The Motley Fool recently visited Seattle, and we stopped by Redfin to learn more about its unique position in the real estate industry. Vice president of analytics and new business, Adam Wiener, met with us to discuss how Redfin leverages technology to bring more value to real estate transactions.
We chatted with Adam about Redfin's beginnings in the real estate world, why it chose the path it did, and how it intends to stay relevant and competitive long-term. A strong culture and focus on sustainability make this unique tech-based company a solid contender in the real estate market.
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Austin Smith: Hey Fools, I'm here with Adam Wiener, VP of Analytics -- or Data Samurai -- at Redfin. Thanks so much for taking the time to sit down with us today.
Adam Wiener: Yeah, thank you very much. I'm glad to be here.
Austin: Obviously, Redfin is a very unique model in a very entrenched industry. I'm wondering if you could give us the 30,000-foot view of how Redfin differs in what is a space that many people feel like they understand, but you guys are quite a bit different.
Adam: Sure, yeah that's absolutely true. Redfin is a true hybrid company; we're half real estate brokerage and half technology company. We actually started off as a technology company. We were the first software company to put all the homes that were for sale on a map, and mash that data together.
But we realized that if we were serious about reinventing the way people buy and sell homes that we actually had to become a real estate brokerage, hire our own agents, and be able to take the consumer all the way through the process, from that first browsing experience on the web all the way through to a completed sale at the end of the transaction.
Austin: OK. What sort of advantages does this model provide you, compared to maybe a more traditional broker?
Adam: There's a couple of things that are really different about Redfin, compared to a traditional broker. The first is that all of our real estate agents are paid on customer satisfaction, rather than commissions, and that they're full-time employees of the company.
What that lets us do is control the customer experience throughout the process. It means that we're very picky about who we recruit, we're able to train them in depth, and that gives us that leverage to make sure that people get a consistent level of service on every single Redfin transaction.
The last piece of that is that we survey the client. When I say they're paid a customer satisfaction bonus, that's based on the customer's response, directly. It's a great way to hold the agents accountable for making sure that that service level stays really high.
Austin: Every transaction goes through that customer service follow up, and that's how agents make their money?
Adam: Yeah. I'm sure most Fools out there are familiar with the MPS methodology. A lot of the big companies use it. We follow that as well, and it's one of the most important metrics at Redfin.
Austin: As we walked in today, it's hard to ignore this wall of really customer-facing metrics behind us, and in terms -- High standards, Captivating, Fun -- definitely unusual; it's not the type of thing you'd see on a typical broker's wall.
Adam: Yeah, you know I haven't been in too many traditional brokers' offices, but it is a nice reminder every time that you walk by it, just why we're really here.
Austin: If there was a disadvantage to the model, what is it? Are there any shortcomings that you guys face, compared to a traditional brokerage?
Adam: I actually think that we've been able to use technology to be able to deliver a higher level of service at a better price, so Redfin really is a full-service brokerage.
You get all the advantages of a true customer advocate that's on your side throughout the transaction. That's your real estate agent. They're going to work with a team to support them and make sure that your transaction runs smoothly.
Plus you get all these great technology tools, where you can search the web in the middle of the night or walk around on the weekends with your iPhone or your iPad and get updates. We have, now, instant updates so that you can get alerts as soon as homes hit the market. We'll let you know within 15 minutes. That's probably even faster than your traditional broker could keep track of that and give you a call themselves.
Austin: Right, absolutely.
Adam: We do feel that we've "built a better mousetrap."
Austin: Awesome. Many of our investors are familiar with the publicly traded, disruptive real estate companies -- Trulia and Zillow -- out there.
Zillow seems to be taking the approach that you guys initially started with; put homes on a map. You guys took it a step farther and dealt with the brokerage model. If you were to look at Zillow's model today -- obviously you guys moved away from it deliberately -- but where do you think that they sit in the market, as a competitive force?
Adam: We don't really think of Zillow as competitors. They obviously have built a large and popular website. Zillow and Trulia all fall into the same category of media companies. They've built a business around selling ads to existing real estate agents, where we've decided to try to become those real estate agents ourselves and really change the process from the inside of the industry.
Austin: Now, the graveyard of tech-based real estate companies is full. There's definitely a lot of real estate companies that have tried to disrupt the model, only to fail. What's going to make you guys different?
Adam: I think that there are a few things that make us different. One is that we just hustle. There is a workman-like ethic here at Redfin, where people really take their jobs seriously, people are mission-driven.
That gets them to put in that little bit of extra effort, whether it's an engineer who's going to crank out that extra line of code to get a feature onto the website or into our agents' hands a little bit more quickly, or whether it's the agent who stays up an extra 30 minutes when somebody else might have called it quits, to send that last email to a customer and really reassure them that their closing tomorrow is going to go smoothly.
Some of it is, we just hustle. But I think the rest of it is, because we've got engineers and real estate agents working together, we've really come to understand what's in the consumer's mind. Where I think a lot of previous technology companies tried to change the industry from the outside, we really have become insiders, and that was a hard path to follow.
When I first joined Redfin, I came from the technology world; I worked at Microsoft before I worked here, building SQL server databases.
Austin: This sounds way more fun.
Adam: It is really enjoyable to work in a consumer-facing company that is really changing the game.
I think when we first got here we thought, "Ah, technology is going to dis-intermediate the agent."
What the consumers told us very clearly was, "No, we want a human that we can trust, as part of the process. We just want that person to be equipped with the best technology, and we want access to the same tools and information that they have so that we can collaborate together as effectively as possible."
I think once we realized that and said, "Yeah, we want to empower our agents, rather than dis-intermediate the agent" -- that combination of technology and real estate -- is what's going to make us stronger than some of the folks who have maybe tried in the past and haven't had quite the results they were hoping for.
Austin: OK. Now, with regard to some of the other forces in this industry, do you think that there's a chance that a company like Trulia or Zillow tries to go toward a brokerage model? A lot of people have speculated it. People have tried it in the past unsuccessfully.
You guys have made the brokerage switch very successfully. Do you think that there's any motivation for them to become more brokerage-facing?
Adam: You know, it's tough for me to speculate about something like that, but my guess is that most of their paying customers at this point are real estate agents, and if they were to cross over into that territory they'd have a difficult time explaining that story to their existing customer base.
Austin: Exactly. Definitely disenfranchising, whereas you guys very much...
Adam: From the beginning, essentially.
Austin: ...cohesive with your agents.
Adam: From Redfin's first days of revenue, our agents were our own employees, so there's none of that conflict. We've always been a brokerage.
Austin: Definitely a good place to be in, then.
Austin: I'm wondering, what sort of broad home ownership trends are you guys seeing right now? Obviously a very unusual market over the last few years; what's the 30,000-foot view look like? Who's buying homes? Where are they buying them? If you have any information on that.
Adam: Yeah, absolutely. It's something that we track very closely, obviously. We need to know what's going on in the market.
I would say there's been a broad based recovery. We track, of the markets that Redfin is in, which is about 22 major metros around the U.S., and in basically every single one of those markets prices are up, year over year.
Buyers are coming back to the market, where I think a lot of people were really nervous to buy last year or the year before. Buyer confidence has definitely returned. I think that's certainly fueled by how low interest rates are right now; that affordability for homes is quite good, currently.
The challenge that we're facing is that there is not enough inventory in the market right now. We're still not yet at bubble-level pricing, so for the folks who bought in 2005, 2006, 2007, it's still difficult for them to sell their home and even folks who could afford to, I think a lot of the sellers are holding out for better prices, so we have this inventory crunch.
What that means is that, for buyers, it can be a little bit frustrating right now. Sometimes it's taking two, three, four, five offers to find a home that they like, that they can afford, and where their offer actually gets accepted.
I think that's one of the big challenges that buyers are facing right now.
Austin: Anecdotally, I think we've seen that on our end as well. There are some people around the office who recently bought homes, and their homes were on the market for four days and there's already competing bids and it's going above price.
Given that kind of dynamic, does that result in some sort of artificial bubble, or how does that play out?
Adam: Our take, at Redfin, is that we're not really in a bubble right now. When you compare to the way that things were during the bubble years, there are a couple of key differences that you have to keep in mind.
It's true that prices have risen rapidly and, like I said, there are more buyers than sellers in the market right now so it is a seller's market, but that doesn't necessarily mean it's a bubble. The things that we look at are price-to-income ratios.
If you look at where we are now compared to, say, the pre-bubble back in the year 2000, of the markets that we track we're right around the same ratio of home price to income. Home prices aren't rising faster than incomes, with a few exceptions.
In D.C., in Los Angeles and San Francisco, prices are rising faster than income. Now, particularly in the Bay Area there's so much capital influx there from the technology world that actual income... sometimes is a little hard to gauge house prices relative to that.
But I would say, for the most part, that's a big indicator for us. With interest rates being as low as they are, actually payment to house price is probably right around where it was in 2000, or potentially even lower in many markets. That's one.
Two, credit standards really have gotten a lot tighter, so you're not seeing those crazy no-doc loans that once upon a time anyone was able to get money to buy a home. That's really preventing, I think, prices from running away.
Then the last thing we look at is the percentage of sales that are made for cash. Right now, almost half the sales in the market are for cash.
Adam: That's up from, I think around 20% of sales that were for cash during the bubble years. As a result, I think it's pretty clear that people are putting hard assets behind the housing market. We feel that the prices where they are right now are pretty well supported.
Austin: Does that indicate a much more investing buyer, as opposed to pre-bubble, if you're paying all cash? I'm just curious what that would indicate.
Adam: It depends on where you are in the market. Certainly at the lower price points in the market you do see a lot of investor activity, where people are buying multiple properties and they're looking to hold them and rent them out for income.
Austin: I'm wondering how mobile is affecting the real estate industry, and what sort of interactions you guys have seen through mobile platforming? You guys obviously have an app, and increasingly people are doing research and shopping from apps. I wonder if you could talk about some of those trends.
Adam: Yeah, absolutely. I find myself, even, using our mobile tools more and more commonly. As you would expect, people are using mobile apps -- sometimes when they're sitting on their couch -- but mostly when they're out actually in the real world, driving around or walking around, depending on what neighborhood you're looking at, actually searching for homes.
We've baked in location awareness into all of our applications, so you can pull out your Redfin app anywhere you are and the GPS just says, "The closest home that's for sale is X many dollars."
I was actually on a business trip last week and we were driving through downtown Washington, D.C. I said, "I wonder what homes are going for in this market," and all I had to do was pull out my phone and there it was.
Austin: And you said, "Man, I'm glad I live in Seattle."
Adam: Turns out homes in D.C. are very expensive.
Adam: I think that's one of the big trends; that people are looking for real estate information when they're already on the move.
It just lets them be more flexible where they can go -- in the same way they used to drive around looking for Open House signs -- you don't need to do that anymore because you can just pull out your Redfin app and know where all the open houses are, just by looking into your phone. I think that really is just giving the consumer a lot more flexibility.
The other thing on mobile apps is now when new inventory comes onto the market we'll actually send push notifications down to their phone so that they get that instant alert. It'll actually buzz in your pocket and remind you, "Hey, there's a new property that meets your criteria that you might be interested in."
People have really responded to that. I think one-eighth of the home showings now that we do get scheduled from the phone, versus from the web.
Austin: Wow, that's an incredible stat. Further down the mobile road, when the rubber meets the road and a consumer's driving around and they want to see what's for sale in the neighborhood, they have a couple options. They've got you guys, they've got Trulia, they've got Zillow.
But you guys have a data advantage in that realm. I'm wondering if you could discuss why that is, because customers may not realize that that chasm exists.
Adam: Yeah. Right now in terms of the inventory, what's really for sale... My first few years when I worked at Redfin we had a mantra here. It was just called, "Fast, basic search." We wanted to have the most complete and most accurate database of homes that were for sale, of any website in the business.
We put a lot of engineering dollars into making sure that that's true, so right now we have about 20% more homes that are for sale than the media sites that are out there.
We also get those homes -- this is perhaps the most interesting part -- we get those homes immediately. As soon as the agent who's representing the seller lists it in the MLS we get it almost instantly, where some of the media sites it takes up to seven days for that listing to reach their site.
When you have a market that's moving as quickly -- like we were talking about before -- as the one that we're in right now; I think something like over 1/3 of the homes right now are selling in under 14 days so if you have to wait 7 days just to see that it's available, you're really putting yourself at a disadvantage relative to the other buyers that are in that market.
It's not just the most complete database, but it's also the most up to date, and that speed really matters, especially in the current market.
Austin: Now, is that because you guys have brokerage licenses that you get that fast track to the MLS?
Adam: That's exactly right. Because we are a broker, we're able to access the MLS directly through a data feed that only we can get. Any broker can get it, but media sites generally don't have access to.
Austin: ...who don't have that license.
Adam: Exactly. That's the first place where a listing will go when a broker first gets it out on the market.
Austin: From a competitive advantage standpoint, do you see that dynamic existing long-term, or is that window maybe going to shrink for the media companies? Is there reason to keep them at arm's length from the realtor side? How does that play out, going forward?
Adam: You know, it's always nice to be able to get the information first. I think in any sort of investment or purchase decision, you want to have a leg up in terms of information. I don't see that that competitive advantage will go anywhere anytime soon.
The information is much more open than it's ever been in the past, but it's long been the case that agents have shared that information with each other first.
Austin: Given that you are super advocates for buyers and really customer-facing, what advice would you give to people looking to buy homes today in this market, all things considered, based on the trends you're seeing?
Adam: I think that the best thing to do right now is to really educate yourself about the market ahead of time. Make sure that ... it's very difficult to make an opportunistic purchase right now unless you do happen to have the cash to do that, so you want to understand what neighborhoods, what schools; really where you want to be and what you can afford.
The more prepared that you can be, actually going into a transactional phase ... so go and talk to a lender. Figure out how much you can afford to get a loan for, what programs might be available to you. Talk to an agent ahead of time. Make sure that you understand the process.
I think what a lot of people need to do on the buying side right now is get emotionally prepared that it is competitive out there. I've seen some people shy away from a particular property just because there's going to be competition and they don't want to go through that bidding process. It's an uncomfortable feeling.
But that's the reality right now, that in some markets we're seeing 50% of the homes being competitive, and in some markets we're seeing up to 90% of the sales being competitive, so some of it really is just emotional preparation; knowing that, as a buyer, it's a pitched battle out there right now.
Austin: I assume you guys have a lot of resources online to identify what you can afford and put schools on the map and see where you sit?
Adam: Yeah, that's absolutely true. I think one of the first things is -- once you do get serious about a transaction -- those instant alerts that I talked about, where you know before anybody else what's actually for sale, is one of the key things that Redfin can help you with. It gives you an unfair advantage against the market, as well as that prep phase of being able to do the research.
You can search now by school district, so if there's a particular high school or middle school that you want to be within that boundary, you can just type that right into the search box, the same way that you could type a zip code, and it'll show you the homes that are for sale within that boundary.
Now, that's something that the buyer should always verify before they actually write an offer, but it's a tool to help them start to make a short list of the homes that they're potentially interested in.
Austin: If there were some common big mistakes that home buyers make, what do you guys see as classic first-time home buyer mistakes?
Adam: I think that that falls into two categories.
I think one is the thing that we already talked about, which is just getting a handle on what the process is going to be like, and that it may not be easy. It's emotional, it can be stressful. You really have to be ready for it.
I think the second big mistake that people make is they don't think as much about resale value as they should. They think about how a particular home may meet their needs right now, and as they're bidding on that home they want to think about both what it's worth to them today, but also what it would be worth to a future potential buyer when they go to resell.
The last thing that I think people don't think about as much as they should is what the operating costs of a home will be, as well as the maintenance expenses. Sometimes when you're making a newer home versus an older home trade-off you're probably going to pay more for the newer home, but you may not be factoring in what you're going to spend in utilities, in maintenance on an older home.
Austin: All those Home Depot runs add up.
Adam: That is true. That is definitely true, and that's if you're lucky enough to know how to be able to do the job yourself. If you have to hire a professional, it really can get pricy quickly.
Austin: At The Motley Fool, we really love to invest in high-growth, innovative companies. For a lot of those companies to get their start, they have to dip into the VC funding well, and that can be a tenuous place to get funding.
How have you guys worked through that, and do you have any advice as leaders and companies work in these industries, on benefits and drawbacks?
Adam: Yeah, absolutely. We love our investing partners. They've really made Redfin's growth possible, and I think... not just with dollars, but also with insight and advice. It's been a really fantastic partnership.
I think that when we were first out raising money, it was complicated to explain to both the VCs here and the VCs in Silicon Valley that invested in Redfin, that we weren't just going to build a software company that was purely virtual; that we were actually going to go, city by city, and hire a ton of real estate agents to actually service the client.
We used to get to the end of the pitch and bring that up, and they'd say, "Oh, well thank you very much but that's not exactly what we do here."
Glen says this most famously -- Glen, our CEO -- he says, "Then I just started saying it right out of the gate." It took a little bit more work to find the right folks, who believed in that business model.
If you watch, Glen had a talk at TEDx fairly recently where he said, "Out of the Fortune 500, there are actually only 12 companies that are purely virtual," that are just software companies -- you look at companies like Google or Microsoft -- "and the rest all sell some sort of real-world product that is either manufacturing or operationally intense to deliver."
Once you start to tell that story, I think the VC world pays a lot more attention.
Austin: Interesting. One of the things that we really harp on when people make investments in companies is, you have to look at culture, you have to look at innovative companies and how they preserve that over the long run.
You guys obviously have a very strong culture; we're sitting in front of a wall of very inspirational, customer-facing phrases right now. Could you describe Redfin's culture and how you guys foster that for the long run?
Adam: Yeah, absolutely. I think the foundation of Redfin's culture really is that people are mission-driven here -- that they come to work at Redfin for more than just a paycheck -- because they really are passionate about reinventing real estate.
It's actually how I found the company. Like most people, I got addicted to Redfin's search, where I was on the website morning, noon, and night, looking for homes when I probably should have been doing something else.
Eventually, I got connected with the folks here at the company, and when they made me an offer to come and join I couldn't say no because I really felt like the company had captured that spirit that there was a better way to do things; that there was a more modern, more efficient, more cost-effective way to buy and sell homes. It was just very compelling.
People come here with that mission, to really change things, and I think that's the core of it. Like I said before, it's a very hard-working culture, where people have a lot of fire. They really want to push things and always continue to create, and I think it's a culture where we look out for each other.
It's one thing that we've always pressed on, since the very beginning, that we all work together but we're all still people. If you walk by a coworker who looks like they're having a rough day, stop and ask them how they're doing, and maybe see if there's anything that you can do to help.
Often, sometimes just a little bit of extra information, an encouraging word -- or really rolling up your sleeves and pitching in when there's work to be done -- makes all the difference in the world.
It's important to us. The banners on the wall, I think, are one thing but it's through our actions every single day. The culture gets set as we continue to bring in folks. The people that have been here for a long time and continue to live that are the ones who instill it in the folks who are joining.
Austin: OK, now if retail investors are looking to evaluate a company's culture but maybe they don't have the privilege of going to meet that company, is there some way that you could think of maybe to identify a company with a strong culture if somebody's miles away or doesn't have the ability to meet with the company face to face?
Adam: Yeah. It may be a long journey to come here to Seattle HQ, but if you're really looking to evaluate Redfin, and Redfin is in a city where you are, I recommend that you go and look at a couple of homes. It's free, it's no obligation. Meet a Redfin agent, see what you think.
You'll get a sense for the people who are really out in the field every day, serving our clients. In the same way that you might walk into a Nordstrom or walk into a Four Seasons and see how it feels, even though you can't come to HQ.
I think that's the best way to do it. That's one avenue. The other is, those are some of the companies -- Nordstrom and Four Seasons -- are the companies that we talk about here all the time. Go order some shoes from Zappos and see how it feels. Those are the things that we strive for here.
Austin: OK. As you guys worked about developing your culture, obviously very strong here, what companies do you guys admire that you think have really great cultures, or maybe that you idolize and try to replicate in your building process?
Adam: Yeah, I think that falls into a few categories. On the service side, we definitely talk a lot about Nordstrom. We talk a lot about Four Seasons.
In terms of efficiency, you can't beat Amazon. They're here in Seattle and some of the things that they're doing in terms of using data to serve the client more quickly, to get products to their door at a better price and faster, it's just hard to ignore. It's incredible, in fact. That's a company that we admire greatly.
Then when we think about really creating an experience that's delightful and different from the way that people do things today, we talk a lot about Uber. I don't know if you've used Uber, but...
Austin: I definitely have.
Adam: Yeah. Uber is fantastic in terms of taking the experience of ordering a taxi and bringing it into the modern world. I think it's definitely something that drives a lot of conversation around here as well.
Austin: What about, as a very tech-focused company, are there tech companies -- in your sphere or outside of your sphere -- that you guys really admire, that you think have done a really great job just at delivering their service or product?
Adam: Yeah, we really talk a lot on the tech side about the hybrid businesses. Amazon, obviously, is probably the largest example of that but we also talk about OpenTable, about Zipcar, about companies that have really done a great job blending a real-world customer interaction with technology that makes that interaction better, and how that would apply to the real estate transaction.
Austin: Great. We really like growth companies at The Motley Fool. They're some of our favorite stories and some of our most successful; Amazon being one of the most notable ones. But growth stories can be really, really difficult to maintain and sustain a strong culture while also fighting that urge to grow.
How have you guys struck that balance, of trying to grow with your culture, without necessarily outstripping it in the process?
Adam: Yeah, that's a great question. It's something that we're incredibly focused on, and we talk a lot here about long-term sustainable growth.
We'd much rather grow at a predictable rate year over year for many, many years. We're not trying to hit some kind of huge peak where we can't maintain the culture because that's the foundation of everything that we do. Without it, ultimately the growth will slow down and, unfortunately probably reverse.
We take a measured approach to that. We've made a really consistent promise to our consumers that, if we can't serve them effectively -- if we don't have enough agents here -- we'd rather refer them to another real estate agent that we trust who doesn't work at Redfin, than take on one extra customer or hire one extra agent and either let the customer down or let somebody into the company who doesn't necessarily belong here.
We're very, very careful about who we hire. It's funny because the traditional industry often doesn't screen people quite as carefully as we do. Some agents come in and say, "This is the first job interview I've ever had."
We screen people very carefully, and then we put them through a Redfin boot camp here. We fly people from all around the country to Headquarters so that they can get an experience here in Seattle, to meet directly with the leadership team, to hear what Redfin is really all about and then to be able to carry that back to the market.
The culture really is the foundation. Without that, I think that we'd be in a difficult situation.
Austin: OK. I know we talked a little bit about Zillow and Trulia. They may not necessarily be direct competitors, but they are in the same space.
Do you feel that their access to public markets puts them at a competitive advantage to you guys? The ability to raise funds, arguably, is a lot easier when you've gone public. How do you guys think about that?
Adam: Yeah, absolutely. We want to grow our business, like I said, in a sustainable way.
Would it be nice to put $50 million or $150 million in the bank? Sure, it would be great, but we focus our efforts really on running the business profitably out of the cash register, where each market needs to be able to grow organically and by word of mouth so that each agent that we add has enough customers coming in the door to support that agent.
Then on the R&D side, the profits that the real estate organization generates is what funds all the engineering effort, here in Seattle. Because we don't spend much, if any, money on marketing, that gives us a competitive advantage so that we can put more into the efficiency of the business.
Austin: If I was to understand that, it would be, "Run it from the cash register" -- make sure your cash flow supports your operations -- and controlled growth, right?
Adam: That's right.
Austin: Resisting that temptation to maybe rocket fuel yourself with a little bit of debt and get a little dicey.
Adam: That's right.