One year ago, tech real estate marketplace Zillow Group Inc. Z announced it was discontinuing its iBuyer division, eliminating its home-flipping business and cutting 25% of its workforce. This week, digital real estate brokerage Redfin Corp. RDFN has done the same, shutting down its Redfin Now division, eliminating its home-flipping business and cutting 13% of its staff. While many will see this as a sad sign of a faltering real estate economy, many real estate professionals are shedding no 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 issue is that they take the data we pay for and then try and sell it back to us. I’ve never been impressed with their business model or marketing services. The fact is that if real estate agents pull their marketing money from Zillow, they’d 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 complained they were paying outlandish rates for marketing with Zillow and that Zillow’s and Redfin’s retail real estate business model undercut them in commission charges. Because of volume, the agents also said the online brokerages suffered in offering the same customer service that conventional real estate agents provided.
Redfin is one of a few real estate companies that put a lot of money into online home buying with the goal of making real estate transactions more seamless. But the company found that it’s a tricky business with customer demands exceeding their digital capabilities and the current market malaise.
“Redfin agents are cheaper for customers, compared to traditional agents, but they handle a lot more clients. So what you get is a lot less individualized support from your sale or purchase,” Whitfield, who has been selling real estate for 21 years, said. “They also undercut our listing fees to as low as a variable rate of 1%-2% per listing. I have never charged anything under 3%.”
Redfin, reflecting on what it hears in the marketplace, is setting future goals to make some customer service adjustments, according to CEO Glenn Kelman in a memo to employees. “We’ll 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.”
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 in homes by the end of January and will dump its entire inventory by the end of the second quarter of 2023.
“Redfin has to unload properties because their algorithm was screwed up and they misjudged the market. Basically, they overpaid for properties — properties I would have never accepted to list in my business,” added Whitfield.
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