Real estate brokerage company Redfin has laid off about 20 percent of its employees, and CEO Glenn Kelman assured today that the downsizing has more to do with "drastic economic changes" than the company’s business model.
Kelman said there are 75 to 80 employees remaining at the company, which means the layoffs announced Tuesday morning affect up to 20 employees.
The layoffs were effective immediately, and employees were all offered a severance package, Kelman said.
"We sent a note out to every client that just indicated that some of our agents left the company and then introduced them to the partner agents," he said, noting that the company typically offers up a pair of agents to work with clients on every transaction.
"We’re definitely not pulling out of any markets now," Kelman said, though the company may delay its planned expansion into the Long Island, N.Y., market area.
"I don’t think this has been a repudiation of the entire business. If that was the case I think we would have done a deeper restructuring," he said, adding that the company has increased its market share by about 50 percent in the past year.
"We’re just working in a smaller, more constrained real estate market everywhere we turn. Every brokerage has gone through what we just went through," he said, referring to industrywide belt-tightening in response to the housing slump and the crisis in the financial markets. "We just held on a little bit longer. It’s just a tough, tough time."
He added, "I don’t think we’ve been hurt more than other brokerages by this economy. We’ve all been hurt. We’re not proud of what happened yesterday. I wish we could have kept everybody on. It was very emotionally difficult."
In a blog post, Kelman stated, "Redfin’s whole business will struggle and fight and may yet fail. But the only way it is possible for us to succeed — and, even today, I believe we will — is if we adapt."
The blog post also notes that the company has "been planning a change to our service for months, which we’ll launch in November," and Kelman said he could not reveal details about those pending changes.
Redfin made its debut in 2004 as a real estate site that offered a then-unique interactive mapping technology to search for properties.
The company later launched low-cost brokerage operations, offering deep rebates to buyers and a system for facilitating purchase offers made online and an online appointment system to tour homes.
The company’s high-tech and unconventional approach to the industry did not come without critique, and some industry professionals have questioned whether the company could be profitable in cutting commissions to offer the rebates.
Seattle-area real estate agent and blogger Marlow Harris said in a Monday blog post that she was not surprised to hear about the company’s layoffs. "The whole premise of the company was built on the idea that real estate agents are overpaid, and that technology and automation can streamline the system and reduce costs.
"High volume and easy sales is what is required to keep the ball in the air, and with the recent slowdown in the housing market, there just aren’t enough closed sales to pay the salaries of the workers," she wrote.
The Silicon Alley Insider blog stated that the "party may (be) coming to an end, for now" for Redfin.
Kelman responded in a comment to that post, "It was certainly no party, but I’m not sure it’s fair to suggest that a startup may be headed for the end when it takes the measures needed to prepare for difficult times."
Redfin has built an image of openness in the industry, and the company was featured in a "60 Minutes" television news segment that discussed the company’s low-cost business model as an alternative to higher-cost, more traditional real estate services.
"I feel like we’ve always benefited from the openness of the business and gotten plenty of attention," Kelman said. That can mean "plenty of attention on a difficult day," too, he noted.
Redfin in July 2007 announced that it secured $12 million in a third round of venture capital funding, bringing its total to $20.8 million.
Company revenues have grown about 50 percent in the past year, Kelman noted in the Monday blog post, and traffic to the site grew about 300 percent. "All our markets … contributed profits," he stated.
Kelman said he doesn’t believe the slowdown in the housing market is entirely related to lending restrictions and the limited availability of financing — often referred to as the credit crunch.
The major stock market declines and fluctuations are definitely a contributor to transactions falling through, he said. "There are too many uncertainties today," he said, and consumers "are wobbling about what they should do."
Seattle-based Redfin has brokerage operations in Seattle, San Francisco, Los Angeles, Orange County, San Diego, Chicago, Boston, Baltimore, and Washington, D.C.
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