Key Words: ‘You are just force-feeding yourself potentially toxic assets’: Redfin’s CEO remains cautious about iBuying’s future


Don’t expect Redfin

to become a full-fledged iBuyer — even with Zillow


exiting the market.

That was the message from the company’s CEO, Glenn Kelman, during Redfin’s third-quarter earnings call with analysts and investors. While the company’s division that focuses on buying, renovating and then selling homes has continued to see its revenue grow, Redfin’s leadership remains cautious when it comes to the home-flipping business.

“‘We’re committed to the business — but as part of a complete real estate solution not as a standalone business. If you have to buy houses every day of the week, in every type of market condition, you are just force-feeding yourself potentially toxic assets.’”

— Redfin CEO Glenn Kelman during the company’s third-quarter earnings call

Kelman then argued that Redfin has a “fiduciary” responsibility to its customers. So if it doesn’t make sense for Redfin to buy a home, the company can aim to shift them over to the brokerage side of the business to help them offload the property in a more traditional way.

“That’s what we’re committed to — not the idea that we have to scale iBuying to make all of Redfin successful,” he said.

During the third quarter, Redfin sold 388 homes through its iBuying division, RedfinNow. That’s up from 37 homes a year ago — though the year-over-year comparison is skewed because last year’s low number reflected Redfin’s decision to halt its iBuying activities at the start of the pandemic. Still the most recent quarter’s sales volume is the highest over the past two years, as was the revenue RedfinNow earned per home.

And Redfin has continued to expand the number of markets where it makes direct offers to purchase homes itself. During the third quarter, the company brought RedfinNow to Chicago, Atlanta, Nashville, Charlotte and Raleigh.

Overall, Redfin recorded a net loss of nearly $19 million in the most recent quarter. The loss reflected higher marketing costs from prolonged advertising efforts and ongoing expenses related to the company’s acquisition of RentPath, which owns rental listing websites and Apartment Guide.

Perhaps unlike Redfin’s competitors, Kelman doesn’t see companies that engage in this form of home flipping ultimately buying up a lion’s share of the real-estate market in the future. He suggested that iBuying would not come to represent 20% of the market, but instead somewhere between 1% and 10%.

“iBuying isn’t going away,” he added. “We think that many people before listing their house are going to wonder what they could get in a cash offer. I think the challenge with iBuying is just not to overreact. It isn’t the end all and be all the future of real estate.”

And unlike his colleagues at Offerpad
Kelman expects that the shifting conditions in the real-estate market will create more challenges for iBuyers rather than fewer, largely due to rising interest rates. Lower rates allows iBuyers to “borrow capital at a low cost,” Kelman argued, so if a company has trouble offloading a property backed by debt then it won’t put a damper on its balance sheet.

However, rising interest rates will not only make debt-leveraged purchases more risky, but also reduce home buyer demand. While he believes the housing market is simply balancing, he views that as more favorable to Redfin’s brokerage business than its home-flipping division.

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