How Red is the Redfin Fin?

In my Techcrunch party write-up the other day, I pondered a bit about the profitability of the various startups around. I’ve chatted a bit more with some friends about Redfin in particular, and how well their model of selling houses online is going to fare. I ran across this blog post, actually written just before last week’s party, which dissects some of the numbers quoted in this Seattle PI article about Redfin’s sales to-date. Whichever numbers are correct; 40 homes at $18 million ($180k commission), or 13 homes at $7 million ($70k commission), I think they’re fairly impressive for having their direct service running for just 5 months (and still at just 25 employees).

The PI article mentions that ZipRealty sold $900 million worth of homes in the first three months of the year (with a shocking 1,400 agents!). Applying Redfin’s “measly” 1% commission to that and we’re talking $9 million in income. Yeah, yeah, so what do all these numbers mean? I’m no economics genius, but it seems clear that the online home buying business scales nicely. Despite having to hire numbers of agents to man phones and process paperwork, manage offers, etc. the throughput of a polished web-based real estate system is always going to be faster (not to mention cheaper to the buyer) than going through it the old-fashioned way. Also, considering only a fraction (maybe half?) of Redfin’s employees are currently agents, they’re currently more efficient (by either sales figure) than ZipRealty (for the time being).

Redfin is in it’s infancy, and the 360Digest post mentions that a small $70k commission sum might not be worth an $8 million investment round. I would argue that the ZipRealty example demonstrates that the idea scales very nicely, and can easily make that $9 million back with the right throughput of sales. I think Redfin is in good shape, and I’m really rooting for them as they’ve taken on the San Francisco market. Expanding means hiring more of their pseudo-agents to handle the sales, but the more they can streamline their core application, the more sales they can push through, and so on…

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