Redfin Validates its Negotiation Capabilities with MLS Statistics

Last week, I posted an article Deconstructing the Redfin Debate that postulated:
Can a seasoned top producing agent negotiate and purchase a home on a full 3% commission basis that will be financially more rewarding to the buyer than a Redfin agent working on a net 1% commission basis? In other words, will a top producer be able to negotiate a deal that is over 2% better than the Redfin agent?
In other words, can Redfin agents hold their own in negotiations vis-a-vis other agents? And is it quantifiable? Glenn addressed this issue on the Redfin blog with a press release that analyzed the actual paid price versus the listing price based on Seattle's Northwest Multiple Listing Service ("NWMLS") data. Using a sample size of 170 King County buyers in the analysis, Redfin seemed to hold its own with its buyers paying 99.3% of the listing price versus the average of 100.2% for all purchases over a one year period. It's good press for Redfin (picked up positively by the Seattle Times ), particularly when the Redfin rebate is figured in reflecting the savings its buyers receive.

The counterargument is all in the statistics... the 100.2% averages the good and the not-so-good agents, and a good, experienced agent might theoretically indeed beat the Redfin 99.3% mark consistently. The statistical analysis Redfin should do to reinforce its message that it negotiates on behalf of its clients effectively is to simply calculate what percentage of transactions were 97.3% (99.3% - 2%) or less than that of the listing price (building in the 2% Redfin rebate), and this percentage would reflect about how many deals were done that would beat Redfin on a net purchase price basis. This would be a simple exercise by calculating the standard deviation around the 100.2% mean... if the standard deviation were small, say 2%, Redfin could show a remarkable advantage.

I was privy to an offline conversation this morning among Inman's Glenn Roberts, Greg Swann,(thx!) Marlow Harris and others that was discussing what the figures meant... I thought the statistics, if indeed correctly applied, tell the story... I'll let the others announce their interpretations, which were quite interesting.

Related articles:
Freakonomics blog - More data on Real Estate Agents
FoREM - Redfin Agents more Effective

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  • 2/26/2007 2:11 PM John K wrote:
    I hope that the conversation was civil between Glenn and Glen. I don't like the way Glen (Swann) writes in his blog; I don't know why Glenn (Kelman) even indulges him.

    I think it's good to engage your critics, but there's a fine line between being against an idea, and just flat-out being a nut-job, and Glen (Swann) goes over the line, too often.
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  • 2/26/2007 2:59 PM Kaye Thomas wrote:
    Statistics are always up for interpretation.. looking at Redfin's business model I find it hard to believe they can take the amount time per client that may be necessary to ensure the client receives the best advice available for a particular market.. In theirnew venture in Southern California they only have three agents for the entire area.. that's of lot of territory and I doubt the three have the local market knowledge necessary to adequately help a buyer who chooses to use their services.
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  • 2/26/2007 3:14 PM John K wrote:
    And by Glen Swann I mean Greg Swann.
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  • 2/26/2007 5:01 PM Matt wrote:
    read the comments on the Redfin post...This is why agents have such a hard time...people accept bad service and then complain about it after the fact
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  • 2/26/2007 5:50 PM Brian Brady wrote:

    I think Greg like like Glenn does; in your face. They're two opinionated guys.
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  • 2/27/2007 10:26 AM Terry Sanford wrote:
    These guy really are great with their PR.

    My take on this... Quantifying a broker's/agent's negotiating skill is difficult to do because it is so heavily affected by the client. In Redfin's case (and TerritoryRE's) our clients tend to fit a certain prototype and from my experience they negotiate much more aggressively than the "average" client. On top of that, Redfin presumably did the majority of their deals in the latter part of the year when the market was in its downward spiral this could have biased the results in their favor.

    Are the statistics enough to really prove they are better negotiators? I doubt it. Is it good enough to convey that impression to the press and the general public? Probably.

    Either way after you throw in the rebate there's no way their clients didn't get a better deal.

    For comparisons sake on transactions where the buyer has been represented by a TerritoryRE Guide the average ratio between List Price and Selling Price is 93%. Average for our market is 96%. Add an average rebate of 1.8% and we are looking at a difference in purchase price of almost 5% vs working with the average agent.
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