how-does-redfin-make-money

How Does Redfin Make Money?

Redfin is a real estate platform with a hybrid approach (automation with the human in the loop) to enable buyers and sellers deal-flow. Redfin charges sellers a listing fee in the range of 1.0-1.5%. With RedfinNow, the company also purchases homes and resells them on its platform for profits. Redfin also makes money from its financing solutions and via its concierge services.

Origin story

Redfin is a real estate brokerage company founded in Seattle in 2004 by David Eraker, Michael Dougherty, and David Selinger.

The inspiration for the company arose from Eraker’s misadventures in the highly conservative real-estate industry – which he believed was ripe for disruption. Indeed, Redfin is one of several companies such as Airbnb that are using technology to cause a paradigm shift in real estate.

Ultimately, this means the buying and selling experience for both consumers and agents is made easier. Buyers can purchase a home from the Redfin marketplace which lists from over 1000 cities in the United States and Canada. They can also compare loans from over 50 lenders across North America. Sellers can use an evaluation tool to calculate a potential listing price for their home. Both the buyer and seller can work with a Redfin agent, either on-site or via video-chat.

Redfin revenue generation

When considering the Redfin business model, it is helpful to think of the company as a hybrid real-estate platform. In other words, it utilizes both human and technological expertise to ensure that both parties walk away from a deal paying the lowest commission possible.

Following is a look at the primary ways in which Redfin makes money.

Listing fees

Redfin charges sellers a listing fee in the range of 1.0-1.5%, depending on the market. There is also the aforementioned commission rate which varies according to the city in which the listing is placed.

A listing in Dallas, for example, will incur a $3,250 commission. Conversely, the commission for a home listed in Los Angeles is $6,250.

If the buyer is also using Redfin, the seller must also pay their agent fee, typically in the region of 2.5-3.0%. This gives Redfin a total commission of up to 6%, depending on the above factors.

RedfinNow

In 2018, the company launched RedfinNow. Here, Redfin purchases homes and resells them on its platform.

Redfin obviously makes money if they sell a home for more than they purchased it for. To maximize revenue generation, the company uses algorithms to determine an efficient purchasing price. This price considers any factor that could erode profit-making ability, such as the need for renovations.

Similar to homes listed by an individual seller, Redfin also makes money via:

  • A service fee of between 6 and 12%.
  • A repair fee of up to 3%.
  • An estimated closing cost fee of 1%.

Redfin Mortgage

Redfin also provides home financing solutions, either to purchase a new one or refinance an existing home.

The company makes money on the interest the borrower pays on a mortgage. Additionally, Redfin owns and operates a mortgage marketplace advertising the rates of competing lenders. For every lead generated through the marketplace, Redfin collects a fee.

Concierge service

Lastly, Redfin offers a service that helps the seller prepare their home for sale. This includes a 3D walkthrough, professional photos, a customized home improvement plan, and preferred pricing.

For homes priced at $500,000 or above, Redfin charges a 1% fee for their concierge service.

Key takeaways:

  • Redfin is a brokerage company using technology to disrupt the highly conservative real-estate industry and make the process of buying or selling a home easier.
  • Redfin uses human and technological expertise to minimize costs for interested parties. Like other brokerage companies, it makes money on listing fees and a location-based commission structure. Redfin also charges the seller for use of one of their agents. If the buyer is also using Redfin, then the company collects a total commission of up to 6%.
  • To bolster revenue, Redfin also offers home financing and a concierge service that helps sellers prepare their homes for sale.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"