide support to your office managers in coaching agents throughout your brokerage to have these conversations, putting your brokerages’ value proposition front and center, regardless of a high or low listing fee.
Focus on the sphere
An agent’s sphere of influence is their key to success in such a competitive market.
If the competitive factor is listing fees, get your agents to rely less on new, unfamiliar leads. Why? Those leads are more likely to shop based on price, whereas those leads who already have a relationship with your brokerage are more likely to shop based on familiarity and trust. When agents focus on maintaining their sphere of influence to encourage repeat and referral business, they no longer face the direct competition that they would with paid leads.
All Moxi Works tools are built to accompany a sphere selling methodology. We’ve seen that when agents have productivity tools that align with their sales goals and methodology, they find long-term success. If contacts are nurtured and relationships are upheld, the decision is no longer about a one percent listing fee difference – it’s about trust and professionalism.
There’s no doubt that Redfin will continue to find success due to their unique low fees, however, that doesn’t mean that price cutting is the only strategy. Work with your managers and agents to ensure they’re armed with the tools they need to remain competitive.
York Baur – CEO, Moxi Works
Redfin went public last week, raising well over $100M at a valuation of $1.5B. That’s what all the media is focused on, but what does it mean to you the brokerage owner?
The bad news is that you should be concerned. Redfin has deep pockets, deep technology, and now has access to the public markets to raise more capital as needed to grow further. They invest tens of millions of dollars in their technology annually, have a great website, and spend lots of time and money driving traffic to it. Like it or not, they’ll be a factor, and they’re going to put pressure on you to deliver better technology and a slicker experience for both your agents and their consumers.
The good news is that you have everything you need available to you to compete successfully. How can I be so sure? Because Seattle-based Windermere Real Estate has had Redfin operating in its home market of Seattle for 12 years with $200M of capital, and despite all the hype, tech and money, Redfin still has only 2.6% market share compared to Windermere’s 21%. Even more important, Windermere did 38% more transactions last year than 5 years ago in the tightest inventory market we’ve seen in a long time.
How can Windermere continue to dominate in the face of Redfin? And Zillow for that matter (also based in Seattle’s tech-centric market), supposedly siphoning away business by selling leads to the highest bidder? And how can you do what they’re doing? The answer is:
- Continue to focus on agent’s sphere of influence – the people that already know, like, and trust their agents. Sound obvious? It is, but I’ll bet you’re not doing it enough. We talk to brokerages across the country every day who are distracted by chasing a lead generation battle that they can’t win. How are you seriously going to compete with the billions of dollars of capital that Redfin, Zillow, and Realtor.com spend every year driving consumers to their sites? You can’t. Period. Lead gen will continue to be a small piece of your business, but that’s it – a small piece. The biggest piece of your business is the core business, which is transactions coming from consumers an agent already has a trust relationship with.
- Quit focusing on buyer leads. Every realtor and broker wants a seller, not a buyer if they have the choice. Redfin generates buyer leads. Zillow generates buyer leads. What’s the overwhelming source of seller leads? It’s an agent’s sphere. Control the inventory in your market by concentrating agents on their sphere, and you make money. There are only around five million homes transacted every year no matter how many buyer leads are generated – don’t you want to control the seller side of that equation?
- Control and centralize your data. Windermere decided years ago to put an open platform in place. It’s like a power strip where they can plug in all their agent tools and have them work together. How? By putting all their property data, agent and brokerage data, and consumer data in one place. Windermere currently has over 2.6M consumer names in that platform, allowing agents and the brokerage to market to those consumers to generate listings, using dozens of tools in various markets to do so. Do you have a centralized database of your agent’s contacts? What are you doing to help them stay in front of their sphere of influence?
- Quit creating islands of data and technology. Windermere has taken the platform concept to heart, and has solved the problems of tools that don’t work together, redundant data entry, and not being able to get a comprehensive view of their business. A technology platform allows them to save millions of dollars annually in office staff time, custom software development, and management overhead. This is in sharp contrast to most brokers, who don’t have a technology strategy. They buy the latest shiny technology object, and don’t even ask the question of how it works with the other technology they have now or might use in the future. Agents are demanding a better experience, and that means not having to start over from scratch with every new tool you provide them, upload their database for the 17th time, or having to rekey data.
- Training, coaching and sales discipline. Redfin has made much out of the fact that they hire agents and support staff as full-time employees, not contractors. But that’s not the big difference – we hire contractors in the tech world all the time, and they contribute just as much as our employees do. So what’s the difference? It’s not the person, it’s how they’re trained, coached, and held to a standard of how to do business. That means having a training program, providing good coaching (which means training your coaches), and having a technology (specifically a CRM system) that reinforces the sales discipline every day as agents do business. Windermere has trained over two-thirds of their agents in the Windermere sales discipline (heavily influenced by Larry Kendall’s Ninja Selling), puts an emphasis on managers doing agent coaching, and has built their discipline into their CRM to provide ongoing reinforcement.
With Redfin beating its chest on Wall Street, you need a response for your agents and your consumers – now. Do nothing and you’ll lose agents, because they won’t tolerate inaction. And don’t forget the Millennial agent who isn’t just comfortable with tech, they demand it as a necessary tool for doing business. But despite all the hype and money spent, Windermere did eight times as many transactions in the greater Seattle market last year than Redfin did. With performance like that, we’d all be well served to look at what they’re doing right.
Find out more about brokerage open platforms and how they work by clicking here.