When We Talks
Technology

Redfin to cut 13% of workforce and shut down home-flipping business RedfinNow – GeekWire

[ad_1]

(Redfin Photo)

Redfin will wind down its home-flipping program RedfinNow and lay off employees for the second time this year as it cuts expenses in response to a slowing housing market.

The Seattle-based real estate brokerage announced Wednesday that it will eliminate 862 positions, or 13% of its workforce. This is the company’s second round of layoffs this year, following an 8% workforce reduction in June. Redfin’s headcount has dropped by 27% since April.

Redfin stock was down nearly 10% on Wednesday. Shares are down more than 90% this year.

Of the cuts, 264 are related to the shutdown of RedfinNow, the company’s iBuying business that aims to digitize and accelerate how people sell their home.

“Winding down RedfinNow is a strategic decision we made in order to focus our resources on our core businesses in the face of the rising cost of capital,” Redfin wrote in a SEC filing Wednesday.

Redfin is one of a handful of real estate companies that invested heavily in iBuying to make real estate transactions more seamless. But it’s proving to be a difficult business, particularly with the broader market slowdown.

Zillow Group last year shut down its own iBuyer arm, Zillow Offers, resulting in a $405 million write-down and a 25% workforce reduction. Opendoor, the leading iBuying company, laid off 18% of its workforce earlier this month.

In a memo to employees Wednesday, Redfin CEO Glenn Kelman said 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,” Kelman wrote. “Even before its overhead expenses, the RedfinNow properties segment will likely lose $22 – $26 million dollars in 2022.”

RedfinNow, which launched in 2017, let homeowners quickly buy and sell their house online, using an algorithm to calculate a home price. Buyers paid a higher sellers fee but got added convenience of a fast transaction. Redfin then fixed up the homes and sold them, hoping to make a profit.

Kelman said “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.”

Redfin CEO Glenn Kelman at the 2018 GeekWire Summit. (GeekWire File Photo / Dan DeLong)

Real estate companies are feeling the impact of a housing market slowdown and mortgage rates that recently eclipsed 7% for the first time in two decades. Zillow also announced layoffs last month.

The overall housing market is continuing to show signs of slowing down. Single-family housing starts, which indicates the groundbreaking of a new home foundation, dropped nearly 19% in September. Meanwhile, the amount of building permits allocated fell 17%.

“A layoff is awful but we can’t avoid it,” Kelman wrote in the memo. “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.”

In addition to the layoffs, about 218 employees will have their current role eliminated but are being offered new roles within the company.

“We’ll show our true colors over the coming year by putting customers first and taking market share, as we have every year through good and bad markets,” Kelman wrote in the memo. “We’ll show our true colors today by caring for those who are leaving. I won’t pretend it isn’t heartbreaking.”

Redfin’s inventory value of its homes on its balance sheet at the end of October was approximately $265 million, with another $92 million under contract to sell, filings show. The company expects to own less than $85 million in homes by the end of January, then completely rid its inventory of homes by the end of the second quarter of 2023.

Redfin said it recorded an $18 million write-down related to RedfinNow for its third quarter earnings, “as a result of purchasing homes during 2022 at higher prices than RedfinNow’s current estimates of the values if we were to sell the homes as of September 30, 2022, net of selling costs.”

In the second quarter, Redfin sold 423 homes through RedfinNow, with an average sale price of $604,120.

Kelman said “we’ll be ridiculed for thinking” that RedfinNow could have succeeded.

“But having strained ourselves to the limit for a long time, we have to acknowledge that, even if we had the money to do more, we’ll be happier and more successful doing less, and doing it well,” he said. “It will be good to focus on our original calling: getting people a higher, not a lower, price for their homes, at a 1% fee, and supporting people through their entire move, from the mobile application to the agent to the lender to the title specialist.

Redfin is set to announce its third quarter earnings Wednesday after markets close.

Read the full memo below:

Dear Redfin,

We’re laying off 862 brilliant, loyal people and also closing RedfinNow. We’ll still need home-services employees for our concierge service to fix up brokerage customers’ listings, but since that group spent most of its time renovating RedfinNow homes, it will get much smaller.

Calls to People Leaving Start at 8 Local Time
We’re meeting with the RedfinNow and home-services teams at 6:15 a.m. and 8:15 a.m. Pacific time. We’ll start calling the folks being asked to leave other departments at 8:00 a.m. local time, and then send an email out to everyone else when we’re done.

13% Layoff
With this layoff, the number of employees at Redfin, including those at Rent and Bay Equity, will decline by 13%. Since April 30, the number of people working here has fallen 27%. We’ve also eliminated the roles of 218 employees who can choose over the next few days to stay at Redfin in another role; if all of those employees were to leave, the reduction would be 16% in November and 29% since April.

The Housing Market Will Get Smaller in 2023
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.

Thank You
To every departing employee who put your faith in Redfin, thank you. I’m sorry that we don’t have enough sales to keep paying you. The severance pay is the same as before: ten to fifteen weeks of pay depending on Redfin tenure, and healthcare coverage for three months. More information is on Fin. 

Closing RedfinNow
There’ll be another time to discuss our plans to grow, starting with this afternoon’s earnings call. But we need a moment now to say why we’re closing our iBuying business, when we’ve said for years that it drives listing share. 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. 

RedfinNow Is Too Much Money and Risk
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. Even before its overhead expenses, the RedfinNow properties segment will likely lose $22 – $26 million dollars in 2022. However small our iBuying loss may be compared to others, that loss is still larger than we could afford to bear again.

Hello, Adversity
All of us, myself included, have to grieve for RedfinNow and other projects now ending. We’ll be ridiculed for thinking they could’ve succeeded. But having strained ourselves to the limit for a long time, we have to acknowledge that, even if we had the money to do more, we’ll be happier and more successful doing less, and doing it well. It will be good to focus on our original calling: getting people a higher, not a lower, price for their homes, at a 1% fee, and supporting people through their entire move, from the mobile application to the agent to the lender to the title specialist.

Our True Colors
We’ll show our true colors over the coming year by putting customers first and taking market share, as we have every year through good and bad markets. We’ll show our true colors today by caring for those who are leaving. I won’t pretend it isn’t heartbreaking. 

A Caring Culture in a Cyclical Industry
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. Whether you’re staying or going, you can, as always, call my cell, to vent, to plan your next career move, to ask questions, to say goodbye.

Sincerely, Glenn

GeekWire Managing Editor Taylor Soper contributed to this story.



[ad_2]

Source link

Related posts

Sandbox VR opening new full-body gaming venue in Seattle’s South Lake Union – GeekWire

Effie Weber

Moonstone Bank, the Washington state bank with ties to FTX, will wind down crypto operations – GeekWire

Effie Weber

New exhibit at Seattle museum explores origins and potential of artificial intelligence – GeekWire

Effie Weber