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Technology-based real estate brokerage Redfin says it’s reducing the commission refunds it offers to buyers, raising fees by an average of 16 percent, in order to provide customers with "a one-on-one relationship" to their agents.

Redfin had previously offered buyers refunds equal to 50 percent of the commission split the brokerage received from the seller, subject to a $6,000 minimum fee. Now, Redfin will employ a fixed-dollar refund for each listing based on a sliding scale that’s tied to the listing price, CEO Glenn Kelman announced on the company’s blog.

The amount of the refund, which increases with the listing price, will be displayed on the company’s website with each listing.

So Redfin will refund about $2,000 to the buyer of a $300,000 home — about 25 percent of the brokerage’s commission split — compared with a $13,000 refund to the buyer of a $1 million home, or about 45 percent of Redfin’s commission, Kelman said. Since the $6,000 minimum has been eliminated, rebates for some properties are actually going up.

The Seattle-based brokerage will continue to list properties for 1.5 percent of the sale price, about half the rate typically charged by traditional brokers.

Kelman said the price increase for buyers will allow Redfin to reduce the number of customers supported by each agent by 25 percent. The company has already hired more than 50 new agents as part of implementation of the new pricing structure.

But the rate increases won’t be implemented in Redfin’s two biggest markets — Seattle and the metro Washington, D.C., area — for "a few months," because Redfin still needs to bring additional agents on board in those markets.

"This is a big change for Redfin," Kelman said in announcing the change. "Some will say that, by investing more in customer relationships, we are becoming just like a traditional broker."

Kelman acknowledged that Redfin does want to build relationships with clients "just like traditional brokers." But in other ways, the differences between Redfin and traditional brokers have "become starker."

Redfin agents are still paid a salary and a bonus based on customer satisfaction to ensure "no one ever pressures a customer to close," he said. Redfin surveys clients and posts all reviews to the agent’s online profile, "And no matter how productive a Redfin agent may be, we ask him to leave if he doesn’t deliver good results for customers."

(Last May, Redfin announced it had removed 42 agents from its partner referral program due to mixed customer reviews, and fired eight partner agents for creating fake customer reviews.)

Redfin began testing the reduced rebates in Boston in June, and Kelman said demand increased 58 percent year over year. Customer retention also picked up by 19 percent, he said.

Kelman, who’s known for his frank assessments of Redfin’s successes and failures, said the company’s old model was "broken in some ways, but it works in others. With Redfin 3.0, our humble hope is to give our customers the best of both."

In announcing that Redfin had $14.8 million in a new round of funding in October, Kelman said Redfin is "losing millions in winter and making millions in summer" and that the funding would help the company expand and weather seasonal ups and downs.

Redfin and other Virtual Office Website (VOW) operators like ZipRealty shook up the brokerage business by offering visitors to their password-protected websites a richer set of listings data including sold data, days on market, price changes and pending sales data.

If buyers were willing to conduct much of the home-search process themselves, the thinking went, brokers could offer commission rebates because their agents would be free to focus on negotiations and closings, and handle a greater number of transactions.

Last year, after ZipRealty announced it was closing brokerage offices in 12 of 35 markets as a cost-cutting measure, the company eliminated buyer rebates, saying it would put more emphasis on the skill and expertise of its agents.

Emeryville, Calif.-based ZipRealty has also dropped website registration requirements in most markets, and its website generates leads for other brokerages in five markets.

Kelman said Redfin’s price increase will allow buyers to work primarily with a single Redfin agent "who can spend the time walking through houses with the customer to better understand her needs, recommending new listings to tour and new neighborhoods to explore."


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