Redfin Layoffs Bode Ill for Real Estate Startups

10/14/08Follow @gthuang

Is this the beginning of the end for online real estate companies? Yesterday, Seattle-based Redfin announced it had laid off roughly 20 percent of its employees, leaving it with a staff of about 75 spread across Seattle, Boston, Los Angeles, Washington DC, and Chicago.

The news comes as a serious blow to a company that prides itself on providing a fundamental service focused on consumers, and making it cheaper and better than alternatives—in this case, traditional real estate brokers. It’s also the first big venture-backed startup in Seattle to cut staff since the financial crisis hit—which makes us wonder who might be next. Redfin had raised more than $20 million in venture capital from the likes of Madrona Venture Group, Draper Fisher Jurvetson, and Vulcan Capital.

On his company blog, Redfin chief executive Glenn Kelman expressed remorse for the staff cuts, but explained why they were necessary. “As the stock market wiped out prospective down-payments, tours and offers dropped 30%. Transactions that were done came undone. October will still be pretty good, then we’re headed for a big dip,” he said.

But Kelman also explained why he thinks Redfin can ride out the crash. “The sky may be falling in financial markets but our competitive dynamics haven’t changed. We can become the #1 real estate search site because our data is better than the media sites’ and we think our engineers are better than other brokers’…It’s tempting to write Redfin off now precisely because we are adapting to the market,” Kelman said. “Redfin’s whole business will struggle and fight and may yet fail. But the only way it is possible for us to succeed—and, even today, I believe we will—is if we adapt.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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  • Rachel

    I still see thousands of jobs posted on employment sites.

    http://www.linkedin.com (networking)
    http://www.indeed.com (aggregated listings)
    http://www.realmatch.com (matches you to jobs)

    good luck to those searching for jobs.

  • http://jasonmassengale.com Jason Massengale

    I imagine Redfin will survive but I doubt they’ll eclipse realtor.com. They’re still a member of an association and that’s where their data comes from. Their model isn’t bulletproof.

  • http://www.catskill4sale.com David Knudsen

    A layoff isn’t a shutdown, and a 20% staff cut actually a little light relative to the transaction slowdowns being seen around the country. I think traditional Realtors are very short sighted to see this as the beginning of the end for Redfin, and somehow marks the triumph of the traditional full service brokerage. Both Redfin and traditional bricks and mortar brokerages have pretty high overhead — Redfin in new techologies, regular brokerages in traditional methods. I think this downturn will strip the fat off the cats, and force the real estate brokerage industry to be much more efficient and cost effective. The alternate (listing) brokerage models have suffered because, overall, they haven’t been that effective at producing, and in a down market, may even be less effective. However, somebody, somewhere, is going to get it right without all the bricks and mortar overhead — and be able to produce AND reduce costs.
    How we market and show houses is going to change. Licensing laws in many states will also have to change to permit, say, the showing of homes by assistants and not necessarily by licensed real estate agents and brokers. Licensing has much more to do with fiduciary responsibility than opening the door to a vacant house.

  • http://CondoDomain.com Anthony Longo

    I think Glenn is ahead of the curve on this one (or I hope he is at least). We both launched our Boston markets at almost the same time. Very similar business models, but very different corporate structures. Kelman is operating a first class operation with much needed great customer service in this industry. I don’t see these guys slowing down one bit…just a little re-org…

  • http://www.500realty.net Amarjit

    Look at 500Realty. It has better model than redfin. It has postive cash flow as it does not hire any agents and gives back 75% as compared to Redfin’s 66%.

    http://www.500realty.net

  • RealStats

    The market speaks…

    Real statistics, NOT Redfin’s cook the books numbers. Odds less than 10% of getting a home sold at market.

    2 years in SF, the real 7×7 San Francisco, not the entire Bay Area show:

    10 Condo Sellers experienced in 2 years:
    5 Expired or Withdrawn
    4 Sold Below Asking
    1 Actually sold for more $500 more to be exact.
    (After 2/3 rebate returned – Sales netted Redfin a little more than $26k over 2 years.)

    7 Home Sellers experienced in 2 years:
    3 Expired or Withdrawn
    2 Sold Below Asking
    2 Sold Above Asking (3% and 5%)
    (After 2/3 rebate returned – Sales netted Redfin less than $25k over 2 years.)

    * All Refin sales as reported by the SF MLS 1/2006 – 10/2008.

    50% failure rate is what real statistics say.
    No ‘cook the books’ numbers here.>

    If I were a venture capitalist with money in Redfin, I’d be a little jittery right now wondering if I’ll see any return on my VC $$$. $51,000 earned in SF pre-tax $$ over 2 years.

    The market speaks…

    BTW – Watched a buyer over pay by $40k, to get a 2/3 commission rebate. Now that’s determination!

    Seen other internet companies fail in 2001? Will more fail in 2008???

  • Brian

    A listing prospect was about to hire redfin to sell her home, but after looking at my team’s marketing plan, sales in the neighborhood, and list to sales price ratios, realized we were the better choice and hired us. Due to our in depth knowledge of the neighborhood, ability to network with other agents (redfin lacks this crucial advantage), and sales skills, we sold the home in only a few weeks and earned the seller a much higher sales price than expected! A discounted commission may sound enticing up front, but the real proof are the net proceeds the seller pockets when escrow closes. Local, skilled, full-service Realtors will always be the #1 choice for both sellers and buyers!

  • Dan W

    Red Fin and Findwell just give 50%. 500 Realty gives 75% back to the consumer with a far less minimum. WAKE UP

  • http://jducey1234@aol.com Frank Dreadon

    Redfin, like the other discount brokerages will go the way of the do-do bird. In an up market it is easy, but when times are tough, only the strong survive.