Photo courtesy of Redfin
Brokerage and listings portal Redfin announced the second major round of layoffs this year as the housing market stays suppressed and the prospects for 2023 look pessimistic.
In total, 13 percent of the company’s workforce is being slashed, CEO Glenn Kelman wrote in a letter to employees posted to Redfin’s website Wednesday morning ahead of the company’s earnings call at 4:30 p.m. Eastern Time. These 862 layoffs come on top of 218 positions being eliminated through attrition, Kelman said, and an earlier 8 percent cut in headcount announced in June.
“A layoff is awful but we can’t avoid it. We plan to keep increasing our share of the market, but that market in 2023 is likely to be 30% smaller than it was in 2021. The June layoff was a response to our expectation that we’d sell fewer houses in 2022; this layoff assumes the downturn will last at least through 2023,” Kelman wrote.
Unlike nearly every other real estate brokerage, Redfin pays its agents a salary as well as commissions, claiming that such a move creates better service for its customers. Despite the challenges of such a business model – one that some Wall Street analysts are questioning right now – Kelman ended his letter to Redfin employees with a staunch defense of the practice.
“A cyclical industry makes it hard to build a caring culture. We could be cynical and stop trying to care, or even more cynical and say we only pretended to try. But those of us still here tomorrow will have remained for a reason, united by a now-ancient belief that what’s smaller can become bigger, that the only thing more inevitable than love’s failures are its triumphs,” he said.
The company plans to pay those being laid off 10 to 15 weeks’ worth of wages, depending on their tenure with the company, and will continue providing healthcare coverage for three months.
It’s not clear how many Connecticut Redfin agents are getting laid off. The company’s website only lists nine seller’s agents serving every county except Windham.
Kelman’s letter contained another major shock to the company’s business: It’s closing its iBuyer operation, RedfinNow. The move comes after market-leader Opendoor announced it had lost $1 billion in the third quarter as buyer demand evaporated in the face of continued interest-rate hikes.
RedfinNow launched in Greater Boston in the spring of 2021 amid speculation that it was as much a lead-generation tool for the company as it was an attempt to make iBuying work in the notoriously difficult-to-generalize New England market.
In explaining the decision to end the service, Kelman acknowledged attracting a larger share of listings had been a major part of the company’s plan.
“One problem is that the share gains we could attribute to iBuying have become less certain as we rolled it out more broadly, especially now that our offers are so low,” he said. “And the second problem is that iBuying is a staggering amount of money and risk for a now-uncertain benefit. We’ve tied up hundreds of millions of dollars in houses that you yourself wouldn’t want to own right now.”
While RedfinNow was only on track to lose between $22 million and $26 million this year before overhead and other expenses – a much smaller figure than Opendoor’s third-quarter loss or the similarly-sized collapse of the Zillow Offers iBuying service last year – Kelman said the amount was “still larger than we could afford to bear again.”
With the closure of RedfinNow, the company plans to refocus on its core business lines, Kelman wrote.
