The real estate industry is still unpacking the news that Zillow is bowing out of the tech-fueled glut for houses. However, the tech giant’s rivals are singing a different tune for their iBuying future.
That was the case for Seattle-based Redfin, which was riding high following a third-quarter performance that executives characterized as “better than expected.”
“RedfinNow grew revenues by more than 1,000% all while selling homes above our forecasted price,” said Redfin CEO Glenn Kelman during a Nov.4 investors call where the company posted a 128% increase in revenue to $540 million.
Real estate services—which include RedfinNow—grew 23% to $258 million.
Kelman attributed Redfin’s iBuying success to the company’s disciplined approach to paying for homes during the spring.
“When other iBuyers were paying more, we were paying less, and if that meant that we didn’t grow as fast as we could have, so be it,” he said. “This is a business that could scale to any size you want if you’re willing to overpay for houses.”
That was what led to Zillow’s sunsetting iBuying arm, Zillow Offers, as the company failed to find stability and success flipping homes, losing $381 million last quarter, according to its most recent earnings report.
As other iBuyers were snagging homes at higher prices in March, Kelman said RedfinNow started decreasing its offers in anticipation of a summer decline in home prices.
Redfin’s home sales that closed last quarter averaged 101.1% of the forecasted price, while Kelman signaled that sales the company has already booked Q4 have averaged 100.0% of the predicted price thus far.
Despite its success, Kelman noted that renovating properties is a substantial challenge for Redfin, much like other companies.
“The time we’ve needed to prepare a home for sale increased from 28 days in the second quarter to 37 days in the third quarter,” Kelman said. “Our ability to renovate homes fast is often the difference between a home that can only rise or fall in value with the market and one that sells for a premium within days of its debut.”
Kelman expects renovation bottlenecks to impact property margins by approximately 35 basis points in Q4.
Redfin plans to expand its renovations package and is pricing higher renovation costs into its offers. If the company’s capacity to renovate a home is impeded, Kelman said it can limit the number of homes it buys
Despite recent and persisting skepticism surrounding the ability of iBuying to scale or survive as a model, Kelman remained bullish around the sustainability of RedfinNow’s business model and projected longevity.
“iBuyers that live or die on whether a homeowner chooses just one option—the cash offer—can thrive only when market conditions favor iBuying,” he said. “Redfin can be more flexible. When home prices are uncertain, or it becomes costly to borrow the money to buy houses, Redfin can buy fewer houses and list more. That flexibility is more important than scale.”
Jordan Grice is RISMedia’s associate online editor. Email him your real estate news to jgrice@rismedia.com.
