Redfin, the Seattle-based online real estate brokerage that’s shaken up the industry by offering deep commission discounts to consumers, has secured another $12 million in venture capital funding and announced expansion in the East Coast.
The brokerage company has raised $20.8 million to date. The third round of financing was led by Draper Fisher Jurvetson, and included Madrona Venture Group, Vulcan Capital, BEV Capital and The Hillman Co.
Redfin says it plans to use the funding to continue its national expansion and to invest in its Web site. The company intends to open in Chicago later this year.
Redfin rebates a portion of its commission back to home buyers in exchange for buyers doing most of the research themselves, and on the sell-side offers to list homes for a flat rate. The company claims to have saved home buyers nearly $6 million in commissions since its last round of financing in May 2006.
Critics within the industry say that this type of business model in which consumers do much of the work themselves in exchange for a discount comes at the expense of the agent working the opposite side of the deal. In addition to Redfin, many companies have begun offering discounted commissions to consumers who prefer to handle some aspects of the sale without the help of an agent.
As part of Redfin’s latest financing round announced this week, DFJ partner Emily Melton will join the brokerage company’s board as a director. Melton has experience opening new markets for another Seattle-based consumer startup, InSpa.
Some of Draper Fisher Jurvetson’s previous investments include Skype, Overture, Hotmail and Baidu.
Redfin CEO Glenn Kelman said the company expects this to be its last round of venture funding. Many industry insiders have questioned the company’s long-term viability, saying it’s not possible to maintain a brokerage and still make a profit while offering such large discounts.
Kelman said that most of Redfin’s existing markets are profitable, and he expects the company’s break-even point to be at around 10 markets.
The company currently operates in Seattle, San Francisco, Los Angeles, Orange County, San Diego and Boston, and on Wednesday announced it has opened for business in the Washington, D.C., and Baltimore areas, adding more than 50,000 property listings to Redfin.com as a result.
Redfin has opened its first East Coast headquarters in Falls Church, Va., and has appointed Catherine Jardine, formerly of Long & Foster, to lead the local real estate operations.
“So far, the business has been growing really well,” Kelman told Inman News. “All this concern about whether or not the model can make a profit hasn’t really been based on anything we’ve seen.”
It takes about six months for a new market to become profitable for Redfin, he said, adding that the company spends about $50,000 to open in each new area.
Kelman said the company doesn’t put buying and selling conditions at the top of concerns when entering a new market. What it does consider, he said, are the median home prices and the type of consumers living there. Redfin’s model likely wouldn’t work in a market where houses sell for $100,000, he said, or in markets where the consumers aren’t as apt to use the Internet in their real estate searches.
As Redfin’s customer base has grown, Kelman said the company has seen a change in its core demographic, with fewer tech-industry folks comprising the bulk of its customer base. The CEO remains optimistic about future growth and profitability.