A year ago, the tech real estate market Zillow Group Inc. (NASDAQ:Z) announced that it was ending its iBuyer division, eliminating its in-home flipping business and cutting 25% of its workforce. This week, digital real estate brokerage Redfin Corp. (NASDAQ: RDFN) did the same, closing its Redfin Now division, eliminating its home flipping business and cutting 13% of its workforce. While many will see this as a sad sign of a failing real estate economy, many real estate professionals aren’t shedding tears.
“The general consensus (among realtors) is ‘I told you so,'” Robert Whitfield, broker/owner at Advantage Realtors in Atlanta, told Benzinga. “A lot of people, especially in the general public, rely on companies like Zillow for marketing. The problem is that they take the data we pay for and then try to sell it back to us. I have never been impressed with their business model or their marketing services. The thing is, if real estate agents took their marketing money out of Zillow, they would fold overnight.
Zillow and Redfin, through their online brokerages and house flipping arms, ended up competing with the same real estate agents they depended on for support and advertising dollars. Agents have complained that they pay exorbitant fees for marketing with Zillow and that Zillow and Redfin’s retail real estate business model cuts them in commission fees. Due to the volume, agents also said that online brokers suffered from providing the same customer service as traditional real estate agents.
Redfin is one of the few real estate companies investing a lot of money in buying homes online in an effort to make real estate transactions more transparent. But the company has found this to be a tricky business, with customer demands outstripping their digital capabilities and the current market malaise.
“Redfin agents are cheaper for customers than traditional agents, but they handle a lot more customers. So what you get is much less individualized support of your sale or purchase,” said Whitfield, who has been selling real estate for 21 years. “They also reduced our registration fees to a variable rate of 1% to 2% per registration. I have never charged less than 3%.”
Redfin, reflecting on what it hears in the market, is setting future goals to make adjustments to customer service, according to CEO Glenn Kelman in a memo to employees. “We will show our true colors in the coming year by putting customers first and taking market share, as we have done every year in good and bad markets.”
At the end of October, Redfin’s home inventory was valued at $265 million, with another $92 million under contract to sell. But the company expects to own less than $85 million worth of homes by the end of January and will clear its entire inventory by the end of the second quarter of 2023.
“Redfin has to offload properties because their algorithm screwed up and they mispriced the market. Basically, they overpaid for properties – properties that I would never agree to list in my business,” added Whitfield.
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