Redfin CEO Glenn Kelman discusses the short- and long-term outlooks for RedfinNow in a chat with Austin Smith, the director of Millionacres.

Redfin CEO Glenn Kelman wasn’t always sure he wanted to be in the iBuyer business but now says the company is committed to continuing to present sellers with cash offers — even if the direct-to-consumer homebuying segment of the business has a cap.

Glenn Kelman | Photo credit: Redfin

In a conversation with Austin Smith, the director of Millionacres, a website from financial and investment advice firm The Motley Fool, Kelman provided an outlook on both the short- and long-term future of RedfinNow.

“We’re trying to scale that business in a responsible way,” Kelman said. “And we’re just being mindful of how capital-intensive it is.”

“Anyone who says iBuying is a high-margin business is crazy,” Kelman added. “That is going to be a game of inches where you’re tying up $300,000 to $400,000 in a house and trying to get a 2 percent or 3 percent margin on it. I don’t think we want that to be a big part of our business.”

In the short term, Kelman said there are sellers who are anxious about having people in their home and the overall economy. Those individuals will likely pay a premium for liquidity — and home demand is really strong — so in the short term, it’s a fine time to own a large number of houses, which is what being an iBuyer requires.

“But the long-term question is whether that’s fundamentally a more efficient way for a large part of America to sell a home where there’s the original owner, the ultimate owner, and someone in between, an iBuyer,” Kelman said. “And we are probably more skeptical about that.”

There will be some situations in the future where the seller won’t care as much about net proceeds — like an estate sale where the pot is being split multiple ways, Kelman said — but in most cases, the seller is going to want to make more money with an efficient selling model.

The business also has a number of challenges, according to Kelman, which includes understanding the quality of the company’s inventory, outside of a balance sheet.

“This has been an issue before with lenders, where they’re making money on every loan but it turns out they’ve got a bunch of loans in their desk drawer that end up sinking the company,” Kelman said. “And the reason we spent so much time talking about both our mortgage business and our iBuying business is we want to be careful.”

“We want to make sure that there’s no balance sheet risk, that every house that we buy, we can sell, that every loan we originate, we can also sell as a mortgage-backed security.”

When the market essentially ground to a halt, Redfin and many other iBuyers stopped buying altogether. RedfinNow was able to liquidate homes with minimal losses at a time when demand fell off a cliff.

There was a time when Redfin wasn’t sure it even wanted to be in the iBuyer business, but now that’s settled, Kelman said. The company wants to be able to present two options to every seller: a cash offer and a brokered sale, and let the consumer make the choice that’s right for them.

“We think we can make money in iBuying,” Kelman said. “We think we’re going to be in that business long term. But we still have a cap because we just have to limit financial risk.”

It was not immediately clear what Redfin’s self-imposed cap is at this time.

Since halting RedfinNow in March, the company has slowly rolled the platform back into existing markets, starting with Austin, Texas; Denver, Colorado; and California’s Inland Empire in May. In late June, the company announced RedfinNow was also returning to Dallas and San Antonio in Texas and Los Angeles and Orange County in California.

Email Patrick Kearns

Glenn Kelman | iBuyers
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