Redfin Downsizes To Keep Swimming
In what is likely the first of many more of these sorts of announcements in the real estate space, Redfin is laying off 20% of their employees.
In a post on its company blog yesterday, Redfin CEO Glenn Kelman explained that the layoffs were due to the company being hit by market conditions that “wiped out prospective down-payments, tours and offers [that] dropped 30%”.
It surely must have been a tough decision, but kudos to Kelman for taking immediate and decisive steps to react to the change in the market — and for being so openly transparent about the process.
Because of the transactional nature of its business, Redfin is most certainly feeling the pain of this market much sooner than some of its contemporaries – but I suspect this is only the tip of the iceberg, as more Real Estate 2.0 startups start to feel the pinch of the slowing economy.
Case in point, in a story on Inman News today, research firm Borrell Associates is “forecasting that annual growth in real estate-related online advertising will slow to 11.3 percent in 2008 and 5.1 percent next year.” For sites pinning their hopes on advertising revenue, it looks like that might be drying up as well.
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AM | Oct 15, 2008 | Reply
My husband and I are trying to sell our home in the midst of this economic crisis. Sadly the only offer we've received so far was put together by a Redfin agent who IMHO either was very sloppy or very inexperienced. The offer was submitted with a pre-approval letter that showed that the buyer could afford to pay another $15k (sloppy) AND the financing that the buyer had in place was FHA and the agent wasn't aware that FHA won't loan on a condo dev't w/ less than 4 units. It makes me wonder about these layoffs. My guess is that Redfin probably hasn't been hiring the creme de la creme, which can certainly impact bottom line in this market.
Boston | Oct 16, 2008 | Reply
Redfin sold about $49M out of their Massachusetts office over the past 12 months according to MLS and that’s 97 transactions. By my estimations then their net commissions at the end of the day were somewhere between $350k and $400k. They employ 5 brokers…Presumably they maintain an office, if you have employees you have benefits to pay (rather than independent contractors) then there are the investors maybe they’d like a return on their investment DO THE MATH this business model is toast.
You can blame the downturn but 5 brokers as employees to gross $350-400k over 97 transactions doesn’t work, everybody is working and nobody makes any money WHY do that?
Now they’ll bleed out the rest of their funds until eventually they file and go the way of Foxtons – see you later.
Shuki Haiminis | Oct 16, 2008 | Reply
I have to agree with the above poster. If they were getting the typical 2.5% they would have collected $1,225,000. I dont know about you but I would rather be working on a % rather than salary. I think this downturn is going to make or break these models and my guess is that they will break.
Orange County Real Estate Guy | Oct 16, 2008 | Reply
Sorry to here about the people who lost there jobs. It just shows that those agents who provide a high level of service and knowledge will survive. I am not sorry to see the business model have trouble.
Susan Baker | Feb 17, 2010 | Reply
Thanks for sharing this informative and well written article. Sorry to hear of Redfin’s struggles as they are attempting to innovate. Even though I don’t agree with their business model, meaning I don’t think its actually best for their clients or their own longevity, I do appreciate they’re trying to do things in a different way and I admire and respect that. I agree with you that in the recent past the Boston real estate market has slowed down a bit but that don’t mean we are in the downward trend. I think the market has lost its momentum for a little duration. The Boston luxury condominium market has seen a lot of ups and downs. This recession won’t last much longer even if the recovery will be slow. I’ve been keeping an eye on the market and watching prices go up and down on sites by searching for Boston condos for sale. My prediction is that by start of 2011 we’ll probably see this market looking up.