Home buying is full of hidden costs. Before you can score your dream kitchen, there's the 20% downpayment, closing costs, legal bills and a hefty commission for agents on both sides. Redfin is hoping to disrupt the real estate market by allowing purchases sans agent (meaning, no commission).
In what CEO Glenn Kelman called “a buy button for real estate” to The NYTimes, Redfin's new e-comm model seeks to split the savings between buyer and seller with direct purchases. The program puts a lock on seller commissions, guaranteeing Redfin's 1-1.5% rate for seller's agents, then 2% of the bid is calculated and split, saving both parties money.
Here's how it works: Redfin's new service must be on a house advertised for direct purchase and buyers must read a 55-question guide on negotiations, inspections and information about the local market. The result feels like a hybridAmazon one-click and throughly-researched investment.
Agent-less sales aren't anything new. Pre-internet era, if the seller and buyer knew of each other and could sit down and sign a contract with a lawyer, they could bid and sign without extra fees. Without insider knowledge to which homes were for sale and a vetting system for scams, though, agents became necessary to bring trust and knowledge to home buying.
Now that real estate has moved online, tech behemoths like Zillow (with 164 million users), are racing to differentiate their services in a growing internet marketplace. According to Investopedia, 89% of prospective homeowners use online websites for their home search, reducing the need of a buyer's agent to search for dream homes.
Cheaper sales might be enticing, but Kelman admits that the program might not be for everyone. "If you’re a first-time buyer buying a broken-down house you need a real estate agent to walk through and be on your side, to point out that the stairs are rickety, or that you need to get an inspection, help you figure out your financing", Kelman said in an interview with MarketWatch.
Unlikely to change are the prevalence of seller's agents. Redfin's new marketplace might give you the options to avoid commissions all together, but fewer fees doesn't mean a better deal. The right agent should act as a consultant: providing vital information about the the market, appraising your home, and protecting you interests when the bids roll in.
The program is already available in Boston, where Redfin began testing in March, and it will expand nationally, market by market, according to TheNYTimes. Until then you can search for your dream home on Redfin's website.
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