Less than two weeks after making news for temporarily suspending its iBuying program in the wake of the coronavirus pandemic, Redfin has furloughed – and in some cases permanently let go – just over 40% of its agent workforce.
“The great majority will go on furlough until Sept. 1, with a transition bonus and health care benefits through the summer,” said Redfin CEO Glenn Kelman in a statement yesterday. “But we’re also asking some to leave for good, including new hires who hadn’t met a customer or completed their training before our offices closed a month ago.”
The furlough applies to nearly 600 salaried Redfin agents across the country, a total of 7% of the company’s staff.
While certainly not welcome news for the agents affected, it was probably not a big surprise to those following recent company announcements. In a March 26 letter to its shareholders, Redfin Chairman Bob Mylod announced several cost-cutting measures, including: CEO Kelman not taking a salary for the remainder of 2020; its management team foregoing all bonuses for the first half of 2020; and board members letting go of all cash fees associated with serving on Redfin’s board for 2020.
“If we see evidence that the downturn is likely to be prolonged, we may still have to make the painful choice to furlough some workers and lay off others, decisions that would apply to both headquarters employees and real estate agents,” Mylod wrote in the letter last month.
As of March 26, Redfin held approximately $68 million of RedfinNow homes in inventory, of which approximately $23 million were under contract. The company was also under contract to purchase approximately $7 million in additional inventory from home sellers. “In a situation such as this, we are also quite focused on our balance sheet and our liquidity,” Mylod said in the letter.
At an Agent Publishing event in early March, Chicagoland brokerage co-owner Thad Wong said that, although Redfin has captured a substantial portion of the market in places like Seattle, where their market share is 4% to 5%, they’re still not profitable. “They started before Zillow, so they’ve been around for 14 to 15 years; most people would consider that a failure,” the @properties co-founder said.
Still, Wong noted that Redfin’s big strength is that its agents are employees: “Now the negatives of that is they do a lot more work for a lot less money, but by being employees, it allows Redfin to set a baseline for the amount of service they can provide to the customer and some of the specific things they provide the sellers that are truly beneficial.”
But that was before the coronavirus pandemic exposed some of the weaknesses of the iBuyer model, before the disruptors who promised to make homebuying and selling quick and painless disappeared when the going got tough.
“The housing market’s ups and downs have always made it hard to build a caring culture in real estate, with employees earning steady income and benefits,” Kelman went on to say in his statement announcing the furlough. “In talking about the prospect of a recession, we always said we’d give up a few points of growth so that we can keep our covenant with our employees. We still have had to furlough people today because of a downturn, but it wasn’t because we didn’t try to trade growth for job security.”
A downturn in the economy is something that has worried Kelman for some time, something he addressed during a December 2018 GeekWire Summit.
“This is a risky business, right? If the economy turns even slightly, you could be left holding a lot of houses on your books. Does that scare you?” GeekWire co-founder John Cook asked Kelman at the event.
“Do you remember Chevy Chase in Vacation, when he’s about to jump into the cold water, saying, ‘This is crazy?’ Kelman replied. “I think all of us getting into this business have that voice in our head, but we also have that chart in our face, which says that fortune favors the bold.”