Real-estate company Redfin is ending its home-buying program and subsequently laying off 13% of its workforce.
- On Wednesday, Redfin announced to shareholders that it would be closing home-buying business RedfinNow—forcing the company to lay off more than 800 employees.
- Redfin has leaned heavily into particularly hot markets like Phoenix and Las Vegas, both of which are now experiencing sluggish markets.
- RedfinNow operates as an iBuyer program which buys homes directly from sellers and turns around to sell the same home for a higher price.
- The business model works if the company can quickly resell the home, but with the slowing housing market and dropping prices, that isn’t as easily done.
Why it’s news
Redfin executives chose to react quickly when they noticed that fewer prospective buyers were booking tours through the Redfin website. Redfin CEO Glenn Kelman told Fortune that the company is “sitting on $350 million worth of homes for sale.”
The company decided it was best to pull the plug on RedfinNow now—before the company lost a substantial amount of investor money.
“What we always told investors is that we would protect our balance sheet by acting quickly. We don’t have hope as a strategy. We immediately started marking things down,” Kelman says.
Redfin plans to have sold off all of its existing homes by the second quarter of 2023.
While iBuyers like Redfin are jumping ship, the quick reduction in prices to move inventory is accelerating a housing bust in areas like Phoenix.
Motivated corporate buyers are cutting prices immediately if a home doesn’t sell within a few days, forcing traditional sellers to offer comparatively competitive prices.
Backing up a bit
Home prices across the nation are beginning to fall, but the rate at which the prices decline has variation.
Overall, prices fell 1.3% from June to August, but in areas where the pandemic housing boom was particularly strong, prices dropped more dramatically. Phoenix homes, for example, have dropped 10%.
“Laying off 862 colleagues and friends is heartbreaking, but I feel relief about closing RedfinNow with relatively low losses. We’re profoundly grateful for the dazzling entrepreneurs who built that business on a knife’s edge, but its appeal to consumers has waned as the market turned. Home prices will at some point stabilize but the cost of capital isn’t going back to 2021 levels any time soon,” Kelman says in a press release.