The brand new realities of actual property: Redfin CEO on tech, local weather, housing, and the period of ‘a thousand HQs’
Redfin CEO Glenn Kelman joins us on this episode of the GeekWire Podcast to discuss the latest twists in the housing market; delays in returning to the office; the role of climate in real estate; how technology is changing homebuying; and the impact of remote work and migration on Seattle and other U.S. cities.
In some ways, “it’s our employees who are deciding where Redfin’s headquarters are going to be,” Kelman says. “We now have 1,000 headquarters. There are people who have moved all over the country.”
In literal terms, Kelman explains, he’s committed to keeping Redfin’s headquarters in Seattle. But he says the migration of employees creates a new dynamic for city officials seeking to work with business leaders to address economic inequality.
We talked after the tech-oriented real estate brokerage released its second-quarter earnings report this week. Redfin’s revenue jumped 121% to $471 million, and its net loss widened to $27.9 million from $6.6 million a year earlier. Kelman also addressed the dynamics prompting Redfin to focus on growth over profits.
Earlier in the week, Redfin announced a new feature for home listings: a numerical rating that gives a climate score to a given house or property, analyzing the risk of heat, fire, drought, and storms over a 30-year period by county, city, neighborhood and zip code. Redfin is partnering with ClimateCheck on the feature.
On the COVID front, Redfin had planned a broad reopening of its headquarters and field offices for Sept. 6, but told employees this week that the milestone would be pushed back indefinitely for now, promising to give them at least 30 days notice of the new date. Those working in the office must be vaccinated, and the company is asking those who haven’t been fully vaccinated to work from home.
Microsoft said the full reopening of its U.S. workplaces will happen no earlier than Oct. 4. Amazon went even further, delaying its return to January 2022.
Listen below, subscribe to GeekWire wherever you listen to podcasts, and keep reading for edited highlights from Kelman’s comments.
Recent changes in the housing market: It’s just been so hard to put a deal together over the past six months. The bidding wars have been crazy, not just in the usual coastal markets, but everywhere. So Tulsa, Oklahoma; Boise, Idaho have had 20, 30, 40 offers on a property.
And as a result, it’s just been hard on our real estate agents and really hard on our home-buying customers. So we saw a step-back in demand after Memorial Day. We were actually somewhat worried about it. But then in July, we’ve really seen an increase in sales, because it has just been easier to put deals together.
So what the market really needed, it finally got, which is a little bit of inventory, and maybe a little less demand. So I think the housing market is just on more sustainable footing than it was.
What was driving the bidding wars: The only trend that really made it possible was the fact that so many Californians were moving to Ohio with Monopoly money. … So even when prices double in Columbus, Ohio, somebody who’s used to paying a million dollars for a shack in L.A. says, ‘It looks good to me.’ And so I think that sustained some of the price increases, but the people who’ve lived in those towns were really having a hard time buying a place.
What the trends mean for Seattle: I’ve been an advocate for a state income tax to fund science and math education. … And even when there was a head tax brouhaha, I thought that tech ought to step up and pay some kind of local tax. And now, the city has started making noises about doing some of the same things, and asked me if I would support it, and it’s really not up to me anymore, because it’s our employees who are deciding where Redfin’s headquarters are going to be.
We now have 1,000 headquarters; there are people who have moved all over the country. So I think it’s taken a little air out of the real estate balloon here in Seattle. But it’s not like California, because we still don’t have many state and local taxes. And so there’s just been this race to the bottom across the country.
Redfin’s future in Seattle: I love Seattle. I mean, this is the place that educated me as a child. I love California. That’s where I went to school, for college. And I don’t want to be a turncoat, and leave the state that helped us build this great business that educated so many of our workers.
So I am very committed. But what I’ve tried to tell some of the politicians who have contacted us about this is, it’s not just up to me anymore. It also is up to each employee who is saying, ‘Well, I want my headquarters, my attic, to be in Missouri, or somewhere else.’
And so, it’s given me a moment of pause, when I’ve been a pretty steady supporter of some kind of collaboration between business and government to make sure that we take care of everyone and that the wealth of tech reaches the rest of Seattle.
This is my comeuppance about raising taxes here. I think it’s got to happen at the federal level when people are so much more mobile than they used to be.
When will Redfin be profitable? I get to dodge the question because, of course, we don’t make forward-looking statements like that. But the way I look at it is that the brokerage is a profitable entity and it allows us to invest in growing entities that lose money.
So we bought RentPath out of bankruptcy, which was a major drag on earnings, both because of its losses, but also the transaction fees, and then we have a bunch of other businesses that are still fairly nascent.
I would like to make money as soon as possible. But I think what will really drive it is, if you have businesses that stop growing 50% or 100% year-on-year — the mortgage business if it were growing 30% year on year Redfin, now, if it were growing 40% year on year — then you say, well, show me the money. That’s not a little baby anymore. That’s a grown-up business with a grown-up growth rate. And it should be throwing off profit. But when somebody says, we can double every single year, and the Street is very forgiving on profits, you’ve got to take share.
What’s really hard about running a property technology company, whether it’s me or [Opendoor CEO] Eric Wu, or [Zillow Group CEO] Rich Barton, is that there’s just so much capital in the space. I think we’re all sitting there at the poker table wanting to take some chips back. But when all of us can borrow $500 million or a billion dollars with no coupon, where basically there’s no interest on some convertible debt, everybody’s just pouring a lot of money into the market, playing a winner-take-all game, or a winner-take-most game.
And that just makes it really hard to squeeze a lot of profit out of the business. And it makes it really hard to do anything except to keep pushing more chips out to the middle of the table.
So sometimes I feel like, man, this is crazy. I’d rather take it easy, because the growth is stressful. And other times I just feel like a great white shark. “Let’s eat another surfer!”
Three technology trends driving the housing market:
- The first is that more people are virtually touring. And some of that was because they didn’t actually want to set foot in somebody else’s house. But now it’s more because they’re moving across the country, and they don’t necessarily want to get in a plane. So it’s just more common to put in a bid, and actually have it accepted before you see the house. Sometimes, half of our buyers are getting their offers accepted and then seeing the house, and the seller’s fine with it, too, because they don’t necessarily want everybody walking through the place.
- The second is that, because more moves are cross-country, it’s actually helped a business like ours. You call your local real estate agent who might be your uncle or your buddy or the person who sold your last place if you’re moving across town, but you Google when you’re moving across the country, because you just don’t know anybody in Montana. And so just ranking higher in Google, having all the agent reviews and all the rest has helped us.
- The third thing is that there’s just been a huge tailwind on iBuying, where we pay cash for a house and let somebody move on. …. Some of that is just that it’s just a good time to be owning houses. The longer it takes us to sell them, which used to be a risk that we really worried about, the more money we make, because the market is going up. And some of it is because, people don’t mow their lawn anymore. They don’t really do anything that’s hard anymore. They just pay someone else to deal with it. And that’s what they’re doing with the house. And so that easy liquidity costs you a little bit of upside … but I think iBuying has taken off more than we could have hoped.
The forces driving Redfin’s new climate score: It’s important because one in five homeowners now feels that the value of their home has been damaged because of fire risk, flood risk, hurricane risk.
It’s important because that’s asymmetrical. People who are people of color, or who have less money, often are forced to live in these neighborhoods that easily flood or that are at fire risk.
And it’s important because, in this latest migration, where Americans are moving all over the country, mostly they’re moving to places that have more climate-related risk. They’re going to Houston, which is getting hit by hurricanes and tropical storms all the time; they’re going to Florida where it’s even worse; they’re going to a bunch of dry places where the heat is just insane.
So they buy the house, and then they realize they can’t get fire insurance, or they can’t get flood insurance, or that it’s very expensive. And so we just needed to bake that in to their initial home search, so they realized what was going on.
It’s a good example of a partnership that solved a problem that we actually tried to solve another way, but just a dumber way.
I was really interested in developing a climate score for every house that talked about your contribution to climate change, whether you were using a lot of space, whether it required a lot of driving, whether it had solar panels and stuff like that. But it turns out, nobody cares about whether they’re contributing to climate change. They’re just worried about whether they’re going to get screwed by climate change! And so that idea was a dead duck.
COVID and the return to the office: First of all, Redfin is very politically diverse. So the Seattle employees are mostly progressive. But we now employ real estate agents in almost every state in the country. There are people who voted for Trump and people who voted for Biden; there are people who are pro-vaccine, there are people who are anti-vaccine. What we see as just a simple measure to protect the safety of our employees is more fraught than that.
And yet, at the end of the day, it isn’t. So we acquired RentPath, an Atlanta-based business that has a different constituency than our Seattle based business. And they felt differently initially about this vaccine mandate, that we’re not going to have people back in the office who aren’t vaccinated.
Then the conversation just really turned to, well, are you willing to accept responsibility for the safety of the employees who come into the office and may be infected by someone who is unvaccinated? I really try to respect everyone’s political views and the independence of your medical decisions. But it is my job. The most simple responsibility I have is to keep people safe.
Listen to the full conversation above. Podcast edited and produced by Curt Milton.
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