Friday Flash: Redfin unleashed

Redfin has existed for 20 years. It has yet to be a profitable enterprise. 

Even during 2021, that most extraordinary of boom years, the company lost $109.6 million. 

There are a few reasons for this (a poorly-timed acquisition in rentals, an extraordinary investment in technology over the years), but the heart of the matter is simple: Redfin has always paid its agents salaries. 

Making payroll every two weeks for over 2,000 agents is a sobering reality. And while Redfin has referred out business to “partner agents” for years, and recently announced a goal to send 50% of its leads to such non-Redfin agents, a path to profitability has remained hard to discern.

By making the shift to traditional commission splits, Redfin has unleashed itself from a model that wasn’t working even in the best of times. Good, high-producing, high-price-point agents will now at least take a look at Redfin. Redfin’s average sale price will increase, as will its on-the-ground, neighbor-to-neighbor presence in key markets. 

This is smart, and also kind of obvious. It begs the question: Why wasn’t this move made years ago?

I don’t really know, of course, but I think it has something to do with Redfin’s purpose-driven character. “Redefining real estate in consumers’ favor” is the company’s mantra. To say that Glenn Kelman, who has described Redfin as his “life’s work,” is passionate about this mission is an understatement. 

I admire Redfin’s fierce sense of mission. But I also think that what Kelman and company have believed was necessary to fulfill that mission — discounted fees and salaried agents upon whom standards could be enforced — was mistaken. In fact, I believe these things have been antithetical to the mission. The best agents have never been at Redfin. And discounts required the company to force the highest amount of volume possible through the smallest number of agents possible, which led it to do things like offloading showings to showing agents, licensees who were the real estate equivalent of DoorDashers. I’ve called them “push-button agents” in the past. 

The end was noble, the means were backwards. 

This new strategy corrects that. Redfin is freed from its own pretensions, and consumers will be better served. 

With these problems addressed, Redfin is positioned to fully leverage its biggest assets: a huge consumer audience and brand, and excellent technology. 

Better late than never, I guess. 

Watch closely

There’s another layer here, though. One that has implications for other industry players. 

I believe Redfin is also moving here to cover its massive exposure to potentially dramatic buyer agent compensation changes. Redfin has always been buy side-heavy. It has worked hard in recent years to balance things out, most noticeably through its sustained “1% Listing Fee” ad campaign and Redfin Premier luxury program. But as we all know, listings come from… listing agents. By offering traditional commissions, Redfin is much more likely to recruit them — agents who work on the safe side, so to speak. 

You see Zillow speeding toward the listing side too, with its big effort to sell advertising upgrades to listing agents. Costar’s is practically premised on the assumption that buyer brokerage will crater. Unlike Zillow and, though, Redfin is an operating broker, so watching how they move in the face of change is especially important. 

And of course there’s this: Unleashed Redfin is also now a non-Realtor Redfin. They’re requiring their agents to leave NAR. I didn’t think Redfin’s breakup with NAR was a huge deal when it was announced, but if Redfin succeeds here, and does indeed recruit large numbers of serious agents, the impact will be significant. 

Years ago, I wrote a series of blog posts titled “The School of Redfin.” I wrote this in December 2007:

I wouldn’t use Redfin to sell my home.

But I admire Glenn Kelman. I hope he and his company thrive. And carve out a nice slice of the market. For the company, and the man, are doing this industry a great favor. They are challenging it to face its demons. But most importantly, they are offering up some fine lessons we should study.

This is still true, and I’m still studying.