Propmodo Daily

By Franco Faraudo · May 9, 2024

Greetings!

The announcement of commission split lawsuit settlements led to a decline in stock prices for almost every residential brokerage, as investors fear that lower commissions will diminish profits. But Redfin's CEO has a different perspective. During the latest earnings call, he shared his vision for an online brokerage post-settlement, providing a promising outlook for Redfin’s investors. Today’s email will explore the opportunities he highlighted during the call.

This week in Propmodo Technology, we're exploring how tech is driving the rise of flexible office spaces. Phone booths and modular meeting rooms offer quick adaptability to changing work needs and large office owners are embracing tech-enabled co-working and flex spaces to support hybrid work. Plus, we'll investigate why an on-demand 'Class Pass' model for offices hasn't worked out yet.

Now, let's dig in!

Redfin’s Earnings Call Shows a Glimpse of the Industry Post Commission Settlement

Redfin reported its first-quarter earnings this week, indicating slight revenue growth despite challenging market conditions. Although the company continues to operate at a loss, Redfin believes that recent changes in the real estate landscape, particularly following commission lawsuits, may lead to profitability within the year.

According to CEO Glenn Kelman, a major driver of Redfin's future growth is the company’s revised commission structure. The initiative, known as Redfin Next, has been launched in various markets across the country. This new model replaces salaried contracts with higher commission splits for agents. "In the first quarter, the four California markets piloting Redfin Next experienced significant growth in market share, luxury sales, and loyalty sales compared to the rest of Redfin," Kelman stated. Following this success, Redfin Next has been expanded to other large markets including New York City, Chicago, Miami, and Washington D.C.

Another strategy shift, influenced directly by the commission split case, is the introduction of Redfin Sign and Save. This program encourages buyers to work with Redfin agents by offering them a rebate of between a quarter to half a percent of the commission. Buyers must sign the agreement before their second tour, helping Redfin reduce one of its highest customer acquisition costs: providing free walkthroughs.

These acquisition costs have significantly shaped Redfin’s perspective on the future of the industry. “Our fundamental belief is that over time, a standalone brokerage will be replaced by businesses that integrate online search with agents, lenders, and title services,” said CEO Glenn Kelman. “The cost of meeting a home buyer and earning her trust is too high to be covered by the fees from a single sale.”

The company also noted competition from homes.com and its parent company, CoStar Group. “After a year of unprecedented investment from a new rival, we’re effectively competing for traffic and adding customers to our rentals marketplace, which has now become a source of profit,” Kelman commented.

The market responded positively to both the earnings and Redfin’s forward-looking strategy. Investors were particularly excited about Redfin’s investment in technology, notably AI. Kelman discussed the company’s chatbot experiment, Ask Redfin: “Ask Redfin uses large language models to instantly answer visitors’ questions about listings. Since launching, we’ve seen more online visitors schedule meetings with our agents. Our iPhone app began offering chat nationwide on April 24, and we plan to extend Ask Redfin to our website and Android app later this year.”

Despite the threat of lower commissions following the resolution of commission split cases, which pressured all residential brokerages, Redfin is now exploring how a digital-first brokerage can leverage new commission rules to its advantage—assuming it can outpace its competitors.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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