Redfin Expands Experiment With All-Commission Pay

Redfin is rolling out a program that eliminates salaried agents, shifting them to an all-commission model as it looks to boost revenue and cut costs.

Redfin has historically classified its agents as employees, but its Redfin Next pay plan will compensate agents in Los Angeles, San Francisco, Orange and San Diego counties based on commissions, with nearly all agent expenses covered by the company, according to Redfin.

The brokerage announced the program for Los Angeles and San Francisco in October. On Monday, it announced that Orange and San Diego counties would be added to this program.

Redfin Next will start Jan. 1. Agents will continue to be classified as employees but they will no longer receive a salary, said Alina Ptaszynski, a Redfin representative.

When an agent working under the Redfin Next program brings a deal to the company, the effective commission split would be between 79 and 90 percent for the agent, Ptaszynski said. When agents complete deals generated through the Redfin website, they take 30 to 40 percent of the commission and the brokerage takes the rest.

Million-dollar agents

Agents working outside of the Redfin Next markets will continue to receive compensation of a base salary plus a bonus for every closed sale. Prior to rolling out Redfin Next, the company’s model starkly contrasted with how most real estate agents are paid. Redfin CEO Glenn Kelman wrote in a blog post that the goal of the new compensation model is to hire and retain top-producing agents and boost pay in the parts of California with the highest living costs.

“With our standard pay, the top has been $750,000 and $800,000 per year,” Kelman wrote in the October blog. He anticipated top agents working in the Redfin Next program would earn more than $1 million annually, while also boosting the company’s profits.

Kelman forecast the program would be expanded to other high cost-of-living markets throughout the country. Those markets are also home to the most expensive real estate, where Redfin stands to profit more.

Since announcing the program, Redfin has hired around 30 new agents in the Los Angeles and San Francisco Bay markets. They include East Bay-based Gagan Smith; Menlo Park-based Khyati Karia, who recently worked with Coldwell Banker; and San Jose-based Ana Moreno, who most recently worked with eXp.

Los Angeles-based agents who recently affiliated with the Refin Next program include Jacki Asplund, based in La Cañada Flintridge, who previously worked with Compass; Burbank-based Russell Dunn, who most recently worked with Douglas Elliman; and Pasadena-headquartered Carlos Castillo, who was formerly affiliated with The Agency.

Even as Redfin works to increase profits, real estate tech consultant Michael DelPrete published an analysis of Redfin’s finances that questioned the company’s “sustainability and viability of its business model.”

While the company has made progress paying down its debt, “the challenge is that the business itself is unprofitable,” DelPrete wrote. Its website-based brokerage concept competes against rivals that include CoStar, Zillow and the other major brokerages.

“Strategically, it appears that Redfin is overstretched with limited resources, and up against well-funded competitors with cost advantages,” DelPrete wrote. “This is a galvanizing moment for the business; one way or another, something has to change.”

Standard splits

At the same time, the industry’s commission split model experienced turmoil in recent weeks when a court ruled against the National Association of Realtors and major brokerages in an antitrust suit. This occasioned discussion of how compensation splits in the industry might change, although leaders such as Compass CEO Robert Reffkin forecast splits would not change.

The majority of real estate agents work with traditional commission models, ranging from a 50/50 split to a 90/10 split between the agents and the brokerage.

Justin Fichelson, co-founder of Avenue 8 brokerage said a 65-35 split is typical in California. He said most of those fees are whittled down by administrative, marketing and insurance fees.