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Redfin’s performance was a mixed bag during the third quarter, as revenues grew and net losses widened amid stubborn market headwinds.
The Seattle-based company’s revenue grew 3 percent year over year to $278 million, as net losses grew 77.8 percent from $19 million to $33.8 million. Redfin’s total gross profits increased 4 percent year over to $101.9 million; however, real estate services gross profit declined 10 percent year-over-year to $48.7 million.
Real estate services’ gross margin — which is the percentage of a company’s revenue after direct expenses — slid from 30 percent in Q3 2023 to 28 percent in Q3 2024.
The Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) also declined 49.3 percent to $3.9 million, according to the earnings report.
Glenn Kelman
Despite the hiccups in Redfin’s top-line results, CEO Glenn Kelman said the brokerage and portal company’s performance aligned with the guidance range and puts them on track to end the year on solid footing.
“Redfin’s third-quarter results were within our guidance range, and we’re now forecasting fourth-quarter growth in market share and revenues,” Kelman said in a written statement before the company’s Thursday earnings call. “Already, shifting our real estate agents to a commissions-based model has improved close rates, with industry-leading attach rates for mortgage and title services.”
Redfin’s market share contracted slightly during the quarter, dropping from 0.78 percent to 0.76 percent. Nevertheless, Redfin experienced a second straight quarter of sequential agent growth as average lead agents increased 1 percent to 1,757. The share of loyalty sales increased 2.77 percent to 37 percent, with the mortgage attachment rate growing 22.7 percent year over year to 27 percent.
The company credited its agent growth to the success of Redfin Next, its commission-based payment model. Redfin Next enables agents to keep their full-time W-2 status and traditional benefits while getting variable commission splits of 70 percent to 75 percent based on the average home price in their market.
In a previous Inman article, Redfin Chief of Real Estate Services Jason Aleem said Next significantly improved the brokerage’s retention and recruitment efforts, with top producers in their biggest markets breaking seven figures in commissions in 2024.
“Redfin Next has empowered our agents to amplify their businesses and unlocked the opportunity for them to earn more money, while also inspiring other entrepreneurial agents to join us,” Aleem told Inman in October. “Having the best agents in the industry is critical to our mission to make real estate better for consumers, and with Redfin Next, we know we can continue to grow our impact.”
During the company’s earnings call, Kelman started his remarks with an apology to shareholders for failing to generate more robust financial results. Mirroring the company-wide results, Redfin’s individual real estate services, rental and mortgage segments all experienced growing revenues alongside widening losses, as the company navigated rough market headwinds.
“We moved heaven and earth to make money in 2024, but we fell short of our goal. We’ll keep driving toward profits,” he said. “Over the past year, almost every dollar of revenue growth has fallen to the bottom line, and now we’re preparing to grow.”
Kelman said October and November have served as a silver lining for the company’s outlook, as they leverage Redfin Next to accelerate recruiting efforts and consumers remain resilient in the face of stubborn mortgage rates and rising home prices. The CEO said the change in cooperative compensation may benefit Redfin in the long run, as consumers see an enhanced value in the brokerage’s flat-fee model and Sign & Save program.
“If more consumers seek better value from their broker in 2025, Redfin may expect larger share gains. And if homebuyers become more sensitive to brokerage fees, bundling mortgage and title services will become even more important,” he said.
“Of the brokerage customers who financed their third quarter home purchase, 27 percent used Redfin Lender, down from 28 percent in the second quarter, but up from 22 percent in the third quarter of last year.
“Again, more than 60 percent of eligible customers used our title services, which become a significant source of profit,” he added. “In January 2025, we’re trying new policies to increase mortgage attach rates further.”
On the portal side of the business, Kelman said CoStar-owned residential portal Homes.com has negatively impacted Redfin’s website traffic, which declined 4 percent year over year during the third quarter.
“You win some, you lose some,” he said. “We expect to get back to a cadence of taking share every quarter. Maybe it won’t be by leaps and bounds, but there should be a steady gain of share every quarter.”
Kelman said Homes.com’s $1 billion marketing blitz has been difficult to overcome, especially as Redfin has spent the year reducing its marketing spend. However, the company has made needed changes to its cost structure that will enable it to ramp up advertising in 2025.
“It’s a competitive market. We’re not asking for any forbearance from investors because we’re bigger or smaller than one company or another,” he said. “But I do think that having a new entrant in the market affected us somewhat. I don’t expect them to increase their budget from 2024 to 2025, and we expect to increase ours.”
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