On Sunday May 13th, 60 Minutes aired a segment entitled "Chipping Away at Realtors' Six Percent".  The premise of the story is that the traditional 6% commission structure is under pressure from the Internet brokers.  Here is their lead in to the story:

"But as correspondent Lesley Stahl reports, things are beginning to change. What happened to travel agents, stock brokers and book sellers – the encroachment of the Internet – is beginning to affect real estate agents. And the sacred six percent is under assault from online discounters."

The only problem with the story is that it isn't supported by the facts. 

The model Internet brokerage discounter they used in most of the story is a local Seattle company, Redfin.  Redfin was founded by Glen Kelman, a former software executive who co-founded Plumtree Software that was bought by BEA Systems for about $200 Million.  Here is his quote from the story.

"Real estate, by far, is the most screwed up industry in America. And we feel like things that Amazon or eBay or Yahoo have done for other industries, we can do for the real estate industry."

Since Redfin is located in Seattle and is a member of the NWMLS, we have access to their sales records and can track their overall performance.  In 2006, Redfin did the following:

Redfin's Listings That Sold:  63 Properties - $25.0 Million (they only sold 3 of them)

Other Bokers' Listings Redfin Sold:  176 Properties - $86.1 Million

So 78% of their business was representing buyers, and 22% representing sellers.  'That is very unusual for a brokerage firm, with most having a 50-50 volume split between buyer and seller business volumes.  So Redfin takes the full buy side commissions offered by other firms, the ones they say are so screwed up, to give their buyers a rebate.  Thus their business model depends on other brokers getting full commissions, otherwise they (Redfin) have nothing to offer. 

Tell us again Glen, what you are doing to change the "most screwed up industry in America" ?

Mark my words, Redfin will build up their sales volumes, largely dependent upon the full service brokers and agents, and once they have achieved a critical mass, size and transaction volumes, Redfin will be sold, leaving Glen Kelman and the other "Smartest Guys In The Room" with significant financial gains.  The dot-com era is clearly his real business model - driven by spin and greed, it is unsustainable and waiting to collapse.

Postcript:  I checked the sales statistics through May 15, 2007 and sure enough, Redfin's total sales volumes are up, and buyer representation is now 79% of their total volumes.  With over $80M in sales volume year to date, their agents have only sold $1.6 M of their own listings.

Report that Leslie.