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Redfin Laying Off More than 800, Closing RedfinNow

David Krechevsky
Nov 09, 2022
Redfin house price

CEO says iBuying business will lose up to $26 million this year.

KEY TAKEAWAYS
  • Redfin announced it is laying off 862 people, or 13% of its staff.
  • Another 218 could face layoffs if they decline to accept other positions within the company.

Redfin, the Seattle-based technology-powered real estate brokerage, announced Wednesday it is laying off 13% of its staff and getting out of the iBuying business.

In a letter emailed to all Redfin employees at 5:45 a.m. PDT, CEO Glenn Kelman wrote that the company is “laying off 862 brilliant, loyal people,” and closing  its iBuying business, RedfinNow. He also noted that an additional 218 employees’ could also be laid off if they decline to accept jobs elsewhere within the company.

The announcement comes as Redfin is scheduled to release its third-quarter earnings report this afternoon. It has a conference call scheduled for 4:30 p.m., after the stock markets close.

Redfin CEO Glenn Kelman
Redfin CEO Glenn Kelman

In the letter to employees, which was posted to Redfin’s website, Kelman said the company will “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.”

He said company officials met with employees of RedfinNow and the home-services team at 6:15 and 8:15 a.m. Pacific time, and would “start calling the folks being asked to leave other departments at 8 a.m. local time, and then send an email out to everyone else when we’re done.”

The layoffs will reduce Redfin’s staff, including those at Rent and Bay Equity, by 13%, which means the company has about 6,630 employees. Kelman noted that, since April 30, “the number of people working here has fallen 27%.”

He said Redfin also has 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.”

Affected employees are being offered a severance package that includes 10 to 15 weeks of pay depending on tenure, and healthcare coverage for three months, he said.

In an article published by streetinsider.com, Kelman states that closing 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."

In the article, which is attributed the company, Redfin states that the remaining workforce reductions are "primarily among our real estate services and headquarters employees in response to macroeconomic conditions. This workforce reduction will reduce our number of lead agents by approximately 197, which represents 9% of total lead agents. This action comes in the wake of our June workforce reduction, which was a response to slowing 2022 home sales."

It continues, "Since June, mortgage interest rates have continued to climb and expectations for home sales have come down even further. Today’s workforce reduction assumes a housing downturn that lasts at least through 2023. Since April 2022, through involuntary reductions and attrition, we have reduced our total number of employees by 27%, including a reduction in lead agents of 28%."

Redfin states that it expects to continue to complete the purchase of homes it is contractually obligated to buy, and to renovate and sell such properties quickly. As of Oct. 31, it said, the inventory value of its homes was approximately $265 million, with another $92 million under contract to sell.

"By the end of January 2023, we expect to own less than $85 million in homes," the streetinsider article states. "We expect to complete the liquidation of our RedfinNow inventory in the second quarter of 2023. While the bulk of the workforce reduction is occurring (Wednesday), we expect to complete this workforce reduction and wind-down of RedfinNow promptly after selling the remaining properties currently in inventory into 2023."

The company said that, for its third-quarter earnings report, it recorded an $18 million write-down of inventory associated with RedfinNow "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 Sept. 30, 2022, net of selling costs."

Redfin also stated that, as a result of the workforce reduction and wind-down of RedfinNow, it expects to incur pre-tax charges of approximately $21 million to $23 million, primarily in the fourth quarter of 2022 and the first quarter of 2023."

Of the charges that will be recorded as impairment and restructuring costs in its consolidated statements of operations, an estimated $19 million to $20 million relate to one-time termination benefits consisting of severance and related costs, and an estimated $2 million to $3 million relate to charges associated with long-lived assets pertaining to RedfinNow, the company said.

It added that, as a result of the decision to wind-down RedfinNow operations, it plans to report RedfinNow as a discontinued operation "beginning with the period during which we complete wind-down of the business. Our evaluation of various alternative courses of action that we may take related to the wind-down is in progress, and we may incur additional costs as a result of such actions. All estimated amounts are subject to change until finalized."

In the letter to employees, Kelman said he needed to explain the decision to close RedfinNow, since the company has 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.”

“And the second problem,” he continued, “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, he said, the RedfinNow properties segment will likely lose $22 million to $26 million this year. “However small our iBuying loss may be compared to others,” he said, “that loss is still larger than we could afford to bear again.”

Kelman said he and others at the company “grieve for RedfinNow and other projects now ending,” and will be “ridiculed” for thinking they could succeed. “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,” he added, “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 joins Zillow in exiting the iBuying business. Zillow announced plans to close its Zillow Offers iBuying business, which it completed in the third quarter

Kelman concluded his letter to staff by saying the company will “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.”

Published
Nov 09, 2022
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