Mere hours before it’s slated to report its earnings for the third quarter, Redfin has announced that it is getting out of the iBuying game.
In a shocking Wednesday SEC filing, Redfin announced that it would be sunsetting RedfinNow and firing 13% of its workforce. The move, which is eerily similar to Zillow’s 2021 iBuying exit, comes as Redfin tries to weather shifting market conditions that have strained many in real estate.
“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 said in the filing.
The discount brokerage is slated to fire 862 employees, with 264 of the eliminated positions being “directly related” to the wind-down of RedfinNow.
“To prosper in a housing downturn that could last at least through 2023, we have to simplify our business,” said a Redfin spokesperson in an emailed statement sent to RISMedia.
The spokesperson stated that the decision to wind-down RedfinNow is largely connected to rising mortgage rates.
“Maintaining a profit with rising interest rates would make our offers on homes insultingly low,” they said.
The remaining workforce reductions being made at Redfin will primarily come from the company’s real estate services and headquarters employees—admittedly responding to macroeconomic conditions and expectations of selling fewer houses.
Layoffs are expected to reduce Redfin’s lead agent count by approximately 197 people—or 9% of total lead agents.
The workforce reduction comes in the wake of a round of firings Redfin implemented in June when the company axed 6% of its employee base—about 470 positions—in response to slowing home sales that mounted earlier in the year.
“Since June, mortgage interest rates have continued to climb, and expectations for home sales have come down even further,” read Redfin’s SEC filing. “Today’s workforce reduction assumes a housing downturn that lasts at least through 2023.”
According to Redfin, the company has shed nearly 27% of employees since April 2022 and 28% of its lead agents.
According to Redfin’s spokesperson, impacted employees will be given “several months of severance pay and health insurance.” In contrast, about 20% of the employees in an eliminated role are being offered other positions.
“It’s hard to build a caring culture in a cyclical business, but that’s still our goal,” said the spokesperson.
Redfin’s announcement marks another blow to the iBuying sector as the remaining players in the space have had a rough week following the third quarter.
Despite seeing a YoY revenue boost of more than $250 million, Offerpad saw its three-quarter profitability streak end last quarter.
At the same time, Opendoor reported a loss of $928 million in the third quarter last week, which the company attributed mainly to a reduction of value in the homes it had on hand.
Redfin’s actions are reminiscent of Zillow’s 2021 announcement that it would sunset Zillow Offers, its former iBuying arm. After abandoning the idea of throwing its weight around in iBuying—which also resulted in a 25% workforce reduction—Zillow spent most of the year unloading its inventory of homes it i-bought.
Coincidentally, the tech giant enjoyed a revenue increase as it offloaded its inventory.
Whether Redfin sees a similar boost remains to be seen in the coming months.
As of October 31, 2022, Redfin’s remaining inventory of homes is worth “approximately $265 million,” with another $92 million under contract to sell. The company said that it will still complete the purchase of homes it is contractually obligated to acquire and plans to renovate and sell them quickly.
“By the end of January 2023, we expect to own less than $85 million in homes,” Redfin said in its filing.
The company also noted that it expects to completely sell off its RedfinNow inventory by the second quarter of 2023.
“While the bulk of the workforce reduction is occurring today, we expect to complete this workforce reduction and wind-down of RedfinNow promptly after selling the remaining properties currently in inventory into 2023,” Redfin said in its filing.
In connection with the preparation of its Q3 earnings report, Redfin stated that it recorded an $18 million write-down of inventory associated with RedfinNow due to purchasing homes during 2022 at higher prices than current value estimates if the company sold the homes in late September.
Redfin expects to incur pre-tax charges of approximately $21 million to $23 million in the fourth quarter of 2022 and the first quarter of 2023 due to the workforce reduction and wind-down of RedfinNow.