Redfin has been around for 20 years, but it has yet to become a profitable company.
Even in 2021, its most unusually good year, the company lost $109.6 million.
There are a few reasons for this (poor timing of rental acquisitions, heavy investments in technology over the years), but the core of the issue is simple: Redfin has always paid its agents.
Paying a payroll of 2,000-plus agents every two weeks is a harsh reality, and while Redfin has long outsourced work to “partner agents” and recently announced a goal of sending 50% of its leads to non-Redfin agents, the path to profitability remains difficult to discern.
By moving to a traditional commission-sharing model, Redfin has moved away from a model that didn't work even in good times. High-performing, high-priced agents will at least consider Redfin. Redfin's average sales prices will increase, and it will strengthen its local neighborhood connections in its key markets.
This is sensible and somewhat obvious, which begs the question: why wasn't this move made years ago?
Of course, we don't know for sure, but we think it has something to do with Redfin's purpose-driven nature. “Redefining real estate in favor of the consumer” is the company's motto. To say that Glenn Kelman, who describes Redfin as his “life's work,” is passionate about this mission is an understatement.
I respect Redfin's strong sense of mission. But I also think that what Kelman and company believed was necessary to fulfill that mission — discounted fees and salaried agents who could enforce standards — was wrong. In fact, I think these things are antithetical to the mission. The best agents have never been with Redfin. And the discounts require the company to force the highest possible volume of transactions with the fewest agents possible, which leads to things like showings by listing agents who are licensees, the real estate equivalent of DoorDasher. I used to call them “push button agents.”
The purpose was noble, but the means were contrary.
This new strategy fixes that: Redfin is freed from its own vanity concerns, and consumers get better service.
Addressing these issues will allow Redfin to make the most of its greatest assets: its vast consumer base, its brand and its superior technology.
I guess it's better late than never.
Take a closer look
But there's another layer here, which is the layer that influences other players in the industry.
I believe Redfin is also moving here to cover its greater exposure to the possibility of dramatic changes in buyer agent compensation. Redfin has always been biased towards the buyer side. The company has tried hard to balance in recent years, most notably with its ongoing “1% Listing Fee” advertising campaign and the Redfin Premier Luxury Program. But as we all know, listings come from… listing agents. By offering a traditional commission, Redfin is much more likely to recruit agents who will play it safe, so to speak.
Zillow is also making a big effort to sell advertising upgrades to real estate agents, and we see it moving quickly to the real estate brokerage side. Costar's Homes.com is essentially based on the assumption that buyer brokerage will be destroyed. However, unlike Zillow and Homes.com, Redfin is an operating brokerage, so it will be especially important to watch how it performs in the face of change.
And of course, Unleashed Redfin is now un-Realtor Redfin. They are asking their agents to leave NAR. I didn't think it was a big deal when the Redfin-NAR breakup was announced, but if Redfin is successful here and actually recruits a lot of serious agents, it could have a big impact.
A few years ago, I wrote a blog post series called “The School of Redfin.” In December 2007, I wrote:
I would not use Redfin to sell my house.
But I respect Glenn Kelman, and I hope he and his company thrive and occupy a large slice of the market, because this company and Kelman have done this industry a great favor. They've challenged the industry to face its demons, but most importantly, they've given us great lessons to learn from.
This is still true today and I am still learning.