Redfin CEO: Los Angeles home prices may be near bottom

Glenn Kelman, chief executive of the online real estate brokerage Redfin, met with me Friday and spoke frankly about price and sales declines in some of the real estate markets his company serves across the country.

Lately, Kelman said, Los Angeles has been a pleasant surprise for his company. Low prices have spurred buying activity, and Southern California, which had been a drain on the company, is now a profit center. "Price discovery is happening" in Los Angeles, Kelman said, somewhat wonkishly.

Kelman said Los Angeles prices have taken their biggest hits already, unlike some other places he would not name. (The company is based in Seattle.)

Kelman has not been an industry cheerleader. He comes from the software world and isn't a licensed real estate broker.

Since its start in 2006, Redfin has made plenty of enemies among real estate agents by providing information on its website many conventional brokers didn't want out there. The site shows, for instance, how many times a home for sale has cut its price, and by how much. It also lists previous sale prices for the same house so a buyer can easily tell what the seller paid.

The website, which lists homes for sale with loads of additional data on the properties, is free and contains no outside advertising. The company's revenue comes from home sales by its agents, who are paid salaries instead of commissions. Clients typically search for homes on the website, then use their agents to tour properties and negotiate deals. The company rebates 50% of the agent's commission to the customer.

Kelman said Redfin's website views have tripled since last year and that revenues are up more than 40% from a year ago. But the company recently laid off 20% of its staff.

What do you readers think? Will firms such as Redfin replace old-fasioned real estate agents ? Or do most buyers and sellers need more hands-on assistance from a traditional agent ?

-- Peter Y. Hong

Photo: Redfin's Glenn Kelman. Credit: Peter Hong / Los Angeles Times

Comments

[AK]

This is the same discussion that everyone had when discount brokers surfaced on Wall Street. Everyone said that it was "the end" for the "big boys." That didn't happen and actually, with time passing, discounters started to appear more and more like the "big boys." I expect the same here, or wait, this time may be deferent LOL

[dclogang]

"Will firms such as Redfin replace old-fasioned real estate agents ?"

Absolutely! I do think however that buyers and sellers alike should hire a real estate lawyer to make sure the contract is legit and there are no misunderstanding. There is a lot of money at stake

Real Estate agents? They just aren't needed anymore. People are very internet savvy these days and all the information about real estate is on the internet., i.e., Redfin and other real estate website.

I disagree totally that the bottom is near though. The data at redfin doesn't include the next wave of Foreclosures (Alt-a's), the recession and the next bigger wave of unemployment that will strike.

We are in a downward dominos spiral. thousands are getting laid off which means they can't buy things at retail stores or restaurants etc.. that means less business for those places which means even more people will get laid off.

It's a scary future and no way am I buying a house at this time... no way..

[Underwriter in Texas]

Come on....prices are at the bottom?? Give me a break!!
Values will fall another $100,000 in Los Angeles County within the next 18 months. The capitulation price of a medium listing in LA County will be $290,000.
The equilibrium price must make sense to the average buyers income. Example: If the MSA medium income for Los Angeles County is $65,000- then the highest loan amount that a person can qualify for will be in the $260-$270k range. Almost every loan transaction must be documented with income disclosure. Unless the MSA for Los Angeles County medium income has been raised to $125,000; (and it hasn't) I highly doubt if the bottom has been hit.

[Tim K.]

I'll answer a question that is presumed by your headline - "is LA near a bottom?" It depends on what you mean by "near". I think we're at least 2 years away from the bottom - that's usually not what most people think of as "near". We have to work through many more upcoming foreclosures, and non-foreclosure selling prices are still not close to sustainable levels compared to income.

As for whether Redfin will replace traditional agents - probably not entirely, just as Priceline and Expedia have not replaced traditional travel agents. What has happened, is traditional travel agents have to work a lot harder for their commission, which means in order to stay in business they have to bring a much higher value to the table. My travel agent now regularly can find me better deals than my best work on Priceline and the best rates on Expedia, and it's much less work for me as well.

I predict places like Redfin will make some inroads for the next few years, but that some aggresive real estate agents will be able to earn their keep. They probably won't be commanding anywhere close to their 6% commission - they may work on flat fees, or a few might step up and actually be *worth* their commissions, but just like travel agents, their numbers will be greatly reduced.

[Giacomo]

I think that getting away from traditional REAs and their commission system is long overdue, but it's not looking like Redfin is going to be the answer.

From what I read elsewhere, his company is not doing well, and I'm afraid his "bottom-calling" analysis may be biased by his company's need to generate more sales. Dumping 20% of your staff is not an indication that your business model is working.

They never managed to expand beyond the metro areas of 6 states (and D.C.). Fatal, I think.

[Keith]

Good Lord. Go get a job flipping burgers. Stop running stories every week on how this is the bottom of the housing market. It's insultingly stupid.

Let's all do a search to see what Peter Y. Hong said about the housing bubble two years ago.

[Tim K.]

"Kelman has not been an industry cheerleader. He comes from the software world and isn't a licensed real estate broker."

BUT NOW HE IS. His whole livelihood is now dependent on sales volume of houses, so if he can encourage people to buy now rather than wait, he will. I don't see how his history is supposed to proof of objectivity of the direction of the housing market.

[Tim K.]

Specifically about Redfin - I do have to say that I like their website, and I think they have been front runners in the revolution go expose relevant information to buyers in a way that no other website does with such ease. That being said, I don't think it's going to start any significant revolution in the way homes are sold.

Redfin suffers from the "ebay problem", which is, ultimately, you are not buying the house from Redfin. You are still dealing with individual buyers who do not have any incentive to treat you properly. Let me contrast two very different used car buying experiences - Ebay Motors vs. Carmax.

Carmax OWNS the cars they sell. They set a price, if you like it, you buy it. They help with the paperwork and they don't try to get multiple customers to "bid up" the price of a single car if there is interest. If you are the first person, you pay your money and you get it, end of discussion. Ebay Motors, on the other hand, is just an intermediary. They don't own the cars, can't inspect them, and if multiple people are interested in the car, Ebay has a vested interest in having your fellow customers compete against you to drive up the price. Not consumer friendly.

Redfin is basically like Ebay Motors. In order to truly take the hassle out of home ownership, there needs to be a HouseMax. This company would actually BUY and maintain the homes, perhaps even renting them out while in inventory, and then offer them up for sale at FIXED PRICES. Unwittingly, banks have become this today, but they are far from the Carmax buying experience. In fact, banks are probably the worst at customer service in this regard - they are outright trying to screw over the customer it's shameless!

So while I applaud Redfin's website, which is useful for getting a more accurate picture of the market, and discovering just how much ridiculous nonsense is going on out there, it doesn't help you avoid the nonsense, although it does try.

[SoCalJim]

I guess when CAR (with vested interest in healthy RE) estimates another 10% drop for '09, and Moody's predicts a drop of 18% for LA/OC for '09, I would have to say that we are not "near" a bottom, unless your definition of "near" is 2-4 yrs, particularly considering that prior estimates were wrong, i.e., too optimistic, the credit crunch is much more severe than anticipated, and stock accounts and 401ks of people who could afford houses at today's prices have been trimmed 40% in just a couple of months. People no longer feel "wealthy" as reality sets in that they really are not.

Thus, the Redfin guy may be good at RE website, but should probably focus on that, although in the end, the Redfin guy's guess is just as good as mine or the dum dum RE agents like Yun and Watts. Also, I went to two open houses yesterday, both in the mid 700s, and looked at the guest register - only one person signed one, two the other, and it was 3pm, and one couple who signed were the neighbors. Even the RE agent admitted that things were bad and would be worse in '09, but added "when you see something you like, you better buy it, it won't be around long" in resposne to which I said that her advice probably cost many recent buyers 10s and 100s of thousands of dollars and untold financial stress, and there were many houses in the area listed for 3-12 months, and then she thankfully shut up since she knew she was spewing a bunch of BS and had no credible reply.

Add in the change to conforming loans from 729 to 625k, and there is even more downward pressure than before, unless people have another 100k (which I doubt) to make up the difference to obtain a loan that is easier to get b/c it will be resold.

Bottom line - bottom will take some time to reach.

As for whether traditional RE agents will be replaced - yes to a large degree. Traditional agents will help those who are not intelligent enought to figure out that a RE agent's value is minimal - my kid can run through screens and enter buyer information, just like a used car salesperson. Same thing, different product. This is not rocket science as evidenced by many realtors I meet who are as dumb as a rock.

[SoCalJim]

Oh, and Fannie Mae's quarterly loss just mere 29 BILLION. Yeah - any Joe can get a loan to support this inflated market... right...

And with rising unemployment, even MORE downward pressure.

No postive catalysts to support this bubble.

For home owners and sellers, this is kind of like a wax job or tearing off a band-aid that has been on for days, except you tear very, very slowly, feeling every element of pain... you wish it would stop, but there is so much more to come!!!

[Robert NO longer in LA]

There MAY be cause for hope (hope does spring eternal, no?) but it may be short-lived as Obama has NO choice but to CUT military bloated spending, IF he intends to repair this Nation. After 2010, it is HIGHLY probable substantial layoffs will smack SoCal, only slightly worse than 1990-95.

[waitingitout]

To quote Churchill, this isn't the end. It isn't even the beginning of the end. It's the end of the beginning. Price discovery at the low end - shaking out all the hyperinflated home "values" made possible only through an elaborate Ponzi scheme - may be happening now. But the mid-range and high-end homes are still far from price discovery (I'll know we're there when my Hancock Park next door neighbor "discovers" that the home she bought in October '07 is NOT worth $100k more than she paid for it - try $100k LESS).

And I wonder if Glenn took into account that we are in the second inning of a massive recession...

Hunker down, folks. I'm betting we have another 25% to go, minimum.

[Positive Carry]

I love how Redfin is challenging the old real estate cartel. They bring a fresh breath of transparency and efficiency to a sector in dire need of a shake-up.

[latesummer2009]

Los Angeles is a huge area with numerous zip codes. Sounds like a ploy to list with redfin to me. I don't see anywhere near a bottom on the Westside. Sales have stagnated and prices are dropping. Big hits are still around the corner.

http://www.westsideremeltdown.blogspot.com

[Doug in Toronto]

"LA homes may be near bottom"... Then again, they may not. I think most readers of this blog are astute enough to recognize someone with a vested interest.

[Cal]

I think the CEO is confusing a volume bottom with price bottom. Since brokerages make money on the rake they need volume for profitability. Volume is still historically very low and if you were looking at sales volume in historic context it would again point to the fact that prices will remain under pressure. Then there is the level of distressed sales driving the market. If these were anywhere near normal level OR just falling as a percentage of sales instead of rising... then you could point and say a price bottom might on the horizon. Volume only remains as "good" as it is now because the distressed inventory stay motivated until it finds a buyer. If you removed motivated inventory from the market you would see sales volume plunge.

He would really need to come up with some better rationale than the fact that his company isn't losing money here anymore.

[mr.bilko]

Prices in the Inland Empire are bottoming out. Prices in metro Los Angeles have a long way to fall. Prices on the westside are still sky high and have a long, long, long way to fall.

Too bad these people who gather stats tend to put Los Angeles, San Bernadino, Riverside and Corona into the same group, thereby causing misleading stats to be printed. They need to separate metro LA, the San Fernando Valley, the San Gabriel Valley, Riverside, San Bernadino and the high desert into their own categories. Otherwise we get these misleading stats that southland prices are bottoming out when it's really the high desert, Riverside, Corona and San Bernandino that are taking the big hits.

[Clear-Eyed Policy Wonk]

Hmmm. Not sure that LA has bottomed out with the Alt-A resets coming in 2009 and increased foreclosure listings in my Westside neighborhood of choice, West Hollywood. Of course, Redfin CEO's not a real estate agent and isn't based here in the trenches. I think I'm going with the surfer wisdom of Leo Nordine and waiting at least until next year to get serious about the process (meaning applying and getting pre-approved, etc.). Where are we, year-wise, anyway? At 2000 prices yet?

Did love the story by Peter Hong yesterday, though. Several foreclosures are sitting in WeHo as we speak...

[seattlesnoop]

Housing prices near the bottom? Not likely. Too many factors out there providing negative pressure.
Read the article in today's L.A. Times regarding school tuitions and the increase in financial aid requsts. Another factor set into motion because the big financial picture is in such turmoil.
In regards to the r.e. industry changes; it's long overdue and the time is ripe for change.

[anon1137]

Another day, another so-called expert calling a bottom. I think it's wishful thinking on his part since they just had to lay off a chunk of their staff because business is slow.

Do I think discount brokers are here to stay? Something is here to stay, whatever you want to call it. It doesn't cost 5-6% to do a house deal anymore so any seller paying that is out of his mind. With all the online resources available, buyers can do most of the work that traditional buyers agents used to do. Sellers still need some help, but not $30K worth.

[MyLessThanPrimeBeef]

When your revenue depends on home sales, it's up to you to first prove you are free of conflict of interst when you talk about the market bottoming.

And you are not doing a good job establishing your crediblity when you don't differentiate the Westside from Inland Empire. They are only starting to see prices drop by the ocean. With Yahoo, LionGate and Electronic Arts laying off workers, how can the market be close to bottoming?

[publius]

And he is basing his assumption that L.A. is near bottom on.... reading tea leaves?

We are clearly not anywhere near bottom in most parts of the city. A check on Zillow will reveal many areas still up around 200% over the past ten years, which shows that bubble prices have a long way to drop.

If this guy were an economist, he might actually know that housing prices tracked inflation from 1890-1998, then suddenly shot up at rates 3 to 10 times higher than the rate of inflation over the next ten years.

In fact, given current market psychology, it is highly likely that prices will plunge BELOW inflation-adjusted trend levels before they stabilize.

[In the know]

The computer just can't do what I do as a RE agent. While the majority of agents set the public's perception --I remain optimistic about my future. There is nothing like doing a deal with a family and getting them what they want --through hard work and negotiations.

I receive a lot of calls from clients who "use" this website. I close deals with them as well. People, in my opinion doing business, need People. The computer is a nice tool. just my 2 cents.

[Markus]

The only way I would trust a traditional agent again would be....Never! I'll never trust a traditional real estate agent ever again and neither should anyone else.

As long as a Realtor's pay is linked to the % of the home sale price, buyers and sellers alike will always be short-changed and short-serviced.

And somebody needs to regulate Realtors and their corrupt practices with mortgage lenders. They have done a lousy job of regulating themselves. And do I have to pull out David Lereah and Lawrence Yun quotes over the last 18 months to demonstrate how far off the tracks that the NAR and it's membership has "derailed"? They have lost all credibility with this local and national housing crash.

Time to graduate from the epoch of greed and move to flat fees for realtor services. It's just that simple.

[Glenn Kelman]

Hi everyone,

This is Glenn Kelman, the subject of Peter's story. Thanks for all the kind words.

As for those who are upset by the claim that Southern California is near the bottom, I did not say that Southern California is at the bottom, nor did Peter say that I did. I have no idea when that will happen; no one does.

But it is a fact that other markets like Seattle or now the Bay Area only recently began declining whereas Southern California has been declining for years; Southern California is in better shape than other places because of that.

It is also a fact that this is one area where our business is increasing. This is in part due to an increase in market-share from nearly zero, but it's also the case that there seems to be less squabbling over price as reality seems to have set in for home-sellers.

This is what I meant by price discovery: sellers are more likely in SoCal to price their properties at current market values rather than a wildly inflated value from 2007.

As for Redfin's prospects. Yeah, we had a layoff, and it felt like the end of the world. We needed to grow to about $15 million in revenues to be profitable and we were only halfway there. But we keep growing, and our customers are insanely happy: 97% customer satisfaction, vs. an industry average of 85%. So don't write us off yet! This company has a lot to give.