Tuesday, March 9, 2010

Redfin enters Portland market

From the Portland Business Journal:

A controversial residential real estate company is expanding into Portland.

Seattle-based Redfin rebates a portion of agent commissions to clients, which is illegal in Oregon. The company plans to challenge the law; in the meantime it will instead donate a portion of buyer-side commissions to local charities.

“There’s no reason for this law to exist,” said Redfin President Glenn Kelman. “It’s such a silly law.”

Redfin typically charges clients that want to sell their homes a 1.5 percent fee. Typically, sellers’ agents receive 3 percent, or half the customary 6 percent commission charged on real estate transactions.

When representing buyers, Redfin rebates a portion of what it earns over the first $5,500 back to the buyers.

Redfin hired a Portland market manager in February and hopes to duplicate the rapid growth it enjoyed after its 2004 debut in Seattle, where Redfin claims to command between 3 percent and 5 percent of the home-sale market.

The privately held company operates in 13 markets. Kelman said Redfin had revenue between $10 million and $20 million in 2009 and will double that in 2010 by expanding its market share and geographic reach. In addition to Portland, it is expanding to Phoenix and to New Jersey.

Oregon outlaws kickbacks and rebates but is silent on commission levels. That means agents can negotiate lower fees if the goal is to compete on cost. Many real estate brokerages already operate that way.

Dean Owens, deputy commissioner of the state’s Oregon Real Estate Agency, isn’t familiar with Redfin, but finds its rebate model overly complex.

“Cut your fee. If that’s what you want to do, (just) cut your fee,” he said.

Kelman said the company’s commission structure is a major reason it’s been so successful.

“We’ve done thousands of transactions, always notify the lender and we’ve never had trouble. The safe conclusion is that this is legal,” Kelman said.

Representing both the buyer and the seller is perfectly legal in Oregon but refunding a portion of your fee is illegal.

I wonder how much money Realtors will have to pay the state legislature to keep the current law in place.