Glenn Kelman has been trying to fix the ever-frustrating process of buying a house for more than 15 years as the CEO of Redfin, and he says the job is far from finished.
The chief executive of the tech-powered real estate brokerage called the fact that technology hasn’t yet overhauled residential real estate “galling.” The money flooding into the industry from venture capital firms to real estate startups ensures that change is on the way.
But, Kelman said at the 2018 GeekWire Summit, the biggest problem in the industry remains that houses still cost way too much.
“If you asked almost anyone in this room what’s the main problem with U.S. real estate, the overwhelming answer would be that it’s not affordable, that it’s too expensive,” Kelman said. “And what does technology do to solve problems like that? It makes real estate more affordable.”
Kelman sat down with GeekWire co-founder John Cook at the Summit to talk about the potential of a sagging housing market, how to fix these persistent problems in real estate, his leadership style and more. The following conversation has been edited for length and clarity.
John Cook: I’ve got 100 questions for you, so I know I’m not going to get through them all. And it’s going to be fun. I always love talking to you. But I want to go back in time, in history. I want to go back 11 years. I was hanging out at the Redfin offices at the time, because there was a little moment in history that was happening. You were appearing on 60 Minutes with Lesley Stahl, my favorite correspondent, by the way. And you had something very provocative to say. You said, “Real estate is the most messed up,” or I think it was screwed up, “most screwed up industry in America,” 11 years ago. Is it still?
Glenn Kelman: I was worried you were going to ask me this question. So I wish I hadn’t been so brash about the industry when I’d just joined the industry, but I still feel like it could be better. I think that we should make homes affordable. We should make sure agents are on the side of the consumer. We should make sure that technology can increase efficiency in real estate. And so I wish I had said that in a more humble way, in a more diplomatic way. But I still feel that way, that we can make real estate better. Fees have come down. Transparency has gone up. Innovation has flooded into the space. We started with $30 million in real estate, going from private capital to these companies in 2012. And now it’s $3 billion. So I think there’s now a broad consensus that real estate is going to change in the United States.
JC: And you’re helping to usher that in, certainly. Even still, my wife likes to go around to open houses throughout the city of Seattle. And we were in Magnolia, and popped into a $3 million, beautiful home at an open house. And I was really struck by just, the system works kind of the same way as it was 11 or 15 years ago. There’s been some incremental improvements. But does this get you down? Are you disheartened by the lack of change? Because I know you’re trying to drive that.
GK: I find it galling. I feel like if you had told me how much real estate had changed by 2018 when you came to our office in 2011, I would be surprised, because we work so hard to make it better. But it’s also the reason that I still come to work. If real estate was a problem that had been solved, they would find someone else to run Redfin; because I still feel restless, and I don’t know about angry, but definitely motivated to make real estate better. I still think, though, that the fundamental problem is about cost. The real challenge most people have in buying a house isn’t that it hasn’t been appropriately visualized on the web, isn’t that there isn’t some digital assistant guiding you through every room; it’s that it’s too dang expensive. And 20 percent of the house is going to be your down payment. Six percent of that is going to go to a real estate agent in some cases. And I think the real challenge is that we still need to make real estate more affordable.
So there are other ways we want to innovate. I think people should be able to use their iPhone to get into a house without a real estate agent. I think people should be able to make an offer on a property with or without a real estate agent. Long-term, that’s going to happen. They’re going to need some digital guidance. But if you asked almost anyone in this room what’s the main problem with U.S. real estate, the overwhelming answer would be that it’s not affordable, that it’s too expensive. And what does technology do to solve problems like that? It makes real estate more affordable. It makes services more accessible.
So that’s still the main problem that I’m focused on. It’s why I still sleep on friend’s couches when I travel. Redfin is a scrappy, little company that has to spend our customers’ money wisely.
JC: When you came into the industry, you did kind of came in punching. And you came in with kind of a brawler’s mentality. You were kind of considered the bad boy, antagonist of this industry. But you’ve really changed. Your persona, and style of how you approach the industry, and how you think about real estate, I think has really changed a lot over the last 10 years. Why did that change for you? And how did that impact your management style of the company you were leading?
GK: Well, I think a big change was when the Deasy brothers took me out to lunch. Those are the two guys running Windermere’s most profitable businesses on the Eastside. And they just said, “I want you to hear how you sound to us. We want to make real estate better for people, too. We want to serve our customers well. We think of ourselves as advocates, and not just salespeople. And when you try to do that better than us, knock yourself out. But when you try to ascribe villainous motives to us, that’s just immature.” And I came face to face with, not just an enemy, we compete for deals, but we also work together on sales. There’s always a buyer’s agent and a seller’s agent, and we have to. And I found that these people were really respectable, honorable people.
So we want to use technology to make real estate better. We want to make the transaction more efficient. We don’t think much of the money coming into the space right now is actually focused on improving the proposition for consumers. And so that’s still our mission. But we don’t pretend that we have a monopoly on it. We don’t pretend that the other side is a bad side. And that’s just the process of going from 31 to 47.
JC: There is a lot of money flowing in, as you’ve alluded to. This is the venture capital invested in real estate technology. And Glenn, as you said, not all of that money is going to improve the product. But when you see this, I guess I look at this, and I say, wow, that’s a lot of new competition for Redfin. Does that chart scare you?
GK: A little. We’ve had a conversation with our board, where you talk about the reality of $3 billion coming into the space, mostly to companies that don’t really feel the need to be profitable. And I know this is rich, because we’ve benefited from venture capital ourselves, but it changes how you compete. You’re going to have to invest more in growth, because you’ve got other folks who are trying to poach your people, because you’ve got other folks who are trying to run at a bigger loss for more growth.
So I think this, in part, reflects this consensus that consumers really are changing, and that they’re open to change. And in part, it says, uh-oh, other people are going to try to beat us to it.”
JC: I’m not sure what percentage of that $3 billion is Opendoor, but a lot of it is, right?
GK: Well, more of it is Compass. I mean, if you haven’t been around town recently, you may not have noticed, but Compass is trying to buy traditional brokerages. And I don’t know that that’s going to change the value proposition for the consumer, but it’s certainly changing the value proposition for a traditional agent. And that is happening in parallel with Redfin. We don’t see that as directly competitive with us, because we focus on companies that are trying to really change the consumer proposition. But it’s certainly deforming the economics of the traditional industry.
JC: Another good chunk of that, though, is Opendoor, which is the new model of buying up homes. And this is a business that you’ve gotten into, Zillow has gotten into Zillow Offers. You have Redfin Now. Is this the future of buying and selling homes?
GK: I think it’s part of the future, but I don’t think it’s the whole future. Coming back to your question about why the open house is still the same, it’s because it’s probably listed by a traditional brokerage. We recognize that if we really wanted to change real estate, we’d have to be the listing agent; that asking other brokers to change how they do business when it’s their listing is hard. But another step would be not just listing the property, but owning the property. And if the idea behind transforming real estate is that we have to own all the real estate being sold, that is probably a step too far.
So we’ve had great success over the past 18 months with our version of Opendoor, which is Redfin Now. The business has grown well. There’s a bunch of companies doing this, and most customers want to know, if I told you that I could list your house for $500,000, but in this envelope, I have a check for another amount, you would want to open that envelope and see that amount. But I think many people, when they see that amount, decide to list it instead, because as capital gets more expensive, and as the turn times lengthen, where you hold the property longer because it gets harder to sell the house, you’re going to factor that into the offer that we make. And so it’ll be a lower offer.
So I think conditions right now are almost perfect for instant offers; really low rates, a strong seller’s market. So it’s very easy for us to get the capital. And there’s been this arbitrage opportunity which is just that it’s hard for consumers to get the credit to buy their next house while they own their current house, and it’s incredibly easy for businesses to get capital now. Saudi Arabia, the whole Middle East, the Far East, are throwing money at all of us.
JC: This is a risky business, right? If the economy turns even slightly, you could be left holding a lot of houses on your books. Does that scare you?
GK: Do you remember Chevy Chase in Vacation, when he’s about to jump into the cold water, saying, “This is crazy?” I think all of us getting into this business have that voice in our head, but we also have that chart in our face, which says that fortune favors the bold. So right now, I think there’s more risk-taking than ever. You’re also seeing that in the commercial space. WeWork is so long on the commercial real estate market. And there was just a time when you weren’t allowed to risk your own balance sheet, where you couldn’t smoke your own dope. You could be a facilitator of transactions. You could build a website for those transactions. But to actually believe that you are smarter than everyone else as a principle in those transactions is a level of risk that Wall Street has tolerated for very small periods of time over the past century. And right now, there’s tolerance for that. And so you’re seeing really good offers going out to people who can’t get the credit to move up any other way.
JC: Let’s talk about the bigger economic picture here, because housing, real estate tie directly into that. When we talked the other day, you had the quote, “Seattle real estate market, it has changed, baby.” Something has changed. So let’s go to the next chart (above) because I think this might spark an interesting conversation about what’s happening; average inventory growth and West Coast markets. What does this chart show us? What’s going on here, in your mind?
GK: It’s a hockey stick, up and to the right, of the number of homes for sale in Seattle, Portland, San Francisco, San Jose, San Diego. Those are the hottest markets in the United States, where we’ve seen price growth over the past three years of around 35 percent. And buyers have just said “enough is enough. I am not going to pay those prices.” When you have wages growing very slowly, relative to housing prices, and then you add to that that interest rates are starting to move up, you reach a breaking point. And we have reached that breaking point.
It doesn’t mean much at the end of the year. There’s only leftovers for sale in the US market right now. Whatever didn’t sell in the summer is always hard to sell in the fall. But if, next spring, the buyers don’t come back in force, willing to pay those prices, this is a change in the U.S. economy. And there’s a bull case for it, which is, if the stock market keeps going up, if consumer confidence is strong, the buyers are going to come back, because people need somewhere to live.
But if we get in a trade war or there’s some other kind of misstep in the US economy, I think the first place it’s going to be felt is in housing. And so I did say that in the earnings call, and I did walk down the hall to the Redfin Now team and say, “Take it easy on the number of houses you buy, because we could end up unable to sell them.”
JC: So you’re worried about this?
GK: I’m always worried about it. I mean, I went through 2008 … My other comment on that first graph, on the amount of capital coming into the space, is, I always want to take the people running these new businesses out for coffee and say, “I was there in 2008. I was a hero, and then I was a zero. There was all this pressure on us to grow, and then we did a layoff.” And I haven’t forgotten that. You know, there’s so much pressure on Redfin Now to grow, but we’re in a cyclical, seasonal business. It goes up and down. And we have a culture that tries to be more constant than that.
And so if you want to take seriously this covenant with your employees, you have to give up a little bit of growth and be a little more careful than some of the other players in the space. And that’s been a really tough trade-off for me, because I’m also a conquistador, a viking, and you want to win.
JC: When you showed that chart, or talked about the trend on the earnings call, as you mentioned, Redfin’s stock tumbled. How was it managing those expectations with Wall Street investors?
GK: I got angry email, mostly from retail investors, saying that I should have been more diplomatic or pulled some punches. At first, it was the real estate industry, and now it’s investors, saying that I could have said this in a much nicer way. But I’ve always felt that Redfin’s instincts for candor would serve it well in the public markets, and that my job in an earnings call is to bring investors into my brain, so that they know what I’m excited about and what I’m worried about. And then if they’re disappointed in how things have turned out, well, I am, too. If they’re excited about how things turned out, I am, too. But all I owe them is the truth, not revenues up and to the right in any given quarter.
And I think every CEO says this, but we really try to practice it. I haven’t entered RDFN into Yahoo Finance or Google once. I care enormously about the long-term value of this business. I want it to be part of my legacy. I want our investors to make an enormous amount of money. But I don’t really care if the stock went up or down today. And that’s weird, because I drop my kids off at school, and I see other parents say, “How are you doing?” And I say, “I’m fine. Why wouldn’t I be fine?” They’re like, “Oh.”
JC: Because they just lost some money on Redfin, probably.
GK: I hate it when I meet people at a barbecue who say, “I just bought your stock,” because I want them to make money long term, but I can’t really comment on whether it was a good decision today or tomorrow. I can’t time the market perfectly, and neither can they.
My final comment on this is, I haven’t sold a single freaking share. I am so long on Redfin. We have grown a 10th, a 100th of what we’re capable of. We’ve invested so much in making the customer experience better, and we’re going to be reaping the returns for 20 or 30 years. It’s a great business. And what happens in between, I worry about all the time, but I can’t worry about it too much.
JC: One of the things I’ve always appreciated about you, Glenn, is that you speak from the heart, and you speak the truth. You’re honest. And so I was asking around, I do this when I interview folks, and asked Greg Gottesman, the venture capitalist here in town who’s known you for a long time, “Give me a couple questions I should ask Glenn.” And he came back with this comment about brutal honesty, is what he called it. He said, “It’s such a critical, differentiating, and endearing part of Glenn’s personality.” Why do you use brutal honesty, or what some people call radical candor, to your advantage; on the Wall Street calls, with press, with everybody? You’re very transparent and open. What is it? Is it just your personality? Is it a tactic?
GK: If it were a tactic, that would almost be ironic, that I’m deceitful about being truthful or something. I hate the bologna-gorged, bullshit-filled corporate world. And my whole goal is to try to build a business that goes beyond that.
I remember when you called us on the day of our layoff, and you were so sweet about it.
JC: Really? That’s unlike me.
GK: You said, “I know this is a really hard day, but I have to ask for a comment.” And I said, “The truth is, this is the worst day in my business career. But I just want you to be open to the possibility that one day, there could be a good day, too, because so many people are going to write us off.”
So I think what’s hard about transparency is, if you’re also a genuinely emotional person, there are days when I feel like Redfin can conquer the world, and there are other days when I feel overwhelmed by some of our problems. And you have to be steady through that. I’ve met some people who think that transparency is breaking down in front of your team and saying, “I don’t know how we can win.” I haven’t felt that way. But if I did, I don’t think that’s great leadership.
JC: Kai Ryssdal of Marketplace, the great host on NPR, who also has the Corner Office podcast that you were recently. You said, “You’re a quirky dude.” And he couldn’t quite grok this, because it runs so counter to the way that most CEOs would come up on this stage and interact with an audience, or with employees, or investors.
Why do you speak out the way that you do, and especially on issues that are hard? You came out with a very interesting analysis on the head tax that went in a counter direction to the rest of the tech industry, for the most part. There’s a contrarian element of you that I think I would love to dig in and know more about. Where does that come from?
GK: As far as being quirky, I just think the world is starved for a little bit of personality. I used to try to act all grown up so that people wouldn’t figure out all the weird stuff about me. But then, if you go in the other direction, and you actually just fly your freak flag a little bit, the people who should be working with you will work with you, and the people who shouldn’t be working with you will work with you. And both of you will be better served if you figure that out sooner, rather than later.
But the conversation we always have with Redfin’s agents, with our engineers, is that you have to put some of your soul into the job. And if I ask for their soul, and I give none of mine in return, they’re just suckers. Have you ever felt like you poured your guts out for someone, and then they say, “Interesting, that’s very nice to hear?” And then you feel like, “Why did I just do that for that person?” So I think you kind of have to have that currency going both directions.
As far as the political issues, I feel really torn about that. I sometimes feel like a coward — I think I’ve said this before — for not being more outspoken on different political issues. And at other times, I feel like a narcissist, because there are Republicans, and liberals, and Democrats who have built the platform that I’m standing on right now. John wouldn’t have me up here if Redfin weren’t a business worth more than a billion dollars. And when I go up there and say, “Go, Donald Trump,” or, “Go, Hillary Clinton,” well, the other half of the office who didn’t vote for that person feels betrayed.
And so the head tax was about real estate. It was about technology. It was about Seattle. It was about how we could be different than a town I came from, San Francisco. But it was a long conversation with our board about whether to publish it, which is why it came out a week or two too late. But there have been plenty of other issues where I’ve decided to be quiet, because I think the real enemy in America is not the Democrats, and not the Republicans. The real enemy is how much we hate each other. We don’t hate Russia, or China, whoever our competitor is, more than we hate each other. And if you were at an office where two people hated each other as much as Democrats and Republicans on a judicial committee hate each other, you’d just fire them both.
And so participating in that hate instead of trying to do a little love, I think, is unpatriotic. By the way, I’m looking at you, Ben Slivka, because Ben has been a contrarian on several political issues. And what I’ve always appreciated, he’s a great Microsoft technical leader, is that he’s tried to reach out to the other side instead of just unfriending everyone who disagrees with him. The most important dialogue is this civil dialogue. I love that about, Ben. I’m off Facebook now.
Life is too short for hate.
JC: I want to step back, just to a comment you made about pouring out your soul to employees. In that interview with Kai Ryssdal, you also mention that your biggest fear with your staff and working with your staff is that, as you’ve grown to over 1,000 employees, that the staff just starts to accept mediocrity, stops being passionate, stops being innovative, stops being creative. How are you fighting against that as a leader in your organization?
GK: First of all, by working my ass off. You can’t ask other people to work hard while you’re taking a vacation to the planet Pluto. You have to be the first one to go into that dark cave. You have to be the first one to sweep the floors. And so I think speaking passionately about what you care about and then acting that way is important. But I also think having a moral mission — there’s nobody at Redfin who’s going to pour his guts out for an extra penny of EPS. They’re going to pour their guts out to broaden our mission to reach everybody in America. We still don’t reach everybody in America, and it drives me crazy. And half the reason we’re doing technology to make real estate more efficient is so we can do that.
If you don’t have a moral cause, if your earnings call is the only reason you exist, as soon as you slip on a banana peel, no one is going to stay there. But if you actually say, “There’s some higher calling. We’re trying to make money, but we’re also trying to do something that’s good, and that’s how we’re going to make money,” then you can ask for extraordinary efforts from people.
I have this other anxiety that I just think about all the time. I won’t know when I’m no longer the best person to run Redfin. We’re in an era of entitled CEOs. When you go public, you get in a room with a bunch of lawyers who talk to you about dual class stock, staggered boards, a big pool of stock to award yourself later so you don’t have to ask investors. It’s why Elon Musk is smoking pot with a journalist. It’s very hard for us to get fired.
But if you actually feel un-entitled to the job, like some of the people who work for you might one day do your job better than you, and that someone else on your board is going to notice that before you do, it puts a lot of hustle in your game. And you’ve got to stay strong to stay on top. And I just feel like there’s so many good people at Redfin, I have to be the hardest worker there to earn my place as their CEO.
JC: Staying on this theme of leadership, the other thing that you mentioned to me was, when you started at Redfin, you felt like your job was kind of the elementary school basketball coach. And now, you feel as if you’re the college coach, wanting to put just the best five players out there on the court. What has really changed about your approach, in terms of management, as the company has grown? And what lessons are there for those in the audience?
GK: Well, what’s behind that analogy is just this idea, if you’ve ever coached little kids, if you give them a play that the other team doesn’t have, and they actually, miraculously run it, you will destroy the other team. And it is great to be that coach. But at the college level, they all have the same plays. And what matters is getting the best five and putting them on the court.
So I don’t usually use sports analogies, because they can be a little bit gender-specific, but I now feel like most of my management job is to find the most talented people, to create a diverse and equitable environment where they can be successful, and to let them do their thing; whereas before, I used to want to tell them how to do their thing. And the hardest part about that is still figuring out when to manage performance, when to fire someone.
I once went on a run with my closest friend on the board. And I told him that there’s this idea in yoga or something, that you only have so many breaths, and that if you breathe faster, you’ll die sooner. And I felt that way about my corporate life, except I only had so many people I could fire; that each one took a piece of my soul out. And he stopped running, and he said, “Don’t ever tell me that again, because then I’ll have to fire you. Everyone is counting on you to make sure you have the best leadership team. And if you’re unwilling to do that for soulful reasons, I completely understand that as a human decision. But you shouldn’t be running Redfin anymore.” And he said, “Now, let’s start running again.” And I’m like, “No. I feel like walking.”