“A disturbance in the force”: Redfin CEO on price drops
Kelman narrows firm’s loss, discusses market shift, commissions lawsuit
Goodbye iBuying, hello profit?
Redfin CEO Glenn Kelman said Thursday that with the closing of Redfin Now, the company’s iBuying arm, the brokerage and tech firm’s quarterly adjusted EBITDA increased by $59 million year-over-year.
Redfin still reported losing $19 million overall in the quarter, but that was better than its $27 million loss in the second quarter and $90 million loss in the third quarter of 2022.
Revenue was $269 million, a decrease of 12 percent from the same period a year ago. Redfin posted gross profit of $98.3 million, an increase of 8 percent year-over-year. Revenue was down marginally from the previous quarter.
On an earnings call Thursday afternoon, Kelman discussed the $1.8 billion award by a Missouri jury this week in a case against the National Association of Realtors and two brokerages. He said Redfin had been prepared for the outcome and was the first company to break with NAR last month.
“The Missouri verdict and other court cases may lead to a revolution in our industry, not just reform,” he said.
Kelman did not mention in his prepared remarks that Redfin was one of several brokerages named in another class-action suit filed immediately after the landmark victory. The complaint, filed by the same attorney, Michael Ketchmark, names NAR, Compass, Douglas Elliman, eXp, Redfin, Weichert Realtors, United Real Estate and Howard Hanna Real Estate Services as defendants.
The suit is much like the Sitzer/Burnett case against NAR. It alleges that brokerages conspired to force sellers to pay buyers’ brokers, and inflated those commissions.
During the call, Kelman fielded a question about the second lawsuit and Redfin’s potential liability.
“This company exists to give consumers a better deal,” he said. “For 18 years we have busted our tail to work with the industry, to find different ways to save people money, every possible configuration of a business that could put the customer first, we’ve tried it and we are absolutely proud of everything that we’ve done, which means we have very good defenses for this lawsuit.”
The CEO said he had seen signs of “a disturbance in the force” — more listing consultations, steeper price drops than is normal in the fall, and a potential increase in sellers. Softening prices could help give the economy, which has been overheated, some breathing room.
Brokerages have been hurt by low for-sale inventory and high purchase costs sidelining buyers.
“I do see falling home prices is the only way to break the logjam,” he said. “Sure, we might make 1 percent less revenue per transaction because commissions are a percentage of the sale price. But transactions are not going to go up in a significant, meaningful way until prices become more affordable.”
Redfin also claimed strong interest in its pending Redfin Max program. The company pays agents a salary as full-time employees, but will soon compensate some Los Angeles and San Francisco agents only by commission.
The program is set to start Jan. 1 but Kelman said several agents who left the company for a higher commission split have inquired about the program.