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The recent dramatic changes in the state of the housing industry has claimed more jobs.
Seattle-based Redfin and New York City-based Compass Inc., both online real estate brokerages, each announced workforce reductions this week in filings with the Securities and Exchange Commission.
Redfin submitted its filing on June 12, stating that it was laying off 470 workers, or about 6% of its total workforce. Compass followed with its filing Tuesday, stating it would cut 10% of its workforce, or about 450 jobs.
“We expect to complete this workforce reduction by the end of June 2022,” Redfin said in its filing. “As a result of this workforce reduction, we expect to incur a pre-tax cash charge for one-time termination benefits, which consist of severance and related costs, between approximately $9.5 million and $10.5 million in the second quarter of 2022.”
In a related blog post posted today to the company’s website, Redfin CEO Glenn Kelman defined the layoffs a bit more broadly.
“I’m sorry to say that we’re asking about 8% of our employees to leave Redfin today, or about 6% if you include the people of RentPath and Bay Equity,” he wrote.
He stated that laid-off employees were offered 10 weeks of base salary, with an additional week of pay for every 12 months of service beyond one year, capped at 15 weeks of pay.
He continued, “For agent and support roles, severance pay includes the estimated value of productivity bonuses or sales bonuses. We’ll also pay departing employees the cost of extending our healthcare coverage for three months.”
“This should give you until the end of the summer to find work,” he added.
Kelman cited the drop in business throughout the industry for the layoffs. “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects,” he wrote.
“A layoff is always an awful shock, especially when I’ve said that we’d go through heck to avoid one, and that we raised hundreds of millions of dollars so we wouldn’t have to shed people after just a few months of uncertainty,” he wrote in the blog. “But mortgage rates increased faster than at any point in history. We could be facing years, not months, of fewer home sales, and Redfin still plans to thrive. If falling from $97 per share to $8 doesn’t put a company through heck, I don’t know what does.”
He added that software engineers are among those being laid off, as the projects they were working on have been completed. “We’ll spend less on analytics and user research,” he wrote. “When we were turning away tens of thousands of customers in 2020 and 2021, we had to hire a thousand employees a month to catch up, requiring berserk levels of recruiting, training, and licensing. There’s no avoiding that those groups will be hardest hit today.”
Compass, meanwhile, told the SEC in its filing that, in addition to its plan to cut 450 jobs, it also will “wind down” Modus Technologies Inc., a title and escrow software company that is a wholly owned subsidiary.
“The shutdown of Modus is not a reflection of any plans to depart from the company’s commitment to title & escrow services, and (Compass) continues to plan to offer these services in every market in which (it) operates,” it said in the filing.
Compass said the layoffs and wind-down of Modus are part of a broader “transformation plan” to “take meaningful actions to improve the alignment between the company’s organizational structure and its long-term business strategy; drive cost efficiencies enabled by the company’s technology and other competitive advantages; and continue to drive toward profitability and positive free cash flow.”
It said the transformation plan is expected to include, but is not limited to, “a series of actions such as a reduction in U.S. hiring and backfills resulting from attrition, occurring both in the first half of 2022 and anticipated for the remainder of the year.”
The plan also will include a review of occupancy costs with a view toward consolidating offices and reducing related costs, as well as a planned pause in merger & acquisition activity and new market expansion “for the remainder of 2022.”
Compass told the SEC it estimates it will incur “total pre-tax charges of approximately $21.5 million to $23 million during the quarter ending June 30, 2022,” related to layoffs and wind-down of Modus. Those costs are expected to include,
- a pre-tax cash charge of approximately $15 million to $16 million for severance and other termination benefits for employees whose roles are being eliminated;
- a non-cash charge of approximately $4.5 million associated with the discontinued use of certain intangible assets associated with Modus, and
- approximately $2 million to $2.5 million of non-cash charges related to the write-down of right-of-use assets and other fixed assets for certain real estate leases associated with Modus that are expected to be exited, or partially exited, by June 30, 2022.
Compass said it is assessing the real estate leases related to Modus, and additional charges of up to $4.5 million may be incurred as the Modus lease portfolio is ultimately exited, either during the quarter ending June 30, 2022, or during future quarters in 2022.
Compass announced in October 2020 that it had signed a definitive agreement to acquire Modus, a title-and-escrow software startup. Financial terms of the deal were not disclosed.
Modus, also based in Seattle, merged its 60 employees with Compass’s real estate transaction platform. Founded in 2018 by Alex Day, Jai Sim, and Abbas Guvenilir, Modus’ goal was to digitize the home-closing process by providing a transparent platform for agents and their clients.
In response to a request for comment, a Compass spokesperson replied in an email, stating, "We’re grateful to the Modus team for their dedication to providing the best possible service to their customers. We continue to champion entrepreneurs in our industry and wish Alex and Jai all the best in their future endeavors."
The announcements of layoffs by Redfin and Compass come just under two weeks after loanDepot announced an undisclosed number of layoffs, and Mr. Cooper laid off 420 employees, including 120 in California.