Redfin has been on a roll recently. The company just weeks ago unveiled a new program that lets buyers without agents make direct offers on homes, and has been steadily expanding its iBuyer program. In early May, the publicly traded company also beat analysts’ expectations when it posted $110.1 million in revenue for the first quarter of 2019.
Redfin CEO Glenn Kelman hopped on a call with Inman to discuss some of his company’s latest news, and preview his comments at the upcoming Inman Connect in Las Vegas — where he’ll be speaking on the main stage. What follows is a version of that conversation that has been lightly edited for length and clarity.
Inman: There’s been kind of a back and forth over the extent to which Redfin Direct has the potential to cut out buyers’ agents. And I wanted to tease that out a little bit here. If Redfin Direct gives consumers the tools they need to buy a home without an agent, why would they go the traditional route with an agent?
Glenn Kelman: I think many in the industry worried that Redfin was going to eliminate buyers’ agents entirely, when in fact we employ thousands of real estate agents. That’s what I thought was overblown about some of the controversy.
The truth is that most homebuyers need advice. About how much to offer, whether to include an inspection, about how to arrange financing. That doesn’t mean every homebuyer does, and we want to give homebuyers more choices. And what’s even more important to us is that we want to fulfill our fiduciary duty to the person who hired us. Which in the case of a Redfin listing, is the homeseller.
The homeseller wants to get as many offers as possible, wants to avoid fees where it makes sense. And if somebody is going to make an unsolicited offer, or if it’s going to be an offer from an unrepresented buyer, we have to take it.
And now what we’ve done is just build a tool that makes it easier to do that, and that makes it more likely that the offer will be competitive. So I do think that this can benefit sellers. I do think that in some cases buyers will decide to make an offer directly without a buyers’ agent. But I don’t think that means its the end of buyers’ agents in the United States.
Sure, obviously I also don’t think we’re going to see that happen overnight, but do you have a sense of how many buyers will still use an agent and how many will choose to just go at it alone using the tools you’ve created?
Well, right now less than 5 percent of the offers that we get in Boston are from unrepresented buyers. So I think it’s going to be a small number. Obviously, as the agent for the seller we want to get as many offers as we can, so we’re trying to increase that number. But we don’t expect that number to go to 10 percent or 20 percent any time soon.
We just think that most homebuyers need advice. And the ones who feel confident enough to do it on their own, we just want to give them the tools to do that as part of our service to the homeseller.
Do you know anything about the buyers who are choosing to move forward without agents? Are they younger buyers? Repeat buyers? People with more experience? Or is that not stuff you guys track?
Well of course we track it! We were just talking about it in a meeting I had before walking into this interview and it’s been a surprising mix of people who were very experienced, and younger customers who have never bought a home before. We thought that almost all the buyers would be people with extensive homebuying experience, but that hasn’t always been the case.
Do you think as the buying demographic moves down the generations — as you get a demographic that’s more comfortable doing everything in their lives online — you’ll see that percentage tick up slowly?
Maybe. But I think people sell baby boomers short. Folks who have bought seven, eight homes in their lives feel very comfortable with the idea of making an offer on a house even if they don’t have a real estate agent advising them on the price. So some folks just presume you can’t teach an old dog new tricks, but some of us old dogs have just bought plenty of homes before.
I wanted to touch briefly on the regulatory issues that have arisen in Boston. I know the [Massachusetts’ Board of Registration of Real Estate Brokers and Salespersons] took issue with some of the forms you were providing. Have you been in touch with them or are you working toward a resolution on that particular issue?
We talked to them the morning after Inman ran the story. They had never contacted us prior to that. And I believe we reached out to them, got their version of the form and started using that instead of our own.
But we’d always put buyers on noticed that they were unrepresented, that the only agent involved in the transaction was representing the seller and that there were all sorts of risks that they had to be aware of.
In fact, I thought our disclosure was more comprehensive than the Massachusetts disclosure. So I don’t know that there was a real issue there. I think what we can always do better at is just making sure that we talk to all the local folks in advance of launching a new website feature and launching a new service.
Is the way Redfin Direct rolled out in Boston going to impact the way you guys roll it out in other places?
Well, I think what we’ll do is definitely talk to the MLS in advance. Kathy Condon of MLS PIN probably should have gotten a call from me ahead of time. It was the same day as our earnings and so I didn’t do that. But I probably should have. I just think it would’ve been a courtesy.
So I think we’re going to have a comprehensive outreach campaign every time we go into a market. And we’re still trying to decide who to put on the list of folks we call in advance.
I know you guys are expanding to Virginia next, but I was wondering if you could give me any sense of where you’re looking to expand beyond that.
We’re not prepared to talk about our plans for geographic expansion because we don’t know how Virginia is going to go. In some ways, Massachusetts is an easy state to test this in because it’s an attorney state.
More of the forms are handled by an attorney then by a real estate brokerage. Whereas Maryland, as an example, has an extensive set of forms that are handled by the real estate agent. And so taking an unrepresented buyer through all of those forms is significantly more work than it would be in Massachusetts.
And all of that’s to say it’s not like we have a diabolical plan for world domination that we just haven’t revealed to Inman. It’s that we want to make sure that it really works well for unrepresented buyers and especially for our clients, the sellers, in Massachusetts and then in Virginia.
I also wanted to ask you about Redfin Now. Earlier this year you mentioned that most the cash offers you’re making through the program are rejected but that the program is still valuable to the company. And I wanted to ask if that’s where you sort of see iBuying going in the future. Do you see it as always being a lead generation tool, or is the share of people that accept cash offers going to grow substantially in the future?
I want to be clear that I don’t quite agree with Redfin Now, or iBuying generally, as a lead generation tactic. Part of this is just factually important. We have not listed many houses from Redfin Now homeowners who have rejected our offer. And part of that problem is they feel insulted by the low offer from Redfin Now and we haven’t been able to come back and win their trust to list the home. Hopefully we execute better on that.
But since we’re a publicly traded company and you are publishing my remarks, I just need to manage expectations. If you want to evaluate this as a lead generation channel we have to concede that it hasn’t been an effective one yet.
But the way I would characterize it today, instead of saying it’s profited the company when these offers are not accepted, I would say that it’s benefited the homeowner. I just feel like some people list their house who should never have done it. They worry too much about when it’s going to sell. They can’t deal with keeping the place clean everyday because they have four kids and a dog. They need the money right away because they’ve already bought another place. There are some customers who are not well served by the brokerage model who should take a Redfin Now offer.
And then there are other customers who get an instant offer and realize that actually they could have sold the home for more money through a real estate agent. So, what I’m really committed to is the choice and making sure every home owner we meet gets an informed choice. We are a fiduciary. This should be consultative.
We should be talking about what’s best for you, because the trade-offs are real. Anyone saying you’re going to get more money by an instant offer than you will by putting the house on the market, that’s an aberration. Nobody can front the money and take the risk without discounting the offer.
I’d rather be straight up about the trade-offs, but present those trade-offs to the customers.
I think what you hear me doing when we talk about Redfin Direct, when we talk about Redfin Now, is trying to consistently reframe the issue as what’s best for the consumer. Because that’s the way I think the brokerage industry is going to make the most money long-term. By aligning itself with its customers.
Help me understand that though. It sounds somewhat altruistic, which is great, but you guys are obviously a business. If people are rejecting the offers, and it’s not primarily lead gen, what is the monetary value of Redfin Now?
Well, some people accept the offers. So let’s start there. If no one ever accepted a Redfin Now offer we wouldn’t have any sales. And obviously we want to be better when someone rejects the offer at persuading them to list the house with Redfin. Sometimes they do. It’s not as if it’s never happened. But that’s the area where we want to do better.
And I just want to challenge the premise of your question again. Aligning with the customer may have some kind of moral component. But it isn’t just purely altruistic. I really believe that the way to get the most customers is to get the most trust. If a customer rejects a Redfin Now offer and ends up listing the house for more money, we want that customer to feel that their Redfin experience was good. Because one day we’re going to get them to list with us. And hopefully that day is soon.
I do think what’s behind your question is, long-term, what are the offer acceptance rates on instant offers. And I really think that is a very volatile number. If you had to pick a moment in history when instant offers could be most compelling, it would be now. We are in a seller’s market.
There is a shortage of affordable inventory, which is where the iBuyers are most active. And the cost to capital is ridiculously low. In a different market where rates go up, the market shifts toward buyers, the costs of capital are higher, that’s going to be priced into those offers.
The question that everyone’s asking is whether people will pay a larger premium for certainty, whether they’ll take a much lower offer because the market is much less certain.
So I feel careful about how instant offers will perform in a downturn. Not just with the inventory we’ve already bought but with the offer acceptance rate for the inventory that we’re trying to buy. And that’s why we’ve tried to be agnostic about whether the customer accepts the offer.
Our job is to price the risk appropriately in the offer and to give the customer two good choices. But if we had all our eggs in one basket — that they had to accept that offer or the company fails — that would be hard for us. Because I think we would then be betting on a very specific set of market conditions that don’t seem permanent to me.
I think our time is coming to a close, so I just wanted to ask, with you speaking at Inman Connect coming up, is there anything else that you want to preview or you want to mention that you might bring up at Connect?
We’re going to talk about the issue that I spend most of my days working on, which is the quality of life for real estate agents. I go to Connect to learn about what other brokerages are doing to make their real estate agents lives better. How they can increase their income, how they can address the work-life balance challenges that have been created by the internet when someone can contact you 24/7.
Because for this industry to thrive over the next 20 years, many more young people have to choose to enter the workforce as real estate agents. And my challenge with almost all these conferences is how old everyone is including me!
I want to talk about that. That is my number one job. Making sure that all the assets who walk out the door every night come back tomorrow morning and want to serve our customers well.
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