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Redfin's Future Includes Expanding Concierge Service


May 11, 2020 by Deidre Woollard

With the gradual reopening of many states, residential real estate brokerages are considering what the future may hold. Redfin (NASDAQ: RDFN) is in an interesting position as both a disruptor in the real estate space but also still a traditional (albeit lower commission) brokerage in some respects. Like many other real estate companies, it has had to trim its sails in the wake of COVID-19 and furloughed 41% of agents. Redfin agents, unlike most real estate agents, are paid a salary rather than being commission only.

The stock market responded well to the report of Redfin's first-quarter results last week, up 8% on Friday. Redfin's first-quarter revenues were up 73% year over year to $191 million, and losses went from $67 million a year ago to $60 million. Its brokerage business rose by 26%, and its market share increased by 10 basis points. What is more intriguing is Redfin's plans to evolve their strategy in the wake of COVID-19.

Like its competitor Zillow (NASDAQ: Z) (NASDAQ:ZG), Redfin has heavily invested in iBuying. In its last earnings report, Redfin made a point of saying that is was focusing on fine-tuning the algorithm it uses to buy homes through the RedfinNow program. This was before the COVID-19 outbreak, which put a complete stop to iBuying by Redfin, Zillow, and startup competitors such as Opendoor.

Multiple avenues of revenue

Now that iBuying is set to start up again, Redfin CEO Glenn Kelman is taking a measured approach that distributes the plans for Redfin's future into a couple of different baskets. One of those is lending and title, a business that Redfin reported grew 39% year over year. Redfin plans to make mortgage services available in 94% of the markets it serves by the year's end.

One reason for continuing to pursue this strategy is that while visitors to Redfin's site might be wary of ditching their existing agent for a low-fee service, they may be more price sensitive when it comes to selecting a lender.

Another avenue of expansion is Redfin's concierge service. Through this service, Redfin manages the repairs and renovations needed for a home to fetch a top price in the market. On the earnings call, Kelman stated that RedfinNow will be more aggressive in the offers it gives to people looking to sell immediately. For those who disagree with this assessment of the value of their home, the concierge service provides a way to get a higher price for the home in return for a 2.5% listing fee instead of Redfin's standard 1.5%. That rate drops down to 2% if the seller purchases another home using Redfin.

Real estate's new world -- virtual tours and more

Real estate has evolved rapidly over the past several months. Redfin has implemented video chat tours and also launched a service that allows for self-guided tours for RedfinNow homes, similar to what other iBuyers including Opendoor have offered. Kelman speculated that this could be a major component of the future of real estate and a competitive advantage for Redfin if it is able to offer this service at scale.

One core issue to solve as we emerge into a new post-coronavirus reality is that while buyer interest is rising, listings are not rising to meet the demand. Is iBuying the solution to that? Kelman is not so sure. In fact, when an analyst called him bullish on iBuying during the earnings call, he took issue with that assertion. He returned to that point several times, finally asking, "Did I sound too bullish on RedfinNow? I hope to sound reasoned on it, but we're coming back."

The Millionacres bottom line

Redfin has only been a publicly traded company since 2017. In that time, the real estate industry has shifted due to the widespread adoption of iBuying. The sudden pause of iBuying has had many people (including this writer) questioning the thesis that it is the future of real estate.

The fact that Redfin has other arrows in its quiver is comforting, but Redfin's concierge service faces some of the same challenges of scale that iBuying does. However, the company's expansion of its mortgage and title services could move real estate closer to the dream of a more seamless real estate transaction, and that could end up helping it increase market share.

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Deidre Woollard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Redfin, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.

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