Redfin expands RedfinNow to Seattle and Bay Area in new litmus test for iBuyer service


(Redfin Photo)

Redfin will launch its iBuyer service RedfinNow in Seattle and the Bay Area in the latest expansion of the company’s home-buying and selling product.

RedfinNow lets homeowners quickly buy and sell their house online, using an algorithm to calculate a home price. Buyers pay a higher sellers fee but get added convenience of a fast transaction. Redfin then fixes up the homes and sells them. There are similar offerings from fellow real estate giants such as Opendoor and Zillow Group.

The iBuyer market took a hit this year due to the pandemic as companies paused their home-buying activity. A recent Redfin analysis found that iBuyers purchased just 880 homes in the second quarter, down 88% year-over-year. But the companies are now ramping back up again amid a U.S. housing boom that Redfin CEO Glenn Kelman said could heat up even more.

Launching RedfinNow in expensive markets with unique properties will be a litmus test for both Redfin and the larger iBuyer market. Redfin is the first company to have an iBuyer service in Seattle and the Bay Area.

Quinn Hawkins, head of RedfinNow, said homes in more expensive markets can be trickier to value. As a result, it also requires more on-the-ground resources.

Redfin is based in Seattle, and has operated its brokerage business in the Bay Area for years. If it can make RedfinNow successful in both regions, the thinking is that the business should gain traction anywhere, Hawkins said.

RedfinNow will target single family homes and townhomes built after 1930 and worth up to $1.6 million in the Seattle region, and up to $1.5 million in the Bay Area.

RedfinNow, which launched in 2017, is now active in 15 markets across California, Colorado, Texas, and now Washington state.

Redfin’s Properties segment, which includes RedfinNow, posted revenue of $19 million in the third quarter, down from $80 million last year, while gross losses grew to $1.5 million from $745,000.

On the company’s earnings call with analysts, CFO Chris Nielsen said Redfin didn’t have enough volume this year to cover its fixed costs in the RedfinNow business. But it expects to add more inventory and staff for RedfinNow as buying and selling resumes. Redfin does not expect year-over-year growth with RedfinNow until Q1 of next year.

In a post-earnings report, RBC Capital analyst Mark Mahaney said the outlook for RedfinNow “remains murky” as it remains to be seen how the business performs next year.

Redfin sees RedfinNow as an extra option for homebuyers looking to sell, in addition to its traditional brokerage service.

“The most important RedfinNow result has come from offering customers choice between an instant offer and a brokered sale,” Kelman said on the earnings call.

Kelman added: “Other competitors are only just now beginning to realize that Redfin’s holistic approach to instant offers and brokered sales is a decisive advantage over standalone iBuyers and brokers.”

The iBuyer market is getting more attention as Opendoor, a leading iBuyer company, prepares to become publicly traded via a special purpose acquisition company, or SPAC. Opendoor’s investor presentation shows $4.7 billion in revenue in 2019 with a loss of $218 million before interest, taxes, depreciation and amortization.

Redfin and Opendoor inked a surprising partnership last year, adding Opendoor instant offers to Redfin listings in cities where RedfinNow was not available.

Zillow is expanding its own iBuyer service, Zillow Offers, which is live in 25 markets. Mahaney said that he expects Zillow Offers to reach positive unit economics in the “reasonably near future.” Opendoor’s financials helped boost his prediction.

“Opendoor disclosures point to iBuying unit economics viability, which ZG is well positioned to capitalize on especially given its brand and scale advantage,” Mahaney wrote in a report following Zillow’s earnings.

Opendoor has a 59% market share of iBuyer transactions; Zillow with 26%; Offerpad at 23%; and Redfin at just 1%, according to real estate analyst Mike DelPrete.

Jason Aleem, vice president of RedfinNow, said the pandemic has accelerated an “iBuyer bidding war.”

“Homeowners are seeking out offers from multiple iBuyers so they can feel confident they are getting the best possible price in this blazing hot market without a bunch of foot traffic coming through,” Aleem said in a statement in September. “As a result, iBuyers are making more competitive offers.”

Redfin beat analyst expectations for its fiscal third quarter, reporting revenue of $236.9 million and earnings per share of $0.32. Revenue was down 1% year-over-year due to a RedfinNow slowdown, while net income more than quadrupled. Redfin’s monthly active visitors grew to 49.3 million, up from 35.6 million in the year-ago quarter, an increase of 38%.

After a big dip in March, Redfin’s stock price has increased more than 5X, trading at around $52/share on Monday. Shares dropped 16% in October after Redfin announced a new offering of $575 million in convertible senior notes. The company’s market capitalization is more than $5 billion.





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