Redfin Corp., one of the largest real estate brokerages in the United States, on Monday made Canada its first international expansion market, thanks in large part to the outcome of the federal Competition Bureau’s multiyear legal battle with the country’s largest local real estate board over the online publication of sales data.
“It’s been more possible over the past 12 months to build the website [in Canada] we wanted to than it’s ever been before,” said Glenn Kelman, chief executive of the 12-year-old online brokerage. Redfin has grown to be the fourth-largest residential brokerage company in the United States – and one of only two online brokerages in the top 10 – according to the rankings of the Swanepoel Mega 1000, compiled by California real estate management consultants T3 Sixty.
Mr. Kelman said Redfin, based in Seattle, had been eyeing Canada’s market for about five years, sending representatives to speak to the Competition Bureau as far back as four years ago. At that time, the federal agency was investigating the Toronto Real Estate Board [TREB] for anti-competitive practices relating to its restrictions and rules for publishing real estate transaction data, particularly as it related to online brokerages. The Competition Tribunal ruled against TREB’s practices in 2016, and last August, the Supreme Court of Canada upheld that order. It was a “decisive victory for competition, innovation and for consumers,” Matthew Boswell, interim commissioner of competition, said after the ruling.
It was also decisive for Redfin, a company with a market capitalization of US$1.5-billion and annual revenues of US$320-million in 2017 (in the first three quarters of 2018, revenue growth was at least 28 per cent higher year over year, Mr. Kelman said). The company has hired local realtor Blair Anderson as its broker of record in the Greater Toronto Area, and has been accessing MLS data under a placeholder name in order to develop its website in Canada. Only now is it going public.
Redfin’s expansion plans land it in Toronto and Vancouver just after those markets recorded their slowest sales years in 10 and 18 years, respectively. TREB recorded 77,426 residential sales, down 16 per cent from 2017’s 92,263, while the Greater Vancouver Real Estate Board reported 24,619 sales, a 31.6-per-cent drop from 2017’s 35,993 deals.
“Real estate isn’t for the faint of heart. If we were just hoping to cash in over one or two years, then I think we’d probably skip Canada,” Mr. Kelman said. “We don’t expect it to be wildly profitable out of the gate. … I’m not worried about trying to hit some size, by some date – that’s just not how we’re built. I think there are business models that require massive scale before they are economic, and we’re just not one of those.”
Even though analysts say Redfin holds perhaps 1 per cent of all U.S. listings, the scale of the U.S. market means Swanepoel estimates Redfin’s 37,500 transactions in 2017 were worth US$22.5-billion.
It is unlikely that Redfin will have any Canadian listings before March. They are building their Canadian website and hiring but are not yet providing services in Canada.
Elton Ash, regional executive vice-president with Re/Max of Western Canada, said the Canadian industry has been expecting the arrival of fast-moving U.S.-based online brokerages for some time. In some ways, the largest players are well insulated from new competition (Mr. Ash described Re/Max and Royal LePage as having roughly half of the country’s annual listings), but in other ways, he sees vulnerabilities when it comes to technology.
“The real estate industry is notoriously bad at responding to online inquiries,” Mr. Ash said. “Realtor.ca is abysmal with how we do it. In some ways, it’s purely because of the demographic of the realtors: The average age is in the 50s.”
But Re/Max has been moving to create price-estimating tools as well as other modern features found in online listing services such as Zillow and Redfin. “When you look at their tools, they don’t offer anything more than we do, it’s just the way they promote the technology more than we have in the past,” he said. “Eventually, [consumers] have to meet with the realtor, eventually there has to be a face-to-face meeting to view the home, learn about the neighbourhood.”
That’s a view Redfin shares. Unlike no-agent discount services or sell-by-owner sites, Redfin has salaried agents who work for bonuses, not commissions, in every market in which it offers listings. Redfin has hired some realtors already but is still filling out its staffing in Toronto and Vancouver. The company also offers rebates and competes to be lower than the average commission in markets where it operates. In the United States, it has mortgage products and is even experimenting with buying and flipping homes itself.
“For us, what has always been the winning formula isn’t to be this amazing technology without service, or to offer only service without technology,” Mr. Kelman said. “Our fundamental premise is integration between the site and local real estate agents.”
Mr. Anderson, a TREB member for years, is well aware of the rocky legal journey it took to get to this point, and he expects not all of the GTA’s 50,000-plus realtors will welcome the new foreign brokerage. “Any time you have new competition … there’s going to be differing viewpoints,” he said.
“I think the reception that matters most is among consumers,” Mr. Kelman said.