Buyers who work with Redfin, a company that offers deep discounts for real estate services, paid less for homes than buyers represented by other companies — even before considering the company’s commission refunds, according to Redfin’s analysis of company and multiple listing service data.

Glenn Kelman, Redfin CEO, said the report validates the company’s business model while refuting the claim made by some real estate professionals that money that consumers save by choosing a low-cost real estate company

Buyers who work with Redfin, a company that offers deep discounts for real estate services, paid less for homes than buyers represented by other companies — even before considering the company’s commission refunds, according to Redfin’s analysis of company and multiple listing service data.

Glenn Kelman, Redfin CEO, said the report validates the company’s business model while refuting the claim made by some real estate professionals that money that consumers save by choosing a low-cost real estate company can be more than offset by the money lost in other aspects of the transaction.

“The centerpiece of traditional agents’ argument against Realtors is that any commission refund is offset by a negotiating disadvantage,” he said, while the company’s analysis found that “Redfin agents negotiate better.” These revelations will no doubt become a source of controversy in the real estate industry, he added.

The company report concludes that Redfin’s buyer clients paid slightly less than the list price for homes before considering the commission refund that the company offers, while buyers represented by other brokerage companies paid slightly more than list price for homes, based on an analysis of multiple listing service data from Northwest MLS.

Redfin clients paid about 99.57 percent of the list price for residential houses compared with the 100.19 percent of the list price paid by buyers represented by other brokerage companies, which represents a 0.61 percent difference, according to the report. The MLS data was sampled from Feb. 6, 2006, to Feb. 5, 2007, for King County, Wash. The selected period represents Redfin’s first year in service.

The Redfin cost savings information in the report is based on data from 200 customers in Washington state who bought a home through Redfin, 170 of whom purchased a home in King County.

For condos, Redfin buyers paid about 98.65 percent of the list price compared to buyers represented by other brokerages who spent 100.37 percent of the list price — a difference of 1.72 percent. The total difference for both houses and condos was 0.9 percent. The report also includes a list of steps for MLS subscribers to verify the statistics used in the report.

The company estimates that its total savings for an average Washington customer was $14,134, based on its agents’ negotiating ability and also on the commission refunds — the company refunds two-thirds of the commission it receives to clients in most cases while offering to rebate three-fourths of its commission to employees of some corporations, such as Google, Microsoft and Hewlett Packard.

Kelman said that the report revealed that most real estate companies in Washington offered 3 percent of the home’s selling price to Redfin in cases where Redfin represented a buyer in a transaction.

A Northwest MLS report, NWMLS 2006 Statistical Recap, meanwhile, shows the ratio of the selling price to listing price of single-family homes in King County at 81.61 percent. Redfin says this data is not apples-to-apples comparison with its report released today.

Cheri Brennan, a spokeswoman for Northwest MLS, said that the MLS was not able to verify the numbers in the Redfin report this morning, as the process “could be very time consuming.”

Several real estate blogs were buzzing about the report within hours of its release.

The Freakonomics blog and The Future of Real Estate Marketing blog have posted about the Redfin analysis, and the Seattle Times published an article about the report on Sunday.

The Freakonomics blog stated, “It is hard to know exactly what to make of these results. Redfin would like you to believe it is that they have crack negotiators doing the bargaining. Another possibility is that the home buyer that seeks out a discount broker is cheaper and more savvy than the typical home buyer to begin with. It is possible (although there is no direct evidence to support such a claim) that these home buyers could have made even better deals if they had worked with a full-service agent.

“It is not easy doing data-driven research that is completely convincing. This research is not completely convincing.”

Also included in the Redfin report were findings about Redfin’s customer base and the level of customer satisfaction. Redfin agents are paid based on customer satisfaction rather than the standard commission that is based on a percentage of a home’s selling price. The survey found that 64 percent of Redfin’s buyers said Redfin was “better or much better than a traditional agent,” while 95 percent said they would recommend Redfin to a friend.

About 48 percent of respondents (the company reported 247 customer responses from a series of surveys) said they worked in technology. Kelman said that this number, while high, is not as high as expected for the company’s first year of operation. The survey also found that that 60.1 percent of respondents were between the ages of 25 and 35, and 37 percent were first-time home buyers.

About 49 percent of respondents said they heard about Redfin through a friend or acquaintance, while 23 percent heard about the company through a newspaper article and 14 percent reported that they heard about the company through online search.

The company is promoting the business and survey results to show that the business model can work, Kelman said. “Our overall goal as a business isn’t to be docile and meek within the industry. It’s to prove that a different business model really can work — not just for ourselves but it can work with consumers.”

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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