Redfin ready for a ‘revolution’ after commissions verdict
CEO Glenn Kelman told investors its customer focus, including self-service options for buyers, helped improve earnings and could help Redfin grab market share.
Redfin is on the "right side of history" in the wake of the verdict against the National Association of Realtors and others in the Sitzer/Burnett commissions lawsuit, CEO Glenn Kelman told investors during the company's earnings call Thursday.
Kelman said Redfin is uniquely positioned among brokerages to thrive in the face of "massive disruption," in part because of its decision to break from NAR last month, but also because of its customer focus.
"Redfin has long counseled our agents to support any fee a listing customer wants to pay a buyer's agent," Kelman said. And though the company was named as a defendant in a new commission lawsuit filed this week, "we have very good defenses," he said.
Kelman told investors that the verdict in the Sitzer/Burnett case may dramatically reduce the number of buyer's agents and potentially "lead to a revolution in our industry, not just reform," he said.
"Today, if someone is trying to buy a Redfin listing, we route them to a buyer's agent but we may instead say we will route them to the listing agent," he predicted.
"Hiring a buyer's agent is a choice," said Kelman, who also touted the company's self-service technology for buyers and ability to market properties directly to consumers, "taking market share from other brokerages."
Redfin's earnings improved, which Kelman credited to cost-cutting efforts. "Our third-quarter results from continuing operations show how much more efficient we've become over the last year: revenue declined year over year by 12%, but gross profits increased by 8%, and adjusted EBITDA improved by $20 million," he said.
Key numbers
Revenue: $269 million, down 12% compared to the third quarter of 2022 and down $7 million from Q2 of this year.
Cash and cash equivalents: $125.8 million, down from $232.2 million at the end of 2022, but up slightly from $118.8 million at the end of Q2.
Gross profit: $98.3 million, up 8% year-over-year, and down just slightly from the previous quarter.
Net loss: $19 million, an improvement over the previous quarter's net loss of $27.4 million, and significantly better than the net loss of $90.2 million in the third quarter of 2022.
EBITDA: $7.65 million, a $59 million improvement over the third quarter of 2022, and up from a loss of nearly $7 million in Q2.
Transactions: 17,426, down from 21,752 in the third quarter of 2022.
Traffic: 51.3 million monthly average visitors in Q3, down slightly from the previous quarter but up year-over-year.
What Redfin had to say
Kelman colorfully acknowledged the grim reality of today's housing market.
"But now, like Satan in Paradise Lost, surveying the dismal expanse of rocks, caves, lakes, fens, bogs, and dens of his new home in hell, I feel a twinge of optimism," he said. "If homes were only a speculative asset, our sales prospects would indeed be grim, but most people buy a home to move to a better life. Those plans can be deferred from 2022 to 2023, but not forever."
Kelman said Redfin is seeing a meaningful rise in customers seeking listing consultations, and he also sees signs of softening prices. "Owners always mark listings down that didn't sell in the summer, but there are more price drops this fall since at least 2015."
Notable moves
Redfin hopes to gain market share in the lucrative San Francisco and Los Angeles markets by piloting a new compensation model, Redfin Max. Agents in the program will remain W-2 employees with benefits, but their compensation will be completely commission-based.
Kelman said if Redfin Max works out in the two pilot markets, it could roll out to other high-price markets in weeks. Some version of the program could go out nationwide in a year if it's profitable for Redfin and agents alike.
Longtime Redfin executive Adam Wiener left the company in September. Wiener joined the company in 2007 as a product manager for agent tools, working his way up to president of real estate services. On September 10, Jason Aleem, senior vice president of real estate sales, assumed sole responsibility for Redfin's brokerage.