Redfin Next commissions take a bite out of earnings
CEO Glenn Kelman apologized to shareholders but also said expansion of the company’s new agent pay plan will help the brokerage “go on the attack” in 2025.
A sluggish housing market and some unexpected expenses hurt Redfin's profits, but the company remains optimistic about future growth as it continues its plan to hire hundreds of agents.
The brokerage announced a net loss of $33.8 million for the third quarter, significantly more than the $19 million loss of a year earlier. Redfin CEO Glenn Kelman said one factor was $4 million in one-time expenses, including costs of replacing agent salaries with higher bonuses as the company accelerated the expansion of its Redfin Next pay plan. Restructuring operations for its Redfin Concierge service also resulted in some additional expenses.
While Kelman believes the rapid switch to Redfin Next is resulting in a better sales force that will allow them to go on the attack when the housing market improves, Kelman said in an earnings call that he "owes our shareholders an apology."
"We moved heaven and earth to make money in 2024 but we fell short of that goal," said Kelman.
Kelman said Redfin plans on increasing its marketing and advertising spend with the goal of increasing market share as the housing market recovers.
"Pairing our sales machine with more advertising should let us grow faster in 2025," Kelman said.
What Redfin had to say
On the impact of industry rule changes required by the NAR settlement: Kelman said he was surprised to find that commission fees have so far been nearly identical to what agents were earning before the settlement.
"Fees may fall when a new and potentially more competitive home buying season begins," he said, adding that because Redfin already tries to offer lower fees than other brokerages, it may result in increasing market share.
On looking to "go on the attack" in 2025: "Already, shifting our real estate agents to a commissions-based model has improved close rates, with industry-leading attach rates for mortgage and title services. With plans to hire hundreds of agents between now and next spring, we're emerging from a year of record low U.S. home sales ready to go on the attack," Kelman said.
Redfin plans on increasing its marketing and advertising spend with the goal of increasing market share as the housing market recovers. "Pairing our sales machine with more advertising should let us grow faster in 2025," Kelman said.
Key numbers
Revenue: $278 million, up 3% compared to the third quarter of 2023 but down from $295.2 million in the second quarter of 2024.
Cash and cash equivalents: $165.7 million in the third quarter, up from $149.8 million at the end of 2023.
Net income/loss: A loss of $33.8 million, more than the $19 million loss in the third quarter of 2023. It's also more than the company estimated three months ago.
Adjusted EBITDA (earnings before income, taxes, depreciation and amortization): $3.9 million, down from $7.7 million a year ago.
Average number of lead agents: 1,757 at the end of the second quarter, up 1% from a year ago.
Transactions: 13,324 for the third quarter, up 2% compared to a year ago.
Site traffic: 49 million average monthly users, down 4% from a year ago.
Notable moves
Along with expanding its new pay plan, earlier this month Redfin said it had rolled out its free rental listing tool nationwide, helping homeowners and property managers connect with potential renters.