Through December Inman will be digging into the real estate industry’s most prominent brokerages, iBuyers and paradigm-shifters to suss out the biggest challenges each face in 2022. Check back regularly as we publish new reports on Keller Williams, Compass, Zillow and others in the days and weeks ahead.
Redfin kind of does it all.
The company is a brokerage, and uses the fairly unique approach of paying agents a salary. It’s a portal that generates millions of views. It’s an iBuyer. It’s a lender.
But Redfin also kind of occupies a strange space in real estate. Its iBuying wing, for instance, is smaller than Opendoor’s. Its portal is popular, but not the most ubiquitous. Its brokerage is growing, but not as quickly as, say, eXp Realty’s.
Which is to say, Redfin has managed to carve out a niche for itself without having to become the flashiest, most headline-grabbing company in real estate. It’s an unusual approach in an industry often dominated by bravado, but it seems to be working; Redfin’s latest earnings show that it’s whittling down losses while thriving in areas that have proven too tricky for some rivals.
To understand how Redfin’s unique strategy might play out in the coming year, as well as what major challenges and opportunities lie ahead, Inman reached out both to CEO Glenn Kelman, as well as several industry experts.
The takeaway from these conversations is that change is on the horizon, and Redfin is betting on a steady pace, continued evolution and taking a stand on important issues.
Growth and velocity
When Inman asked about Redfin’s upcoming challenges and opportunities, the first thing Kelman zeroed in on was growth.
“I think our first challenge is becoming a completely national company, because so many people aren’t moving across town, they’re relocating to Montana,” Kelman said. “So we have to hire agents in those places too.”
Kelman acknowledged that thus far Redfin has been “concentrated in these coastal cities,” but was optimistic about Redfin’s ability to hire more agents and staff in new markets over the coming year.
But growing can be both a challenge and an opportunity. Chris Heller, chief real estate officer for OJO Labs and the former CEO of Keller Williams, told Inman that as Redfin grows the key will be maintaining a positive consumer experience.
“How effective are they in connecting that consumer with one of their agents and having that be a great experience?” Heller said. “As much as they’ve tried to productize the experience, there’s still a human component.”
Industry analyst Mike DelPrete also noted that Redfin isn’t traditionally a fast-growing company, and compared it to the tortoise in the old fable about the tortoise and the hare.
“Redfin is absolutely the tortoise of the industry,” DelPrete told Inman. “They’re just kind of trucking along with 1 percent market share, growing slowly.”
DelPrete stressed that slow growth is neither an inherently good or a bad thing. And in fact he suggested that, in light of Zillow’s iBuying stumble this year (more on that below), Redfin’s slow approach might make them “the smartest person in the room.”
But there are risks as well.
“The challenge for Redfin is to make sure their velocity, their pace is right,” DelPrete said. “If you imagine a bike race, Redfin doesn’t need to be in the front of the pack. They don’t need to be blitzing and setting new land speed records. They’re happy to just be in the pack and follow along at the appropriate pace. But the risk is if they go too slow. If the pack starts accelerating, Redfin could be at risk of missing out on fundamental changes in real estate.”
DelPrete went on to note that in terms of growth, Compass and eXp for example are both growing faster than Redfin. Time will tell which strategy was superior.
“Could that become a problem for them? Yes,” DelPrete said. “Has it so far? Not really, but that’s an area to watch.”
Evolution and a shifting market
One of the big trends that Redfin, along with the rest of the industry, may have to contend with next year is a shifting market. Kelman told Inman he expects the cost of capital to be higher in 2022, meaning mortgage rates would go up. And he said the result of this would be that “homebuyers are more selective about what properties they buy.” This could ultimately put big real estate firms “on a shorter leash.”
“The Fed is going to raise rates,” Kelman said. “You look at Redfin, Opendoor, Zillow, Compass. We’ve benefited from really easy access to capital.”
Kelman framed potential changes to the financial and housing markets as opportunities, noting that “our hope is that we, having been through some ups and downs over the years, have good financial discipline.”
Redfin is also planning its next evolution. Kelman said the “next stage is to define new products,” and posed a hypothetical question: “What’s a loan you could only make if you’re a broker and a lender?” His point was that Redfin is trying to integrate more and more parts of the real estate transaction, and that process will include more things like bridge loans.
“Right now if you want to compete in a bidding war with a cash offer, you sort of have to accept an iBuyer’s offer,” he continued. “It shouldn’t be the only choice when you really only need the cash for 10 or 20 days. There just has to be a better way to get your money out of one house and into another.”
What Kelman was essentially talking about here is what some industry observers are now calling “power buyers,” or firms that help buyers move more quickly and more efficiently. And this suggests that one of Redfin’s upcoming challenges will be effectively carving out a space for itself in the increasingly crowded power buyer space.
“It’s increasing their menu of offerings,” Heller said when asked about Redfin’s growth opportunities. “But all the companies have access to those things. So it’s also how well they implement and execute that separates them.”
The future of iBuying
As Inman has previously reported, one of the most significant real estate stories of 2021 was the end of Zillow’s iBuying efforts. The news dealt a major blow to Zillow and prompted a debate about other iBuyers, one of which is Redfin.
In that context, the challenges related to iBuying for Redfin are multifaceted. On the one hand, Redfin has to contend with an industry landscape that is potentially more hostile to the iBuying concept. In other words, Redfin could theoretically suffer by association.
“If I put on my industry hat, there’s probably some of that,” Heller said. “People tend to lump companies together and if they do similar things they view them in a similar fashion.”
On the other hand, Heller doesn’t think Redfin will suffer among consumers for Zillow’s error.
“If I put my consumer hat on, if I’m a seller and I’m getting solicitations from Redfin or Opendoor or Offerpad, even if I knew everything about Zillow I don’t think that would impact how I perceive those offers or my willingness to engage with those companies,” Heller said.
If that’s the case, the demise of Zillow Offers could represent an opportunity for the other iBuyers, including Redfin, as it creates a glut of supply and less competition.
“With Redfin and Opendoor and Offerpad — although no one likes to see another company in their industry stumble or have challenges — there’s certainly part of them that are probably going, ‘OK this could be fortuitous for us, and now we need to make hay while there’s sun’s shining and take advantage of this void,'” Heller concluded.
Either way, iBuying remains a small part of Redfin’s overall business, with real estate analyst Mike DelPrete telling Inman that “if you plot Redfin’s iBuyer business, compared to Zillow and Opendoor, it hardly registers on the graph.”
“You have Opendoor and Zillow with just explosive iBuyer growth,” DelPrete said. “And then you have Redfin Now, slow and steady just trucking along.”
That’s party by design — the company has indicated in the past that iBuying can essentially be a conversation starter — but either way 2021 turned iBuying into an explosive issue.
Rentals are coming
One of the biggest Redfin stories of 2021 was the company’s acquisition of RentPath for $608 million. DelPrete called the deal a “huge acquisition for them,” especially given Redfin’s generally conservative business strategy.
The deal means rentals represent one of Redfin’s major growth opportunities, and Kelman told Inman rental listings should begin to show up on Redfin’s main website in March.
This is a fairly straightforward project for Redfin: Execute well and make rentals a key part of Redfin.com, and the company should see growth. Redfin already has a built-in audience, and other portals such as Zillow have already integrated rentals into their own listings, so there’s no reason to believe this won’t work for Redfin.
The flip side, though, is that other companies are already doing rentals, meaning Redfin is up against competitors who have a head start. It’ll be a competition for mind share.
The rewards of pushing for progress
Redfin kicked off this week with a big announcement: It had decided not to include crime data on its website. The company called on other firms to do the same thing.
The news is in keeping with an ongoing project that has seen Redfin repeatedly push for social change, particularly on race. Among other things, for example, Kelman has repeatedly advocated the end of pocket listings, and has been open about discussing real estate’s role in issues such as segregation. The takeaway from these various episodes is that Redfin wants to be on the vanguard when it comes to changing the real estate industry.
The question, however, is if consumers will reward the company for taking a stand.
In the short term, Redfin’s stand on these issues isn’t likely to impact its bottom line. The company already didn’t include crime data on listings, for example, so most consumers probably won’t notice a difference.
But the stakes could become higher over time. As has been widely reported (and debated) some parts of the U.S. have over the course of the coronavirus pandemic seen a jump in crimes such as homicides. Recent reports have also show that crime has become an increasingly important issue to voters, even in traditionally progressive areas such as New York City.
Many real estate consumers no doubt share Redfin’s desire to combat segregation, but if current trends regarding crime continue, some people could end up becoming more interested in the kind of data Redfin has opted to exclude from its site. Presumably, then, this would represent a competitive disadvantage compared to portals such as Trulia that currently do display crime data.
So, will consumers care about Redfin taking a stand? Will a positive reputation and energized users financially make up for any competitive disadvantages? Does the bottom line even matter when it comes to issues with moral or ethical components?
In the end, it’s unlikely Redfin’s social positions will make or break the company’s bottom line. But more than most players in real estate, Redfin has elected to stand on the front lines of hot button topics. The future will reveal the costs and rewards, financial and otherwise, of taking that risk.