The cooling housing market is once again causing job cuts at Seattle-based Redfin.
The online real estate brokerage announced plans Wednesday to lay off 862 employees nationwide and shut down its home-flipping business, RedfinNow. The layoffs will reduce the company's workforce by at least 13%, including 75 jobs in Washington.
Chief Executive Officer Glenn Kelman said the cuts were “horrible but necessary” in an email sent to employees just before 6 a.m. PST on Wednesday. Kelman wrote that the cuts were in response to a slowing housing market, and that “these cuts assume that the economic downturn will continue through at least 2023.”
Kelman thanked his departing employees: “I regret that we do not have the revenue to continue paying you,” he wrote.
The layoffs include 264 employees who work at RedfinNow and 197 lead agents, or about 9%, across multiple departments at Redfin, Inc. Of the cuts, 218 will move to other roles at Redfin, a company spokesperson said.
The cuts follow roughly 500 job losses at Redfin in June and follow a slew of other job cuts across the real estate industry as home sales and prices began to decline.
Zillow, also based in Seattle, cut 300 employees nationwide in late October. Real estate brokerage Compass laid off 84 employees in Washington. And Seattle startup FlyHomes, which promised to give the average cash-for-home buyer a competitive edge, cut a fifth of its staff this summer. Other real estate companies, from mortgage lenders to real estate brokerages, are also cutting jobs across the country.
Across Washington state, there are more people employed in real estate than there were before the 2008 housing bubble burst, but since June, the number has fallen from 63,000 to 60,900. Data from the state's Department of Employment Insurance includes a variety of jobs related to real estate and rentals, including real estate agents, appraisers and landlords. Most real estate agents and appraisers are independent contractors, but Redfin employs some real estate agents directly.
Redfin's employee headcount has fallen 27% since April due to layoffs and attrition, including recent cuts, and that number would swell to 29% if all employees who were offered new jobs chose to leave, Kelman wrote.
Redfin shares have been falling steadily, dropping from a peak of about $97 in February 2021 to below $4 on Tuesday. Zillow has similarly plummeted, dropping to $33 from a peak of about $204.
RedfinNow was a tryout at iBuying, a new approach to home resale that uses algorithms to determine pricing.
After rival Zillow shut down its iBuying unit last year, Redfin executives defended their company's resale efforts, saying they were buying and reselling homes on a smaller, more manageable scale.
Kelman now describes the venture as “a huge investment and huge risk for what are now uncertain returns.”
“We have invested hundreds of millions of dollars in homes you don't want to own right now,” Kelman wrote in a letter to employees.
Redfin expanded rapidly as the housing market boomed after the pandemic hit. The company's employee count grew from 3,377 at the end of 2019 to 6,485 two years later. At the same time, Redfin took on a lot of debt after acquiring rental listing company RentPath for $608 million in early 2021 and Bay Equity Home Loans for $137.8 million in April of this year.
Redfin posted revenue of $600.5 million in the third quarter of this year, but a net loss of $90.2 million, up from a loss of $18.9 million in the same period last year. Its real estate division, which includes RedfinNow, lost $43.7 million in the third quarter.
Redfin executives said Wednesday they expect revenue to continue to decline and losses to increase in the coming months. Kelman said the company hopes to post its first annual net profit in 2024.
“We think the housing market could get even worse,” Kelman said.
The company's revenue is limited in part by its discounted listing fees to sellers, which are 1% to 1.5%, lower than the 2.5% to 3% that are more commonly used.
Analysts have criticized Redfin's business model of hiring some agents rather than relying entirely on contractors, but Kelman defended the approach, saying employee agents close more deals than contractors.
RedfinNow's properties could incur losses of $22 million to $26 million in 2022, Kelman said in a message to employees. The company plans to write down its inventory by $18 million because it doesn't expect the properties to sell for nearly what it bought them for, according to an SEC filing.
Redfin reported that it had about $265 million worth of homes in its inventory as of the end of October, and was under contract to sell another $92 million. The company plans to complete the purchases of the homes it agrees to buy, then “expeditiously” renovate and sell the properties.
The “vast majority” of the layoffs will take effect Wednesday, but some will take effect next year, once the home-flip business has fully wrapped up.
Redfin is focused on selling homes quickly: It had about $85 million worth of inventory by the end of January, and it expects to have all of its homes sold by mid-2023.
“We price homes to sell,” Chief Financial Officer Chris Nielsen said in an earnings call Wednesday. “We're not waiting for home prices to go up.”