RedFin is laying off 862 people and closing its high-tech house flipping business, the real estate company announced Wednesday. To make the tough news as easy to digest as possible, CEO Glenn Kelman organized his email to staff that included sections like “Hello, Adversity,” “Our True Colors,” and “A Caring Culture in a Cyclical Industry.”
The economic slowdown has hit real estate companies like RedFin particularly fast and hard this year. What had been one of the hottest housing markets in U.S. history quickly turned as many buyers were no longer able or willing to pay the combination of record prices and newly rising interest rates, leading to a significant decline in housing sales.
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As part of the restructuring, RedFin will follow the lead of the real estate marketplace Zillow and get out of the high-tech house-flipping business known as iBuying, in which companies buy houses for as little as possible, fix them up, and then flip them, ideally for a profit. OpenDoor Technologies, the most prominent iBuyer in the space, laid off 18 percent of its workforce last week, citing “one of the most challenging real estate markets in 40 years.” Its stock has fallen 92 percent in the last year and nearly a third in the last five days.
The layoffs and strategy shifts at RedFin and Zillow—and the economic struggles of OpenDoor—suggest that the hype and investment in algorithmic house flipping may be over nearly as quickly as it began.
Kelman said that as the market cooled, the company’s iBuyer business, RedfinNow, was no longer worth the “money and risk” and left the company with a glut of unsold homes. “We’ve tied up hundreds of millions of dollars in houses that you yourself wouldn’t want to own right now,” Kelman wrote. The company said it expects to lose at least $22 million on the project this year, and Kelman suggested it didn’t make him feel great to lowball customers in order to gain the largest potential spread possible on the resell.
“It will be good to focus on our original calling: getting people a higher, not a lower, price for their homes,” he wrote.
RedFin laid off 8 percent of its workforce in June, but Kelman said that more cuts were necessary after the company concluded that the housing “downturn” would last through the end of next year and the size of the market could shrink by almost a third from its 2021 high. As a result, “A layoff is awful but we can’t avoid it,” he wrote to employees, adding elsewhere, “I’m sorry that we don’t have enough sales to keep paying you.”
The layoffs will reduce the company’s headcount by at least 13 percent and possibly more if additional people whose roles have been eliminated choose not to stay on in another capacity, according to Kelman. All told, the company’s workforce will have declined by more than one-fourth since April, according to the email.
