Wisest of the crowds

No not what you are thinking - not social, ethnic, or racial discrimination. Redfin discriminates on price. PRICE! The 60 minutes piece was a yawn for me personally but it does give Americans the right to start to push back. See the posts and comments at TechCrunch, Redfin, Inman, BloodHound for an early read. Whether it becomes a consumer zeitgeist or fades will be seen but the open question is this: will price variation become mainstream in american residential real estate?

There is an old economic idea called price discrimination that is popular with every micro-econ 101 student, and their professors, that says you reach more customers and make more money by offering variation in pricing. Its sort of definitional for anyone who believes in supply and demand. It works like this: when you go to see a baseball game, there are a 100 variations in pricing to meet everyones needs and to tap into every possible cross section of demand. For example, there are ticket prices for corporations who entertain in luxury boxes and ticket prices for those who mostly prefer a beer and some sun in the bleechers. Ticket prices for season holders and ticket prices for last minute shoppers. In short, EVERYONE can have their demand met for baseball. A small example with the mighty SF Giants here.

What would happen if every ticket was the same price? Mayhem and lost profits. Some people willing to pay more for MLB tickets will transfer their money to an underground marketplace that will use price discovery to allocate tickets. Meanwhile, people at lower price points will be shut out resulting in further lost revenues to MLB. Thats why we have pricing variation. Its better for everyone because everyone gets an allocation and the business folks maximize their revenues.
People might argue that the price variation exists is in the underlying house price and not in the intermediary execution price (brokers & agents). If that were true, then why did trading volume in financial markets explode when electronic execution came into acceptance? (For a slightly more technical explanation {very slightly!}, see my earlier post here).

Redfin discriminates. So do I. It makes sense and it is better for everyone. Many people have commented that Redfin basically passes their work load to external agents to facilitate their transactions and to make their business model work. I can certainly see how that might play out. But if the consumer is footing the work load “bill”, don’t they deserve to get a rebate? Don’t consumers deserve the right to choose their level of service? In the end I believe that consumers will still depend on full service agents because housing is complicated and its something we do rarely. But by offering price variation, we get to grow the pie. Anyone else out there a discriminator? Anyone else want to make more money?

Since returning to SF from London a little over a year ago, my wife and I have delayed looking for a house until we have decided where we want to live. Our eldest child just went through the interview process in the private schools (San Francisco public schools are poor with only a few exceptions) and lucky found a spot so we are only now truly testing our will to raise our kids in the City.

I spent all day looking at single family houses across the city’s open houses. Here’s how my search went:

-Started with Google base via My-Currency (developement site) for listings

-Re-Checked listings at SF MLS (this site sucks!)

-Re-re checked listings at Trulia and Redfin

-Re-re checked listings at various local firms

-got annoyed at the fragmentation of listings

-Found a few properties

-Checked for tax & prior purchase records at Zillow (some there, some not)

-Checked analytics at My-Currency

-Checked analytics at Trulia

-Read Robert Shiller’s assessment of housing and got scared (recommended reading:”Long-term perspectives on the current boom in home prices”, March 2006)

-Tried to find a good open homes site and failed so grabbed the SF Chronicle Sunday pull-out (yes paper…I still read paper).

-Got annoyed that I had to type in the addresses of a bunch of properties to decipher agent language about location (hint to one exuberant agent: Lyon at Geary is NOT Lower Pacific Heights jackass - not even close!)

-Reviewed some of the price predictions for square feet in various zips in our alpha site.

-Got annoyed again that this is taking so long

-went to open houses

-got frustrated with descriptions that are BS (hint to another exuberant agent: a large closet off of the kitchen is NOT a bedroom unless your dog or cat need bedrooms in your house)

-got pitched by 10 agents (unsuccessfully).

-Learned that one property sold for a whopping $600k over to $3.5 (this may be a lie since the agent was using it to justify her pricing)

-Came home after a full day of research and tours exhausted and feeling no smarter

We real-estate entrepreneurs have a lot of work to do to get this right because this is taking too long, there is still substantial holes in the listings aggregation of all sites including the MLS, and is is still difficult to get things down to numbers. Here’s my review: For listings go to Redfin (only a few cities) or Trulia. For tax and property records Zillow or Redfin. For statistics Trulia. For open house, go fish. For area price predictions and agent reputation, My-Currency (coming soon!)