A friend alerted me to this article on TechCrunch today where the folks at TC submitted for review “data” supplied by Redfin that touts their benefits over working with a traditional agent or REALTOR. My response at first to my friend’s email was, “what exactly are you trying to say?” Especially since his only line of text besides the link to the article was, “This can’t be good news.”
After my initial response wore off I was able to really think about the article and I replied to my friend, who then prodded me to put my comments onto the post. I’ve done this now and it will be interesting to read what any replies to it might be. Michael has some interesting commentary too regarding the math of it all and constitutes a good study. I’ll ask him to post those here.
it looks like the discussion of commissions is running long and hard over at RCG as well… http://www.raincityguide.com/2008/03/18/3-steps-to-understanding-real-estate-commissions/
I’ve also posted additional comments to the TC article for those that want to read it. I did put on my boxing gloves… just a little…
I’ll just post the email response from my business partner here…
From: Michael Lindekugel
Sent: Tuesday, March 25, 2008 1:53 PM
To: Rebecca Haas
Subject: RE: realty reality
I’ll bet there hasn’t been any peer review. while 1500 data observations is usually plenty for a representative sample of a population, the 1.015% vs.087% is not impressive. both differences are so small I’ll bet neither is within the 95% or 90% confidence level. Statistically valid? not likely for two known and tested reasons.
First, appraisals are known to have +/- 2% error. that applies to hand talied, computer based models, and mixed models which are the most accurate. No matter how much data is crunched, the qualitative elements get in the way because they are hard to quantify directly or can’t be quantified.
Second, a good listing agent will price property within +/-3% of the final sale price within the 95% confidence level. the victory claimed by RF falls within that range and the known error rate for appraisals.
I’ll bet RF didn’t take into account seasonality, brokerage size, Time on Market which directly impact price. those have been through several peer review studies. I’ll bet RF didn’t set up dummy variables to segregate those elements and the qualitative elements and regress the data or check for correlation.
at best its hocus pocus marketing aimed at those who don’t understand number crunching. at worst its misleading reporting. it fails to mention the rebate may be taxable to the buyer in some situations and it may reduce the loan amount.
Cheers,
Michael P. Lindekugel
Financial Analyst
Office: 425.970.3698
RE/MAX Commercial
RE/MAX Metro Realty, Inc