Interview with David Eraker, CEO of Redfin

I started the company back in 2002 based upon the fact that as a consumer there was more information about buying a Pez dispenser or a book than there was about buying a house. I felt that there was a real lack of tools that consumers could use to empower themselves to buy or sell a property. I started working on a number of different products that were primarily targeting the brokerage industry. Ultimately, we decided the best way to deliver a solution was as a broker ourselves.

We have been privately funded up this point and have accomplished quite a bit with just under $100,000 in angel investing.

The site has been live for about eight months. It was initially launched in October, 2004. We still consider it to be very much in BETA as we are still only targeting the Seattle and Bellevue markets.

It is very logical to focus on maps and the locations of the properties. We have integrated prior sales data from the tax assessors? records so that if you are searching for homes you might like to buy or are looking to sell your home you will know if the house is accurately priced. As we move forward we will continue to add more and more tools, which will provide much more information to the users and will continually help them in making their decisions.

Proximity to commercial establishments, parks, schools, commute time, etc. will inform a properties value and definitely play a big part in the purchasing process.

We spent a lot of time collecting the various data sets that are represented on the site. It took quite a while to build it into a cohesive model. Looking at the specific neighborhood seems to be a pretty good foundation for evaluating your local property market.

We are a residential real estate broker. Our primary revenue model is based upon referring educated and informed consumers to our partner real estate agents who then complete the transaction. We began acting as a broker by taking on limited service listings. That is an opportunity to provide additional value to consumers while also providing a pipeline for partner agents. When an individual home owner is unsuccessful in marketing their property on the site, we will refund their listing fee if they decide to work with one of our partner agents.

It is a hybrid. With any business it requires quite a bit of experimentation as you are trying to figure out what consumers want and how best to offer them those services.

Many of our partner agents are with either Windermere or John L Scott. Our service is one where we are able to aggregate consumers and then provide agents with potential consumer leads. Individual agents are largely responsible for new leads and clients and a service like Redfin provides a mechanism for individual agents to acquire new leads. It is much different from other segments of the economy, where you have employees of a corporation. Agents are very much entrepreneurs with full Profit & Loss responsibility for their business, and so we definitely fill a need in this market.

Customer acquisition is key for residential real estate agents. There are a large number of agents that compete for a finite number of transactions and it is very difficult securing a customer. Any service that can help agents secure a new customer is something that allows them to grow their bottom line.

I would say that intellectual property is incredibly critical. This is especially true on the Internet where any solution can be replicated given enough capital and resources. In the future Intellectual Property and Patents on business methods and software solutions are going to become much more critical in securing long term competitive advantages.

That is a knife that cuts both ways. As an entrepreneur it limits your ability to innovate in some capacities, but at the same time it allows you to secure rights upon what you have innovated and created. It is an interesting question that will be played out over the next five to ten years within the business environment.

That is traditionally the argument that is made in favor of Intellectual Property, because it provides greater incentive for innovation. To a certain respect that is true. Ironically, our platform is based upon open source technologies.

Up to this point our marketing efforts have been focused on word of mouth by delivering a combination of services and technologies that aren’t available anywhere else. We have experienced a fairly substantial amount of growth in our customer base just from viral word of mouth. As we grow we will certainly invest more into marketing, but for the time being we are doing well with the current traffic that we are receiving.

We certainly do not intend stay focused only on these local markets. Our goal is to bring our solution to as many cities as possible and I think we will be moving to the San Francisco market as our next new market. Our services are definitely scalable to the rest of the Real Estate markets across the United States. At some point we do want to be nationwide.

As we expand, we are looking at population densities, property prices, and availability of the relevant data sets to put together into the Redfin solution. The reason we are currently in the Seattle and Bellevue markets is simply this is where we are located and all real estate is local.

Aggregation and integration of the data sets required to do this successfully is not an easy task. While most of this information is available for free, the key is to create a system that easy to use by consumers.

You must continually innovate. The spatial representation of properties with the integration of aerial and satellite photography is a good start, but we will need to add other differentiators as well. We are always trying to make it easier to buy or sell a houses on our site. Our mapping technology is proprietary, which allows us a large degree of control over the user experience. There is a lot one can do from a search engine innovation standpoint that further enhances the customer experience. Using a third party API or system limits you to certain solutions, whereas we can continue to grow and expand our offerings with no such limitation. We have full control over our site and its functionality.

It is based upon the degree to which you are comfortable with how well your business model is doing in a given area before you start thinking about rolling it into additional areas. There are definitely trade offs between the capital expenditures required to expand versus the costs to improve the consumer experience. At this point I think that we still have a lot of work to do from a consumer experience in our current markets. Real Estate is such a large market that you can definitely have a business that is successful by focusing on a given geographic area.

On the local level the primary obstacle is in offering improved services to consumers and partner agents. The key issue in regards to national expansion comes down to the availability of capital to finance that type of growth.

We plan to finance our growth through increased revenue as well as outside investment.

I look for intelligent, internally motivated, and creative people who love their work.