Grace Alipour spoke loudly into the phone over the cries of her two-year-old being strapped into a car seat.
“I started at Redfin 12 years ago,” she said. “And in 2017, I decided to go on full-time as a lead agent.”
Representing homebuyers in Orange County, California, Alipour generally completed 2-3 escrows a month while many colleagues did 4-5.
“It is high-volume work,” Alipour recalled.
Alipour gushed about Redfin’s training program, and she accessed maternity leave benefits other agents lack. But Alipour exited Redfin for Compass last month, due to Redfin’s sales expectations.
“With a two-year-old, I couldn’t meet the quota,” she said.
Redfin is a publicly traded company, a nationally recognized listings website and one of the biggest brokerages in the country. But what makes Redfin different – what makes it radically, transformatively different – is that it classifies real estate agents as employees.
These employee agents are exceedingly more productive than the average independent contractor agent. They are also more diligently responsive to leads – and perhaps to each other.
“We would go out to dinner a lot on the beach in Asbury Park on the Jersey shore,” recalled Jacki Wilfinger, an erstwhile Redfin agent in New Jersey. “And there would be get-togethers, like an escape room.”
But Redfin’s model paradoxically makes it much more vulnerable to litigation, including a blockbuster race discrimination lawsuit on the verge of settlement. And while former agents have nice things to say about Redfin, they also leave in droves.
“For the hours you put in,” Wilfinger said. “The pay wasn’t great.”
So, does Redfin’s model work? Or not?
On a mission
Way back in the drab plaid of the 1970s, brokerages often classified agents as employees and offered them health care and pension plans. That changed with RE/MAX, under its swaggering CEO Dave Liniger.
“RE/MAX came in with a totally different model,” recalled Stephen Baird, CEO of Baird & Warner whose father ran that brokerage at the time. “And so, because of that, we had to make our agents independent contractors and terminate their pension plan and health insurance.”
An independent contractor agent mostly finds their own leads and can receive minimal training or resources from their brokerage. Some agents, like ones at RE/MAX, even pay the brokerage fees for office space and marketing tools. In exchange, the agents set a sales commission and negotiate with the brokerage their commission cut.
In July, the National Association of Realtors reported that 87% of its over 1.5 million members are independent contractors. “This classification is essential to the real estate industry, homeowners across the country, and to boosting the economy,” NAR declared.
Indeed, today, brokerage executives see independent contractor agents as not just saving them money – in turn, relegating the agents to go on their spouses’ health plan or the state’s “Obamacare” health exchange – but as a philosophical virtue.
The employee model “disincentivizes hard work, and caps earning potential,” said Courtney Poulos, CEO of ACME Real Estate in Los Angeles and Orlando. “With independent contractors, the success of the agent is based on their skill.”
Redfin, on the other hand, has had agents as employees since Glenn Kelman founded it in Seattle in 2006. Like Robert Reffkin at Compass and Rich Barton at Zillow, Kelman is not from a real estate background. He previously founded and helmed Plumtree Software for seven years.
While Reffkin has said agents require the right technology to succeed, and Barton espouses that consumers hunger for information and simplicity, Kelman’s insight is that independent contractor agent’s incentives are aligned with them making the most money, and not on the consumer finding the best deal.. Living on commissions often means getting paid more for convincing a buyer to increase their acceptable price range or coaxing a seller to hold out for a more lucrative deal.
Redfin pays agents a baseline salary – the average salary for a Redfin agent in 2021 was $23,000, according to the company – plus performance bonuses not completely tethered to a home’s sale price. For example, homes sold for between $201,000 to $450,000 receive one flat commission, and homes sold in the range of $450,001 and $700,000 receive a different, somewhat larger commission.
The model, then and now, turned off many agents who are self-identified entrepreneurs, unappreciative of any ceiling. But it also drew a bountiful new crop of people into real estate.
“I shared their sentiment that the brokerage really needed to be fixed,” said one former longtime Redfin agent, who requested anonymity to speak candidly about his many years at the company. “Everyone seemed on a mission and was really smart and that’s what got me on board.”
Noah Goldberg came to Redfin in 2014, nine years after graduating from American University and bouncing between different corporate jobs.
“I did a nine to five job – inventory analysis – in my mid-to-late 20’s,” said Goldberg, presently a Redfin agent in Charlotte. “It was as boring as it sounds like. Redfin was an amazing place to start my real estate career. They provided me training, and marketing, and covered mileage.”
Trust the process
Like many, if not most, employer-employee relationships – from General Motors giving autoworkers a vehicle to assemble to Wyndham providing clerks the guests to check in – Redfin agents are handed work to do by a supervisor.
Redfin is the third most trafficked U.S. website for real estate listings (behind Zillow and Realtor.com) with 49.1 million average unique visitors per month, as of September.
Website visitors interested in a particular home or market become leads assigned to agents, according to that agent’s specific geographic area. Redfin agents are spread across the country. But they are most concentrated in wealthier cities including Seattle, Boston, Chicago, and San Francisco.
A Redfin spokesperson said that the company has attracted agents, “Who love customer service, and would rather spend their time working with clients than drumming up new business or doing administrative tasks,” a claim that rang true with Goldberg.
“I don’t want to spend a lot of time with lead generation and cold calls,” Goldberg said. “I certainly don’t want to be that guy who is posting on Facebook, ‘Hey, anybody want to buy or sell a home?’”
Every snowflake is unique but even snowflakes are not as varied as the U.S.’s over 1.5 million real estate agents. The “average” real estate agent makes $49,200, according to NAR. But that average includes Alipour of Compass, who says she is mostly not working right now, to Chris Cortazzo of Compass, who brokered the purchase and sale of seemingly a quarter of Malibu.
Redfin agents are required to shed some of that variegation, follow-up on leads, and sometimes outsource home tours to “associate agents” (who are independent contractors). This is seen as clunky and even amateurish by many brokerage executives with a traditional business model.
“To me, it is important to have a dedicated person support a customer all the way through the transaction,” Poulos, the ACME real estate broker said. “The employee model can dampen creative spirit and turn us into taskmasters.”
But, whether Redfin agents feel like taskmasters or not, they are doing more deals.
“The employee model helps Redfin control its end-to-end process,” said Ygal Arounian, managing director of equity research at Wedbush Securities, and an analyst of Redfin. “That process has led Redfin agents to be more productive than other brokerages on average.”
While the average NAR member conducts 10 deals a year, according to the trade group, the average Redfin agent performed 32 transactions from the third quarter of 2020 to quarter three of 2021.
And despite complaints from some former Redfin agents, it would appear that agents are generally rewarded for such productivity. After bonuses and stock-based compensation, the average Redfin agent netted $118,000 in 2021, according to the company.
So, it would seem, is the company. Since becoming public in 2017, Redfin has consistently reported net income losses, but that seems due to other divisions, including iBuying.
Redfin pulled $1.3 billion in revenue for the first nine months of 2021 with $638 million, or 49% coming from real estate services, and an extra $41 million emanating from Redfin’s related partner agent program. Redfin rang up $225 million in gross profit, profit before operating expenses, in real estate services, compared to just $7 million in iBuying. Meanwhile, iBuying expenses were $44 million more than real estate services costs.
“Our mission is to redefine real estate in the consumer’s favor, but we can only realize that goal if we can recruit the best real estate agents,” Adam Wiener, Redfin’s president of real estate operations, wrote in an emailed statement. “Redfin offers agents a combination of compensation, opportunity, culture, and world-class technology and support that is unmatched in the industry.”
Well-compensated employees (with health care). A profitable division. What could be the down side?
Notes from the assembly line
On a recent earnings call, Kelman slipped this into his prepared remarks: The attrition rate of new Redfin real estate agents in the first quarter of 2021 was 53%.*
“Because we’ve been eager to return to market share growth, we probably also made hiring mistakes,” Kelman said on an August earnings call. “Nearly half the people who left in the second quarter are people we wouldn’t choose to hire again.”
The total number of Redfin agents, which the company discloses in earnings reports, provides a glimpse of a workforce with quicker turnover than the membership of a local gym.
After the first quarter of 2020, Redfin has 1,826 agents. In the second quarter of 2020, the number of agents plunged to 1,399 partly because agents were furloughed amid the pandemic. After the 30 percent drop, the agent count rose 42% to 1,981 agents at the end of December. Agent count crested at 2,456 in June before declining to 2,370 at the end of September.
Redfin was not the only brokerage to cut agents at the pandemic’s start only to go on a hiring spree when the housing market got hot. But make no mistake, industry experts said, Redfin’s agent turnover, 31% overall in the first quarter of 2021, exceeds that of its agent-as-independent-contractor competitors.
“That is way above the normal attrition rate for almost any large brokerage in the country,” said Steve Murray, senior advisor to RealTrends. “The industry wide rate of attrition is somewhere near 20-22% from the last data I have seen that was reliable. But most large firms that we work with is more in the 6-10% range annually.”
The turnover, it would seem, stems from two major reasons. The first is who Redfin is hiring. The majority of current and former agents interviewed said Redfin marked their first job in brokerage.
“It was a good way to start my career. They provided good training, and I learned the business,” said Chris Garvey, who worked in Redfin’s Chicago office and now an agent at eXp. “But I had to eventually leave. The people who stay at Redfin do not have an entrepreneurial spirit.”
Garvey’s point of view was echoed repeatedly – illustrating that it is not just the view of brokerage management like Poulos, but the agent workforce itself. Once agents learned the ropes and got a taste of making deals, they left Redfin for a place where they could live on commissions, and be a consumer’s adviser from start to finish.
It’s not that those agents necessarily get rich after leaving Redfin. It’s just that the possibility exists for a grand payoff.
“When I closed a $1.9 million property with Redfin, my bonus was $8,000,” Alipour said. “I would have gotten about a $55,000 commission at a typical brokerage.”
“Redfin brings in more people from outside of the real estate industry and trains them to be agents,” Arounian said. “It does limit Redfin from bringing in the highest earning agents.”
The second major reason for turnover is that Redfin’s business model recalls the Sandra Bullock character of “Speed,” who steered the Los Angeles Metro bus at just the right velocity to avert disaster.
It is a model not just too expensive, rival brokerages say, but too unpredictable. Redfin must have enough real estate agents to meet market demand. However: They cannot have too many agents, lest they collect a salary and health care, with no leads to chase.
Kelman and Redfin brass are fairly candid about this high wire act.
“Traditional brokerages don’t share this challenge,” a Redfin spokesperson explained to HousingWire. “When we hire a new agent, we’re essentially making a commitment that we’ll be able to drive enough business for them to make a good living.”
“Other brokerages have an incentive to recruit as many agents as possible regardless of whether those agents are able to close enough deals to support themselves because these agents pay the brokerages, not the other way around,” the spokesperson said. “When it comes to making decisions about hiring, we lean in favor of our employees, opting to hire slightly fewer agents and forgoing a few more points of market share growth in a booming market in order to protect the covenant that we have with our agents in the event the market slows down.”
But the nobility of the covenant Redfin shares with its agents is arguably mitigated by the pressure those agents have to produce, no matter the housing cycle.
“Redfin agents are pretty busy,” said Hooman Zahedi, a Redfin marketing manager who directs a team of agents in L.A. County’s San Fernando Valley. “We have paid vacation time, but you are an employee, and you have to produce a certain number of hours.”
The former agent who was first impressed by Redfin’s mission and model, said he ultimately felt hemmed in.
“Redfin was able to become a lead-generating machine,” the agent acknowledged, but added, “By the end I felt like I was on an assembly line. It was moving from a mission driven company to a sales operation with just a lot of monthly metrics on a white board.”
A question of control
On Jan. 10, Redfin and a phone book’s worth of fair housing groups including the National Fair Housing Alliance submitted to a Seattle federal court a stipulation that the parties settlement talks were productive, and that a Fair Housing Act lawsuit against Redfin ought to be settled within 60 days.
The fair housing groups sued Redfin 16 months ago, accusing the brokerage of offering real estate services in predominantly white neighborhoods at a “substantially greater rate than it does in communities of color.” This, the plaintiffs claim, “perpetuates the stark patterns of housing segregation that plagues our nation.”
Both Redfin and lawyers representing the fair housing groups declined to comment on what the terms of the proposed settlement may look like. But a lawyer for the groups noted the lawsuit was filed to effect a significant change in Redfin company policy. That theoretically could mean anything from a small-font disclosure notice at the bottom of each listing to Kelman declaring to the world a commitment to focus sales in minority neighborhoods.
A brokerage servicing predominantly white neighborhoods is not a man bites dog story.
National brands as deep-pocketed as Redfin including Douglas Elliman, Sotheby’s International Realty and to a lesser extent Compass cater to people with the means to buy luxury homes. Those people tend to be white. According to the most recent Federal Reserve data, 1 in 7 white families in the U.S are worth more than $1 million, compared to 1 in 50 Black families.
When Douglas Elliman and Compass entered Los Angeles, a minority majority market, their first offices were in Beverly Hills, a municipality whose population is less than 2% Black. Nary an eye was blinked – much less legal action was taken – over these brokerage’s business moves.
Focusing on wealthy, white neighborhoods is because higher sales prices mean higher sales commissions – a bigger pie for agents and their brokerage to slice. Those were the findings of University of New Mexico sociologist Elizabeth Korver-Glenn’s reports on the Houston housing market, and University of Wisconsin-Madison sociologist Max Besbris’ book “Upsold” about the New York City market.
“What I found is that even agents with the best intentions often find themselves in the position of reproducing racially unequal incomes because racial inequality is so entrenched in the market,” Besbris said over email. “Because housing is higher priced and generally there are more transactions in whiter neighborhoods, agents are far more concentrated in whiter neighborhoods and certainly their services are overwhelmingly skewed toward whiter neighborhoods.”
So why just sue Redfin, particularly since Redfin’s bonus system – and thorough effort to respond to all leads – is intended to make agents less incentivized to focus on clients willing to pay top dollar? The answer lies in how the company allocates leads in markets, and how managers dole out leads to agents.
A Bloomberg News article last month reported that Redfin’s policies can mean agents focus on leads in white, wealthy neighborhoods, while outsourcing leads in poorer neighborhoods to partner agents, who pay Redfin a referral fee if a deal closes. An independent contractor agent writing in their notebook, “Stop taking leads for homes listed for less than $400,000, it’s not worth it” is thin material for a lawsuit. A Redfin manager telling the same to its employee agents is another matter. Morgan Williams, general counsel at the Fair Housing Alliance told Bloomberg, “A price-based policy sent up a big red flag.”
Redfin disputes there’s anything wrong with such a policy.
“Our ability to offer service is based on price, which we believe is the only fair way to manage customer demand and agent capacity,” a company spokesperson told HousingWire. “In every industry, businesses have to choose which goods and services they sell and set the price for those services, and the Fair Housing Act allows this.”
Moreover, Redfin contended that they are accessible to a broader range of consumers than all their competitors.
“We’re the only brokerage that’s upfront about whether we can offer employee agent service on a particular home and we’re the only brokerage that expects our agents to serve every customer they meet equally,” the spokesperson said, adding that other brokerages, “Let each agent decide whom to serve, with some promoting exclusivity.”
As Alipour’s time at Redfin progressed on, she said the company was easing up on agent expectations but not enough to deal with the rapidly shifting market.
“It was a high volume of work. Agents did 4-5 escrows per month, while I usually did 2-3,” she said. “Before I left, they asked that I close at least three per quarter, which was lowered [again] to two per month. They kept lowering it, but it was so difficult to do anything in this market.”
Alipour recalled one quarter last year where she wrote 21 offers on behalf of clients. One was accepted.
Kelman has said he is aware of the challenges facing Redfin agents.
“The primary adjustment we have is to pay more in 2022 to new lead agents who are meeting customers’ needs but still haven’t closed a sale,” Kelman said in Redfin’s most recent earnings call. “We have been more likely to lose a lead agent right out of the gate than at any other point in her tenure.”
Starting this year, Redfin is paying “ramp-up bonuses” to new agents who meet milestones in submitting offers in their first 160 days. This includes $1,500 for an agent who submits over five offers in 60 days, regardless of whether the offer is accepted.
Murray of RealTrends wonders whether Redfin has a sustainable long-term plan. The veteran industry consultant points out that ZipRealty, another company with a listings website and employees as agents, was briefly a real estate darling, going public in 2004. “After years of running basically the same model as Redfin, ZipRealty could no longer support the employee model due to cost,” Murray said. Realogy bought ZipRealty for $166 million in 2014.
In short, the veteran industry consultant said, there’s a reason no one else is doing this model (Not literally no one else. Mortgage lender Rocket is dipping its toes into a real estate arm, so is embattled Better.com, and prolific litigator REX also employs agents. None make the RealTrends list of top 500 brokerages by deals and sales volume, a list that Redfin is no. 5 on.)
As for now, Redfin is looking to recruit more agents, while trying to hold onto a veteran core.
“There are four and five times the number of agents from when I started,” said Goldberg in Charlotte. “The camaraderie has been really tough during covid. But it is still there.”
* UPDATE: The original published version said that 53% of all Redfin agents left the brokerage in the first quarter of 2021. That’s not correct. Fifty-three percent of new agents left the brokerage — the overall attrition rate was 31%.
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