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July 16 2009

Redfin is America’s first online brokerage for residential real estate. Redfin gives 50% of it’s buy side commission back to the purchaser and on the sell side charges a flat fee of $5,000 – $7,000. Should the Redfin business model succeed , the precedent it sets for the real estate industry looks to be disruptive. As disruption is never fun for those being disrupted, last weeks news that Redfin turned profitable must have sent shivers down the spine of standard real estate brokerages across America.

The internet’s transformative effect on major industries, such as music and travel, has as of yet been unable to penetrate the real estate industry in a meaningful way – at least as far as brokerages are concerned. With Redfin’s recent announcement it appears that this wall may now be being breached. How profound an effect will Redfin’s model have on the industry? Well, the following four examples may give a harbinger of things to come:

1. Travel – just several years ago brick and mortar travel agencies dotted major city streets throughout North America, then came Expedia, Kayak and other online agencies, the brick and mortar stores almost all but disappeared and the vast majority of travel is now booked online.

2. Music – Itunes, Last.fm and file sharing sites such as bittorrent and Limewire have gobbled up almost the entire music industry placing traditional music stores and the cd industry almost out of business

3. Retail fashion – the largest retail shoe store in the world is now Zappos.com – although it has been claimed that online fashion retail will never threaten brick and mortar stores, the Zappos model has shown this claim may not hold merit.

4. Newspapers – with the shift to blogs, news aggregators such as the Drudgereport.com and other online news sites, the newspaper industry is crumbling. Just check out www.newspaperdeathwatch.com for an overview of the devastation.

Is real estate next? I find it hard to imagine how it won’t be a casualty of the tranformative effects of the world wide web. The result? As summed by Michael Arrington in an article in the Washington Post, the result of this disruption to the real estate industry is “a better deal for the rest of us.”

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