Redfin has announced it will be shuttering its “iBuying” home-flipping business called RedfinNow, and will lay off 13% of its work force. The move comes as Redfin looks to cut costs as concerns grow about the housing market. Redfin’s business lasted less than a year longer than Zillow’s similar iBuying business, which it shut down in November of last year.
Unlike traditional home-flipping businesses, iBuying businesses like RedfinNow do not rely on selling homes for a profit after improving the property. Instead of creating value through renovating homes, the business relies largely on using algorithms to make quick offers directly to sellers and offering to reduce the hassle of selling. The company then quickly turns around and places the property on the market, hoping to sell it for more than it was purchased. As long as the market is improving and the property is sold quickly, all is well. When markets slow down, however, things change. The problem is exacerbated when the company’s exposure is in “bubble” markets like Las Vegas and Phoenix, where a slight downturn in the overall market is exacerbated.
Redfin’s CEO Glenn Kelman noted that Redfin has noticed fewer people on its website and fewer people requesting tours among rising interest rates. The company is sitting on $350 million worth of homes for sale, much of which was purchased with borrowed money. Redfin expects to reduce its portfolio to $85 million by the end of January 2023, with everything being sold off by mid-2023. As a result, Redfin will lay off 862 employees, or about 13% of its workforce.
The announcement is yet another example of the inability of companies to automate the home buying/selling market at a profit. It also exemplifies why it is important, when buying or selling a home, to consult with an expert who can provide accurate advice concerning strategy and the value of a home.
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