Redfin Now, the company’s direct home buying and selling operation, is now a key piece of its long-term strategy.
The company started buying and selling houses directly in 2017 as an “experiment,” but Redfin removed that tag today, doubling down on the program and announcing its intention to staff up Redfin Now and expand beyond Southern California. As part of Redfin Now’s evolution to a long-term business, Redfin is breaking out its quarterly results under a new reporting group called “properties.”
Redfin said the company spent $17 million buying homes in the second quarter, up from $6 million in the first quarter. Redfin sold all 17 of the purchases it made in the first quarter, with second quarter sales totaling $9 million, up from $3 million three months ago.
Redfin Now gives homeowners offers within 48 hours of a visit to the home and the seller can get their cash within a week. Redfin Now then prepares the home for market and Redfin lists it online, with the goal of selling it at a profit.
Redfin said it has made money on each home it has bought and sold. However, the properties segment lost about $100,000 overall in the second quarter.
“Every home we’ve sold has sold for a higher price than we paid for it,” Redfin CEO Glenn Kelman said during a call with investors. “But there’s a difference between a gain on a sale and profit. Once you account for the cost of our labor, renovations and capital, Redfin Now has been about break even. The good news is that we expect as we get bigger within a market and build more software to manage the renovation process we’ll be able to spend less time and money bringing each Redfin Now home to market.”
Company-wide, Redfin posted net profits of $3.2 million — or $0.04 per share — on revenue of $142.6 million. Analysts surveyed in advance by Yahoo Finance expected earnings of a penny per share on $138.8 million in revenue. Despite satisfying Wall Street in the second quarter, Redfin shares tumbled 9 percent in after-hours trading as the company’s guidance for the third quarter came in below analyst projections.
Kelman explained the downgraded projections, saying the company has long expected traffic to slow as it’s become more established, and the real estate market has softened somewhat in recent weeks. Kelman also noted that the company’s profits are seasonal, and Redfin still expects to finish the year with a loss.
Redfin is putting a lot of resources behind the expansion of Redfin Now. Last month it filed to raise $240 million in a new debt and stock offering, and a big reason behind the move is supporting the growth of Redfin Now.
Redfin is now hiring software engineers to build technology to support the renovation, promotion and sale of Redfin Now homes.
As part of today’s announcement, Redfin Now is expanding to its third market of Orange County, Calif. The company is planning to expand to two more markets this year and several more in 2019.
Redfin’s cross-town rival Zillow also recently jumped into direct home sales, starting off in Phoenix, expanding later to Las Vegas and going to Atlanta and Denver next. The Zillow Offers program — part of Zillow’s larger Homes reporting segment — posted no revenue in the second quarter.
The two Seattle real estate giants find themselves in competition with a number of other businesses in the so-called “iBuyer” market. Kelman explained on the call with investors why he thinks Redfin has the best chance of succeeding in what could be a risky business as signs of a slowdown in some of the hottest housing markets begin to show.
“We decided we can win because we believe nobody is better at selling homes than we are,” Kelman said. “We believe that nobody in real estate is better at combining local service and technology. Newer entrants don’t have the online audience we do, and pure websites don’t have as much operational expertise. We believe few companies have our spending discipline. This audience, field experience and penny-pinching should let us acquire and sell homes at a lower cost, which will let us offer homeowners more money.”