While increasing scrutiny on offer prices — due to high price appreciation — led to a slowdown in the number of homes Redfin purchased in the fourth quarter of 2020 through its iBuyer platform RedfinNow, the same price appreciation also led to the company posting its highest ever gain on iBuyer sales.
Another factor, however, Redfin CEO Glenn Kelman revealed, is that “Redfin and other iBuyers have lowered how much we pay the agent representing the buyers of our listings.”
“In Atlanta, where more than one in four homes is sold by a business, rather than a consumer, the typical commission paid by an iBuyer to a buyer’s agent fell from 3 percent in the fourth quarter of 2019 to 2.5 percent in the fourth quarter of 2020,” Kelman revealed on the company’ fourth-quarter earnings call.
Redfin wasn’t alone in posting the best unit economics for its iBuyer platform in company history. Zillow also, for the first time, revealed that it was making money on the homes it bought and sold — although the company’s homebuying and selling segment as a whole wasn’t profitable.
As iBuyer’s like RedfinNow signal to buyers’ agents that they are willing to pay a smaller commission, Kelman believes the move might actually “create the price pressure that an efficient broker like Redfin has been banking on all along.”
A recent agreement between the National Association of Realtors (NAR) and the U.S. Department of Justice (DOJ) — after the former was sued over allegations that certain rules of the trade group place illegal restraints on Realtor competition — has led to a number of companies posting the buyers’ broker commission offered on each listing.
“Now that the DOJ and NAR settlement lets websites like Redfin publish the commission on each listing, we expect consumers to see what iBuyers are doing and follow suit,” Kelman said.