Spotting the Good in Redfin’s Red (ink)

It’s an interesting time in the real estate market. It’s always a roller coaster, but it’s been especially – shall we say – thrilling since COVID really upended the market.

The past several years have been challenging for homeowners and homebuyers alike. Between shelter in place, work from home, crushingly low inventory, skyrocketing home prices, wild swings in mortgage rates, natural disasters, political turmoil – with all this, I’m actually pleasantly surprised that the lights still turn on when I flick the switch.

As difficult as it’s been for buyers and sellers, please spare a few thoughts for the beleaguered real estate brokers.

Everyone wants to know…

As an aside, I love the word “beleaguered” – because for many years, that’s how the media invariably described Apple. It’s not the word that springs to mind when we think of the company these days.

But it sure is an apt adjective for today’s real estate industry. The other day I read an interesting article on about how Redfin – a pioneer in cloud-based brokerages, before the term was even invented – is navigating this topsy-turvy real estate market. You can read that article here.

The article begins with a recap of Redfin’s recent financials. It’s not pretty:

Revenues at Redfin fell 21% year-over-year to $275.6 million, down from $606.9 million a year earlier. The brokerage and portal’s real estate services division, its principle source of revenue, dropped to $180.6 million, a 28% decline. In all, Redfin registered a $27 million net loss for the quarter, a 64.9% year-over-year decline from the $78.1 million loss in the second quarter of 2022.

Redfin’s CEO, Glenn Kelman, blamed these results on the market. “Sales volume is near rock bottom” he is quoted as saying. You can read about that here.

But here’s where that RealTrends article gets interesting – to me at least. You see, aside from being a pioneering cloud brokerage, Redfin also has a different brokerage model than almost all brokers in the country: Redfin agents are actually salary-based employees.

But now, in view of the this challenging market, Redfin is launching a pilot program to attract “more experienced agents” for high-priced areas, specifically, Los Angeles and San Francisco (which I imagine would include the entire San Francisco Bay Area).

Selling on your own?

From the article:

Starting in 2024, Redfin plans to give agents in the L.A. and San Francisco “the lion’s share of the commission” on self-sourced sales “while keeping for ourselves the high margins on Redfin-sourced sales,” Kelman said.

Woah Nelly! That’s quite the change for Redfin – and I think it will be very good for the company.

Attracting top-tier talent is a challenge for any real estate brokerage. Paying agents on a salary to crush it isn’t really a formula for actually crushing it – because there is very little incentive to actually do so.

And that’s exactly what a commission is. A commission is simply an incentive to sell. No commission, low commission…means there is little incentive for agents to actually go out and sell. Which is what their job actually is.

Sell your home in a weekend

That’s why real estate agents have been paid primarily on commission for going on 150 years. It’s the time-tested, market-proven way that consumers have chosen to compensate their brokers. It’s simple, and brutal: brokers are paid for performance. No closing, no pay, no matter how how much (or how little) work has been performed.

Agents are therefore strongly incentivized to get the sale closed, because unless they do, not only do they not get paid, they also lose the often considerable investment they’ve made in the their pre-marketing, marketing, and sales effort.

So I’m glad to see that Redfin has finally seen the light that’s been shining right in their eyes for a couple of decades now. I think it will be good for the company, and good for consumers who will undoubtedly get better performance from these select incentivized Redfin agents.

Redfin began operating about 6 months before I got into the business – so for about as long as they’ve been around, I’ve been selling – performing – for my clients strictly on commission. Which is one reason why I work hard – very hard – to do the best I can with every transaction I’m privileged to be a part of.

If you know anyone who’s looking to buy or sell real estate in our area, please know I would greatly appreciate a referral! I’ll do my best to make their next move the best one yet.

Time to talk to a REALTOR?

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About the Author
Seb Frey helps long-time Bay Area homeowners make their next move easily the next one yet. If you're looking for a minimum of hassle, maximum net cash on sale, and certain results, contact Seb today.