Q4 2020 Redfin Corp Earnings Call
And 'twenty earnings call today's conference is being recorded at the conclusion of today's presentation. We will open the floor for questions. We ask that you limit your questions to one per person.
At this time I would like to turn the conference overdue head of Investor Relations Meg Natalie. Please go ahead ma'am.
Thanks Connor.
Afternoon, and welcome to Redfin and financial results conference call for the fourth quarter and full year ended December 31 2020.
I'm, Meg and mentally redfin as new head of Investor Relations.
I look forward to getting to know you over the course of 2021 and beyond.
Joining me on the call today is Glenn Kelman, our CEO and Chris Nielsen our CFO.
You can find the press release on our website at investors day Redfin Dot com.
Before we start note that some of our statements on today's call are forward looking.
We believe our assumptions and expectations related to these forward looking statements are reasonable, but our actual results may turn out to be materially different.
Please read and consider the risk factors and our SEC filings together with the content of today's call.
Any forward looking statements are based on our assumptions today and we don't undertake to update these statements in light of new information.
Or future events.
During this call the financial metrics will be presented on a GAAP basis and include stock based compensation as well as depreciation and amortization expenses.
And the van and the event, we discuss any non-GAAP measures today, we will post the most comparable GAAP measure and a reconciliation on our website.
All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated.
With that let me turn the call over to Glenn.
Thanks, Meg and hi, everyone read and fence fourth quarter net income and revenues were better than we projected on our last earnings call.
Net income increased from a loss of $7 $8 million from the fourth quarter of 2019 to a gain of $14 million from the fourth quarter of 2020.
Gross profit was $80 million up 102% from the fourth quarter of 2019 fourth quarter gross margins for real estate services increased year over year by 880 basis points to 49% Rev.
Revenue increased 5% from the fourth quarter of 2000 $19 million to $245 million, but our gains were limited by redfin now revenues of only $39 million, a 60% decrease from the fourth quarter of 2019.
A redfin now business of buying and selling homes has an outsized impact on revenues because we have to account for the entire home value on a redfin now sale not just the transaction fees, we get from a brokerage sale.
As we explained on our last earnings call Redfin now stopped making offers on homes and the pandemic first months limiting the number we had to sell entering the fourth quarter.
And our core business of brokering home sales through redfin agents and through other firms' agents working as our partners revenues increased 51% compared to the same quarter last year.
After our first ever year over year decline and market share up one basis point and the second quarter, our share increased eight basis points year over year on the third quarter, and 10 basis points and the fourth quarter to 1.04%.
Again would have been larger had we recruited more agents as redfin employees or as redfin partners.
Our main challenge continues to be keeping pace with demand.
Pairing the fourth quarters of 2020 and 2019, the number of customers seeking service from our agents and our partner agents increased 54% and would have been higher if we hadn't made changes to our website and mobile applications that discouraged customers from requesting tourists when and Asia was unlikely to be available.
As of December 31, the number of lead agents, we employed increased 36% year over year and the number of partner agents and our network increased by 83%.
These agents are employees, who represent customers through the entire sales partner agents work for other brokerages and pay us a referral fee for each customer introduction from redfin dot com that leads to a sale.
Our recruiting success has improved monetization broadening the range of customers redfin conserve the.
The likelihood that a listing page loaded by Redfin Dot Com offered service from our lead agent or our partner agents increased from 91% and the fourth quarter of 2019% to 93% and the fourth quarter of 2020 and.
And the third quarter of 2020, this number had songs to 84%.
That's a recruiting partners faster than employees, our website is referring and increasing proportion of customers to partners.
We're proud of the service delivered by our partners, but our employees are still more likely to garlic excuse me the guide a customer to a successful sale for most houses employees generate more gross profit from each sale.
And as we said on our last earnings call. We don't expect to have enough need agents to meet forecasted levels of demand until June 2021.
We're hiring lead agents faster than ever comparing the number of agents recruited and September and October to the number of accrued and in December and January our paces increased by 79% for these agents and by 39% for partner agents.
13% of January's lead agent recruits and 11% partner agent recruits came from the digital marketing campaigns that we launched in November 2020.
We expect approximately 40% of all the lead agents, we hire and the first quarter to come from digital ads.
We've also spent money to increase touring capacity boosting associate agent pay and January by more than 50% for weekend work.
Associate agents are licensed contractors, who hosts tours and open houses when our lead agents are busy to.
To measure the effect of this pay increase we can't compare January 'twenty, one to January 2020, because the pandemic affected so many associate agents willingness detour instead, our point of comparison is from our typical peak touring months July through October and 2020.
Higher pay increased weekend tour and capacity per associate agent by 55%.
Since we also recruited more associate agents overall weak and touring capacity increased 66%.
By June 2021, we should have enough touring capacity for all toward request channels to be open full blast.
Traffic is the reason we are confident that there'll be plenty of demand for the agents are now recruiting.
From the fourth quarter of 2019 to the fourth quarter of 2020, the number of Redfin Dot com visitors grew 44% our year over year gains were 38% and the third quarter of 2020, and 16% and the second quarter.
We estimate that less than half of our late 2020 gains have and market driven and we're also gaining search share.
Some of this has been because we've been getting more visitors from search engine, but it's also true that once we get and new visitor she's more likely to use redfin dot com again, and again with a number of visits per visitor increasing 16% from the fourth quarter of 2019 to the fourth quarter of 2020.
We plan to fortify our traffic growth through machine learning improvements and by localizing. The site from midsized cities. We also expect to expand redfin dot com to 40 small markets and 2021, increasing the proportion of the U S. We reached from 80% of the population to 84%.
And in late 2022, well incorporate redfin listings from rent pad as part of the acquisition, we announced on Friday.
Adding listings adds visitors who want to see those listings, but also increases redfin dot com stature with anyone's searching the web for real estate.
Today, we're a top three result for our listing such as 18 Oak Street more than half the time.
But a top three results for a more general search like Fresno real estate less on a quarter of the time.
Of that GAAP is because redfin authority has been limited to for sale homes. When the website competitors still ahead of us all future both for sale and rental listings.
As we explained on Friday's call. We're excited about the rentals business itself, but also because it lets redfin dot com compete at the scale of the largest real estate portals.
We can't win that competition without advertising redfin dot com isn't our only channel for telling more north Americans about the modern way to buy or sell a home.
And we're now preparing to film and TV AD in Bulgaria, we cut shows our AD campaign in 2020 than restarted it with a found footage AD that ran sporadically because we didn't have enough agents to serve the customers already asking for service.
We faced the same problem this year.
Which is why our AD is day viewing and April rather than our customary February launch date.
Since this will be our seventh year of mass media advertising, we're past the point of being able to say, what our sales would have been with or without at.
Our goal is to make everyone on the market for a home aware that redfin is the company that puts customers first our mass media budget of $52 million is double the 2020 budget and 33% above our previous all time high from 2019.
Our opportunity is to build the most trusted name and real estate because only redfin has existed from its inception to redefine real estate and consumers favor by charging lower fees by using our technology to create a competitive advantage for our customers not just ourselves by employing our agents. So we can hold each one to one <unk>.
Standard of service.
The competitive advantage and this year's AD will promote comes from on demand towards using technology and a vast network of employees and contractors. We have organized the entire company around the commitment to getting customers into homes at a moment's notice with all of North America, seemingly moving somewhere new offer without knowing a local agent from Adam.
And more people than ever we'll turn to the internet to scheduled to tour and often to host the Tor two.
This and we will establish redfin is the passport foreseeing any home for sale across the country with just a few taps on their phone.
We're investing and adds to establish long term market leadership, but the customers already on our website today hardly need encouragement to contact redfin more redfin dot com visitors are requesting tourists through redfin agent more of these customers are making and offer <unk>.
Just on customers online activity immediately after a tour the likelihood that a customer who toward a listing and the fourth quarter will go on to buy a home whether from redfin or another brokerage has increased 15% year over year, which was 2000 twenty's largest game.
The market wide increase and home buying urgency will one day space, which is why we've been piloting a program to improve customer success rate through better service.
Already let our best agents meet more customers, while limiting other agents to fewer customers and 2022. We may also reduce overall the average number of customers and agent support and based on promising results from our sixth market pilot that began in January.
This success rates and the pilot markets remains significantly higher than elsewhere through this summer we will broaden the pilots and all of Redfin and 2022, our goal would be to sell more houses and make more gross profit from the same number of customers with minimal margin impacts.
Ready, we're seeing other financial benefits from better service from.
From the fourth quarter of 2019 to the fourth quarter of 'twenty to 'twenty and 'twenty excuse me the proportion of sales from repeat and referral customers increased 16%.
Over that same time, the proportion of brokerage customers, who bought one home from redfin and sold another increased by 29%.
Both of these trends can let us grow even if online traffic growth slows.
To sell our entire suite of products to every customer we plan to expand our work workforce of locally licensed Deskbound agents, who can answer online inquiries more quickly and reliably and agents already meeting customers and the field <unk>.
Last fall we ask these deskbound agents now known as home sales advisors to handle inquiries about a redfin now instant offer not just a brokerage sale.
Home sales advisors on the same bonus for any redfin listing regardless of whether the listing was first spot by redfin now or are still owned by the original customer.
This is one reason that the likelihood that a redfin now inquiry will lead into what will lead and one form or another to a redfin listing increased year over year by 12% and the fourth quarter.
We think we can get similar benefits and the future offering our touring customers a redfin mortgage preapproval.
And now it's been slow to rebound from the pandemic with fourth quarter revenues declining 60% year over year.
The main problem has been the length of the sales cycle, we stopped making offers on homes and mid March and didn't make a significant number of offers until mid June.
From the point at which a customer asks for and offer on a home. It typically it typically takes five months to sell that home.
But the redfin now team has also taken some time to adapt to the market.
With home prices, increasing nearly 15% year over year and both December and January more homeowners have accepted redfin now offers then backed it repair fees increasing.
Increasing scrutiny on offer prices limited, our fourth quarter purchases and it also forced us to make stronger offers assuming the home will appreciate and value by the time, we sell it off and while absorbing more repair cost.
Same price appreciation that limited our purchases helped us reach redfin now is highest ever average gain on sale and the fourth quarter.
After fourth quarter revenues declined 60% year over year.
And we expect first quarter revenue to be about the same as last year with strong growth resuming in the second quarter and continuing through the rest of 2021.
As I said on nearly every call demand will swing between instant offers and broker sales depending on the market.
But redfin believes that offering both services across North America will draw more customers to redfin overall, and let us deliver more value to each one.
Since last October Redfin, now expanded the Sacramento, Seattle, and San Francisco Bay area, and Phoenix, increasing the number of markets. We serve from 14 to 18.
These four new markets accounted for 20% of redfin brokerage listings and 2020 lifting our total coverage to 44%. We expect this expansion to continue throughout 2021 and.
And we remain optimistic that redfin now will contribute to 2021 gross profit, especially since redfin and other eye buyers have lowered how much we pay the agent representing the buyers of our listings.
And Atlanta, where more than one and four homes is sold by our business rather than a consumer debt.
Typical commission paid by and I buyer to a buyer's agent fell from 3% and the fourth quarter of 2019 to two 5% and the fourth quarter of 2020.
Now that the department of Justice lawsuit, let's websites like Redfin Dot Com published the commission on each listing we expect consumers to see what I buyers are doing and follow suit, creating the price pressure and in an efficient broker like redfin has been banking on all along.
Redfin now is an important service from the move up buyer, who needs cash to compete and bidding more debt.
And mortgage is what will help most of our home buying customers increase the credibility of their offers and close faster from.
From the fourth quarter of 2019 to the fourth quarter of 2020, Redfin mortgage revenue grew 210% with loan volume up 70% and revenue per loan up 84%.
We recorded our second straight quarter of gross profit, even as we hired more lenders and production staff to prepare for the 2021 home buying season.
Low rates and strong demand have improved almost every lenders margins, but our focus is on creating a long term margin advantage over the competition through improvements to our proprietary loan origination system.
And as originating alone as a document driven process that is far more structured and our home search the margin that can be gained through loan origination software is straightforward.
And the fourth quarter, our loan origination system added the ability to import floods certificates and accept borrower payment savings.
Saving underwriters and processors approximately 10 to 20 minutes on every loan we expect to make similar improvements nearly every quarter for years to come with software tailored to our origination and underwriting processes.
As we grow we can also improve margins by selling our loans at higher prices to investors.
On the credit markets became volatile and April 2020, redfin stops taking interest rate risk on our loans accepting a lower price on loans from investors, who are willing to absorb that risk.
Now the credit markets have settled down last week, we started selling loans at higher prices with redfin, rather than the investor at risk if the loan value declined after we locked the rate.
We're offsetting the interest rate risk by trading mortgage securities. This change can improve our mortgage gross margin percentage by 5% to nine points.
As we grow our scale and in house financial expertise should lead to further margin gains.
The major limit on our growth has been staffing, but onetime bonuses and broader support for remote work and reduced attrition and the opening months of 2021, we've been hiring mortgage employees faster than ever before.
There'll be plenty of customers to keep those new hires busy as of today redfin mortgage still isn't available and markets that account for 25% of our brokerage transaction. It still doesn't support many of the loan types, our customers need it sometimes using high rates to limit demand or is flat out turning away referrals from the brokerage and it hasnt had the capacity to serve borrowers on redfin.
Dot com, who didn't use a redfin agent for a home purchase.
Even when rates rise. This is a business that can grow for many years to come.
Before we turn to an overview of the housing market, we want to reflect for a moment on how we emerge from 2020, a different company than when we entered.
We learned that the culture of love, the United US and our early days of struggle is stronger than ever.
We learned how important it is and a crisis to give yourself space to think.
Sometimes because we did just that and some.
Sometimes because we didn't.
I hope, we learn kindness under pressure.
But we also changed and the most fundamental way diversifying the company at every level.
Even as redfin scrambled to recruit agents coordinators and lenders in the midst of on all out housing boom, we increased the proportion of people of color at Redfin and 2020 by two points at.
At the manager level. This increase was four points when.
And when we were turning customers away and losing share for the first time and redfin history, we remain committed to diversity insisting that hiring managers interview at least one person of color for roles across the company possess.
Physicians took longer to fill but the sales we lost and the interim for far less important to our long term competitive position and being a beacon for attracting the real estate industry's most diverse talent.
We still have a long way to go but what I concluded from this experience is that you have to pay the most attention to diversity when it feels that you can least afford to do so when your company is and crisis and has to reduce cost and when you are hiring hand over fist.
Those are the moments when people make decisions on instinct surface and primordial biases.
These are also the moments from diversity at your company can increase or decrease more than three months then it will over the ensuing three years redfin is worth more as a company because of this long term focus.
Now, let's talk about the housing market.
Last quarter, we compared it to our space aliens and destroyed and Arctic Research station and also eight a dog January sales were up 24% year over year prices are up 14% inventory hit rock bottom the how.
Housing market is now like a Soviet era supermarket with most of the shelves empty the number of homes for sale in January was down 26% year over year.
And the week, leading up to this call demand slack and for the first time and months, probably because of cross country snowstorms, but prior to that the stories, we heard from our agents were harrowing juicy and bizarre.
A redfin listing and Dallas had 154 showings and 32 offers and la agent reports that more than half of our customers are leaving the area from one customer lower housing costs and a member of the family stopped working.
Salt Lake City, the waitlist to buy new construction homes was 90 buyers deep.
The lines detour homes, and Austin Garza, along the buyers brought lawn chairs and on.
Our annual survey of nearly 2000 homebuyers, 63% reported having bid on a home they hadn't seen in person.
These migrations are warping this space time continuum of small town economies and the average housing budget for out of towners moving to Nashville, and 2020 was $719, 48% higher than the $485000 budget for local buyers.
Portability crisis that flow like some huge unspent electrical charge from San Francisco to Seattle, Portland, Denver, Boise is now reaching virtually every town and North America, bringing gasoline prosperity, but also new anxiety.
And Investor called me and the Middle of Winter afternoon to report with a touch of all but also agreed that the source of America's miraculous boom with the boundary of the land itself.
Redfin and this entire economy have more room to grow than we ever imagined.
We just have to make sure that growth benefits everyone.
Take it away Chris.
Thanks Glenn.
We continued to benefit from a robust housing market, our fourth quarter results exceeded our revenue and profit projections.
And fourth quarter revenue was $245 million up 5% from a year ago.
Real estate services revenue, which includes our brokerage and partner businesses increased 51% year over year.
Brokerage revenue and revenue from home sales closed by our own agents was up 47% on a 29% increase and brokerage transactions.
Revenue from our partners was up 120% on a 67% increase and partner transactions.
The properties segment, which consists of homes sold through a redfin now program generated $39 million and revenue down 60% from one year ago.
Our other segment, which includes mortgage title and other services contributed revenue of $8 2 million and increase of 98% year over year.
Merely driven by growth and our mortgage business.
Total gross profit was $80 1 million.
102% year over year.
Real estate services gross margin was 49% up 880 basis points year over year.
And this was driven by a 400 basis point decrease and personnel costs and transaction bonuses of 250 basis point decrease and home touring and field costs and a 70 basis point decrease in occupancy and office expenses.
Properties gross margin was down 350 basis points year over year to minus four 8%.
And this was primarily attributable to a 590 basis point increase and personnel costs and transaction bonuses due to lower volume.
And a 180 basis point increase and home selling expenses.
This was partially offset by a 570 basis point decrease and home purchase costs and related capitalized improvements as a percentage of revenue.
Showing that we are buying homes better.
To get to profit and properties with our current team size will need to get more volume.
Other segment gross margin was 14, 1% up from minus 24, 9% a year ago.
This was primarily attributable to a 2080 basis point decrease and personnel costs and transaction bonuses.
630 basis point decrease and outside services cost too.
270 basis point decrease and dues and fees and a 200 basis point decrease in occupancy and office expenses.
All of these changes are the result of scaling these businesses.
Total operating expenses were up 17% year over year and represented 22% of revenue up.
Up from 20% of revenue and one year ago.
Technology and development expenses increased by 22% as compared with the same period and 2019.
The increase was primarily attributable to a $3 $7 million increase and personnel costs and a <unk> $9 million increase and technology infrastructure expenses, primarily hosted services.
Marketing expenses decreased by 10% from last year.
The decrease was primarily attributable to a $1 $7 million decrease and outside services costs as we did not produce and the TV commercial during the quarter as we had in 2019.
The decrease was partially offset by a zero point $8 million increase in marketing and media costs.
General and administrative expenses increased by 24% year over year, primarily attributable to an increase in personnel costs due to increased head count.
On tract recruiters and recruiting advertising.
Our net income, including stock based compensation and depreciation was $14 million compared to and net loss of $8 million and the fourth quarter of 2019.
Total interest and other expenses of $12 million includes a $4 $6 million loss on the partial extinguishment of our convertible senior notes due in 2023.
And $6 8 million and noncash interest expense, which was primarily related to our convertible senior notes due in 2023 and 2025.
We also recorded a dividend on convertible preferred stock of $1 6 million.
Diluted income per share attributable to common stock was 11 <unk>.
Compared with diluted loss of eight cents per share one year ago.
Before moving to our first quarter outlook I'd like to briefly summarize our full year 2020 performance.
Our customers booked over $37 billion and real estate transactions.
Compared to $2, 5% Commission, we saved our brokerage customers over $185 million.
We delivered full year revenue of nearly $886 million up 14% year over year, with 24% growth and real estate services revenue.
Gross profit of $232 million was up 61% from 2019.
Our total operating expenses grew 4% with decreases and marketing, mostly offsetting increases in technology and general and administrative expenses expenses.
And net loss for the year was $19 million and 2020 as compared with $81 million in 2019.
Now turning to our financial expectations for the first quarter of 'twenty and 'twenty one.
Revenue is expected to be between $249 million and $255 million representing year over year growth between 30% and 34%.
We expect our properties segment to account for $77 million to $80 million of that revenue.
Presenting a 3% year over year decrease to a 1% year over year increase.
For the first quarter, our net loss is expected to be between $39 million from $36 million compared with the $60 million net loss and the first quarter of 2020.
And yet again this quarter, we expect for real estate services gross margin to increase as compared with the same quarter in 2019.
We should also remind you that we won't be advertising on TV during the first quarter. When we did so through the first week of March in 'twenty and 'twenty.
Our guidance includes approximately 13.0 million.
Stock based compensation and $4 5 million of depreciation and amortization and $1 2 million and interest expense associated with our convertible senior notes and other credit obligations.
In addition, we expect to pay a quarterly dividend of 30000, and 640 shares of common stock to a preferred stockholder.
This guidance assumes among other things that no additional business acquisitions investments restructurings or legal settlements are concluded and that there are.
No further revisions to stock based compensation estimates.
And with that we'll open it up for your questions.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you were using a speaker phone. Please make sure that your mute function is turned off to without your signal to reach our equipment.
Please limit your questions to one question per person.
And please press star one to ask a question.
We will pause momentarily to allow everyone an opportunity to signal for questions.
And we can take our first question this will come from Ryan Mckechnie with Zelman and associates.
Yes, Thank you and congrats on the performance and.
And my first question I'm curious on the on the strategy you guys are employing around I buyer market selection and so on the Bay area and Seattle as examples.
And even some of the markets you've been in for a while and California before others.
I guess, there's been a view some of these markets like Seattle for example.
Less homogeneous housing stock high transfer taxes, they're sort of reasons you can point to to say this kind of makes sense why it hasnt been a big eye buying market. So I'm curious if you can just talk to kind of the movement that you're having kind of what gives you the confidence to embark on some of these markets.
Such as Seattle, and the Bay area, and and and tying that back I think Glenn you mentioned some of this just relates to the general market share and positioning you have within these markets. So so is that to suggest that as you go forward.
We could expect to see some of your bigger markets kind of next day in Q.
Great question, So you're right. The reason, we chose Seattle and San Francisco are because those markets support high traffic strong brand awareness.
And.
There is no competition there.
No.
It's too early to say, whether it's digging instead of Zagging is going to pay off one of the markets is doing extremely well and one of them.
Got it that makes sense and one on the mortgage side, just a clarification. So I guess from an industry standpoint.
Turning to see gain on sale margins compressed from from very strong levels in 2020, I think you're suggesting that there's some opportunity in terms of your kind of structure to capture better economics going forward.
But I'm curious if you can expand on what you were saying so you mentioned getting into trading mortgage securities. I guess are you just suggesting that you'll be kind of selling forward mds to hedged the rate locks on yourself and I guess I'm not entirely sure what the previous approach was so if you can just clarify.
Kind of what's what's what's new there, what's what's changing and be very helpful. Thank you.
We're shifting from best efforts delivery to mandatory delivery, where we take on more risk and then we're hedging that risk.
By trading mortgage backed securities. So the reason, we stopped that hedge because it didn't work and April of 2020.
And the background on that is just that the mortgage market started behaving and very irrational ways. After the government flooded those markets with capital. So we now believe that the markets are going to behave rationally and that's an opportunity to expand margins, obviously, we're unlikely to see the kind of rate environment through 2021.
We saw in 2020, where lenders were aggressive about taking profits, but we think this can improve our relative position against the other lenders.
That makes sense. Thank you very much.
Okay.
And we can take our next question this will come from Tom White with D. A Davidson.
Oh, great. Thanks, guys for taking my questions and.
Nice quarter by the way two if I may just on the topic of <unk>.
Attraction it looked like the fourth quarter was one of your better fourth quarter and fourth quarters in terms of net adds but it sounds Glenn like.
You guys weren't able to hire as many folks as you want to can you maybe just talk a little bit about the <unk>.
Proper coming to redfin, if you're on agent versus <unk>.
Going to a kind of a more traditional brokerage and the market like this where you know obviously.
Things are pretty hot and then just secondarily.
Glenn your comments on how I buyers like yourselves and others are having success paying less to buyers agents. When do you guys resell of homes that you've purchased can you just kind of elaborate a bit on that.
What do you think is driving that.
And just some more color there would be interesting on that observation unit.
Sure. So first of all we accelerated our rate of agent hiring it was exactly in line with expectations or even better.
We had told the market that we were unlikely to be able to hire enough agents to handle demand until the second quarter of 2021 and that is still our expectation.
So we have been able to bring and agents handover fast because we.
We pay on average more than any other brokerage so on.
Agents earn two to three times the industry average they get not only salary, but health care benefits and all of their expenses paid but probably what's most important.
Is the mission of the company. There are so many agents who believes that we can give consumers a better deal, but we can tell everyone everything about the house the process.
And our own performance and they also know that technology can make that whole process better. So they want to work for and next generation brand, we're able to recruit from almost every brokerage under the Sun and we have lower attrition and then any other brokerage that I know off so.
Our challenge is just that we do not have the same elasticity than a traditional brokerage does because we don't have 10 99 contractors. So we make a bet on every single employee that we can keep you busy throughout the year, which means that we run it closer to the bone we are not.
Having thousands of agents sit around idle, hoping for a real estate boom and that means that it takes us six months to adjust to that level of volatility.
Around the Commission Commission compression.
It's just fascinating isn't it so.
The data we showed is based on the fact that builders are selling more houses than ever before not as many individual homeowners are listing properties that the builders are going through a boom and then the buyers have become more active and.
And the portfolios of both builders and I buyers are managed by very sharp Wall Street types, who look at every cost as an opportunity to improve margin and so they're being very aggressive about how much they're paying buyers' agents and places like Atlanta, and other markets, where builders are I buyers are very prevalent.
So we've seen a significant decrease and the commissions the businesses are paying buyers' agents and we think the consumers are going to follow suit because the department of Justice lawsuit is allowing a website like redfin dot com to publish the commission.
So the secret is soon going to be out that you can pay a buyer's agent less and still have plenty of people bidding on the house, especially in and historic seller's market like this and the reason and Thats. So important to read because we have been found and on the proposition that we can give consumers a better deal and then when you do that more of them will be the path to your door.
And finally being able to understand the economics of a real estate transaction and how much. Your buyer's agent is making should make more consumers price sensitive and we think it should favor redfin, because we've already baked into our cost the idea that real estate will get more efficient.
Great. Thanks, so much appreciate it.
Our next question will come from Eagle Iranian with Wedbush Securities.
Hey, good afternoon guys.
And so excellent and follow up on on the hiring question and Nick.
Glenn just on a big picture and you get comfortable with this idea of hiring kind of six months out, especially on a market like but today that's.
Hotter than outstanding and at least a decade.
Not really kind of ever.
And it's different and that there's uniqueness to it with people and moving around a little bit more and more.
At work and.
Maybe some uncertainty around how long all these flat rates moving up inventories being low.
So I was just curious how you think about hiring.
You know thinking about that far out on the first question.
Well I don't think I'll ever be entirely comfortable with it we're in a very up and down business, but we try to offer our agents and secure life and so the way that we do that is by sending a significant fraction of our demand partners.
So that if the market does have a correction the partners.
Would lose some business and our own employees with game that business and I also mentioned that we've been experimenting with lower loads, where we reduced the number of customers that are agent support and we're seeing that that leads to higher customer success rates and would offset some of the margin impact. So if we ended up rolling that out in 2022 next year.
<unk>.
We will have some latitude to see some kind of correction and still have enough demand for the agents who are on board, but the truth is that every single week, Chris Scott other executives here at Redfin, and certainly myself or on the numbers like a hawk on <unk>.
And as you get into February and March we're going to be very careful about how many agents we hire to make sure that were titrated supply with demand.
It's a nice sense to walk on and were just far away from being anywhere near the amount of supply that we need and the level of demand that we have we don't even have our website turned on full blast to generate the demand that we could handle.
Okay.
Really helpful.
And that for a little while it's an interesting topic, but I wanted to also ask about.
Last quarter I E.
Talked about having a moving to having one point of contact for.
For a customer and.
Both of them.
Buyer side and the traditional listing side and talk a little bit about what you've learned there and as <unk> becomes more.
Prevalent.
The idea of attached on the ancillary revenue streams, especially among the larger high buyers and the really big topic.
Can you talk a little bit about what youre seeing there with with mortgage and and the various things and you touched on it a little bit.
On the listening to high bar side, but.
Just kind of broadly what you guys are seeing there.
Well, mostly the <unk>.
Pilot program with home sales advisors, which is the single point of contact for a customer who is interested and the cash offer but also wants to compare that to a brokerage sale that pilot has been successful I think we reported that there was either and 11 or 12% gain.
And the number of listings that we got from every redfin now inquiry so.
We're cautiously pleased with that but we still think we could do so much better and we're just at the beginning of optimizing the execution on that program and usually when we create a new role. It takes us a couple of years to figure out how to respond to customers quickly and how to have the right information how to empower.
That agent in this case the home sales advisor.
To be able to answer all the questions. So I.
I think there is plenty of upside ahead.
Most of the people, who are gonna Astra and instant offer end up choosing a listing instead, that's especially true now because the market is so hot that when people see the instant offer they just decided to take the upside themselves.
But beyond that we want to attach mortgage entitled every single sale I think mortgage attachment is going to depend mostly on your relationships with homebuyers not with home sellers.
So.
Having a big buyers brokerage I think gives us an advantage there and then with title it just depends on which side of the country you're on the buyer chooses title and the east coast the seller and she's his title on the West coast. So.
Being able to serve both buyer and seller is going to give redfin, many more attach rate opportunities than the typical high buyer and.
And obviously our goal is to have a high margin on each of those products rather than using one as a loss leader for the other.
Great I appreciate that thanks.
And our next question can come from Edward Aroma with Keybanc capital markets.
Hi, This is Adam <unk> on for Ed in terms of Redfin now can you just talk a little bit about how and any changes you've been seeing and the ability to acquire inventory and then do you see yourself competing against other eye buyers and any markets, where there's multiple and I and that market.
Sure. So this is Chris just commenting on redfin now trends.
We do think that home sellers are considering even harder than they have and the past the possibility of play and their home on the open market. When we make a redfin now offer to the customer. They also can see that their neighbor's house is sold quickly across the street and so that does have them think twice about the price of roughly and directly and.
We do think that that will be a part of the market through at least the first part of this year because inventory levels are so tight so there's real competition there.
But that is part of the reason that we like being in this business. So much is that we can easily migrate back and forth for what the customer needs either on the brokered side or the sale or.
Or for Redfin, now and then with regard to competition and I do think it's hard to tease apart every price that's offered on every home from our competitors igen.
And I generally do you think thats, a competitive time for buyers and the space, but I don't have a lot more detailed out on that.
Okay. Thank you.
We can take our next question this will come from John Campbell with Stephens, Inc.
Hey, guys good afternoon.
And so it's it's kind of tough to unpack. This from the from operating metrics. If you will but I'm, hoping you guys can maybe just talk to this and a higher level, but my question is how receptive have the sell side customers been to using you guys on the buy side to get to the 1% listing fee are you guys seeing a meaningful shift one way or the other.
We saw a significant increase which I think we detailed in the prepared remarks.
So now if you list your house and decided to buy with Redfin you save more it's one 5%.
You list and it's 1% if you list and then buy.
So we've also cross trained our agents to be able to handle both sides of the sales that way if you've met someone you really like you just stick with that person for both parts of the move interestingly since so many people are migrating across the country being a national brokerage where the platform really delivers consistent.
<unk> and consistent level of service consistent technology has also helped us because you can sell your home and Los Angeles and move to Salt Lake City and decided to use two different redfin agents, but still feel like youre working with the same company, who understands every aspect if you move so.
We saw something like a 300 to 500 basis point gain year over year and the number of customers who are using redfin for both by itself.
Okay, perfect and then follow up here on the on our market share and metric I think it's pretty clear you guys, probably would've had that a whole lot higher if you had the right staffing in place I think that's pretty clear I'm. Just curious what you guys think of that market share metric might have been you know assuming you had the right level of elite agents I mean, you've got really good internal kind of demand metrics you've got the funnel you can see there that obviously we cannot.
And on our end.
And I'm just curious about how many customers and you might have had to turn down or customers that might have fallen out of the funnel as you kicked him over to partner agents and any kind of call out there.
Yes, we can't provide any more detail there John and I agree with the thesis that there is more market share opportunity. If we had more agents and more partner agents, we could gain more but I don't have a good way to quantify exactly what that looks like.
Okay fair enough thanks, guys.
Our next question will come from Jason <unk> with Oppenheimer.
Thanks, I think historically when we've all tried to kind of triangulate real estate gross profit right and we thought about and agent hiring and agent productivity.
And just given kind of what you've outlined do you think maybe the better way that we should all be thinking about it is like.
Like a gross profit per transaction.
Obviously understanding.
And there will be fluctuations whether the houses so.
The transaction is done by your agents from partner agent. So just maybe a little color there and that's just a better way to think about it and then just just a follow up on the I buy a question I mean, I think one other question and people are trying to understand it. It's obviously, so early and I buyers and such a small percent of what is an enormous market should investors.
And he about competition between I buyers.
Well first of all let's talk about how to model redfin and whether it's based on age of productivity or gross profit per transaction I think we're and some larval stage between one model and the other because we're still rolling out components. This complete solution mortgage covers about 75% of the United States, but.
Redfin now our title business on <unk>.
On Crs service for renovating homes that we sell are all covering and less of the United States. So this is still principally a brokerage business and making sure that we're able to hire good agents deliver great service to customers and still make a margin.
Is the first way to look at this business. It's just that every quarter, we are getting more and more contribution from our mortgage business from our title business from our <unk> business from these ancillary businesses.
When you talk about being so early I'm not sure I entirely agree there have been many eye buyers on a market like Phoenix for a long time.
And they are duking. It out you have customers running auctions at the house, where they've invited open door.
So.
And in this case I think redfin has come into Phoenix soon and we certainly see that and other markets. So.
I do think that buyers are competing with one another because it's a commodity service and the reason we're convinced that we can be effective is first of all because we can be efficient and that's just the nature of our business. We have been committed to efficiency for a long long time, we have low acquisition costs or a website and we've been running a brokerage from <unk>.
15 years.
But also because we can monetize the customers, who say I'm not going to accept the interest and author and instead I'm going to list My home and we can list at home through Redfin.
Amount of spillage that youll have otherwise, it's very high where most of the people you meet and working with a broker.
Thanks for the color.
Thank you.
Our next question will come from Brent Thill with Jefferies.
Thanks, Glenn on the market share it was flat and the quarter, obviously and the markets were up and when you think about overall share gains on work going forward can you just highlight I would assume you. Obviously believe you can go higher than that but.
Give us a sense of kind of what you think is happening there on.
On the sequential flat ad.
Well I know this is.
Mind bending.
But.
We measure market share year over year, because there are seasonal variations and share.
For whatever reason and the fourth quarter, we always have trouble gaining share quarter over quarter, which is why the 10 basis point gain Q4 2019 to Q4 2020 is more significant and this is the way we report it and the good quarters and a bad quarters.
They're just some quarters, where we always seem to gain share quarter over quarter and other quarters, where we don't so I think the year over year comparison is the best way to do it and our goal is just to gain share every quarter the rest of time.
We're not gonna grow 90% on 150%, because we can't hire enough agents and deliver fantastic service to every one of our customers through some kind of bozo explosion, where we're hiring every single agent who can fog a mirror instead.
We're trying to hire the best people to deliver fantastic service to our customers and that is going to limit our short term growth, but ensure our long term growth and what we're trying to do is grow long term by offering a durable value proposition and the customers and investors.
And that sounded so can but I swear I've just made it up on the spot.
Makes sense thanks Glenn.
We can take our next question.
This will come from Tom champion with Piper Sandler.
Hi, good afternoon guys.
Glenn I was wondering if you could just expand a little bit on the customer caps or limits. How this is different from maybe what you were employing a couple of years ago, I think and and ultimately decided to you.
To curtail the customer caps, what could you could you just go into that a little bit and then.
Maybe just one more on virtual tours, obviously extraordinary growth and that and I'm just curious how the mix between virtual and in person who's maybe waxed and waned as as the pandemic has grown more and less.
Curious and and how much of the long term.
On mix virtual will account for going going forward and any color on that would be.
Really helpful. Thanks.
Sure. So we've had customer counts for a long time and the question is just where they are you can't let and agent meet 50 customers on a single week, because there's no way he or she can deliver fantastic service, but I have scars all over my back because I think almost as soon as we went public we lowered the average load that our agent.
Has to support and it affected our gross margins. So we're not about to rollout a new lower cap unless we're sure that it works we have been experiments and put this through 2020, we're going to experiment with it through 2021, we weren't even sure whether we would talk about at the day, but it has now been a significant peer.
And at a time, where we have seen very promising results I think the difference between this pilot and the one that we did two or three years ago is that we are much more entrepreneurial with our agents. We were trying to tell them exactly how to do every step of the process. At this point, we say just find a way for each customer to when we're going to judge you on that.
Customer satisfaction, and the customer outcome, and so that freedom and the increase and quality of our agents and the increase and quality of our tools has given us more confidence that we can do really well. We've also just gotten better at qualifying customers that used to be that you are limiting the number of customers and Asia could meet and the.
First five people toward his cap, where total bozos, who wanted to see Grandma's house I shouldn't speak of our customers' disposals, but they just weren't taking the process seriously. They wanted to click the button to find out if anybody is actually going to show the property on the other side and you don't ask for a credit card or anything like that we just try to protect each and safety. So some.
<unk>, we don't get as many serious buyers and you may have noticed that we're reporting quarter after quarter on these efforts to qualify customers to measure homebuyer attempt and homebuyer intent has increased significantly in part because of the market, but in part because of its qualification efforts. So that just makes us more confident.
We can limit the number of customers and agent needs.
And still get.
More gross profit from the same number of customers at a decent margin.
And then the balance between virtual tourists and in person tours and clearly this year, it's shifted toward virtual tours.
Some of that is because people are hesitant to meet our real estate agent in person. They don't want to get sick. Some of it's because they've got more comfortable with zoom, but most of it's because they're shopping for a home that's 500 or 1000 miles away and they don't want to get on an airplane and they've realized that you can make an offer.
Having seen the home virtually and then decided at the inspection stage, whether something that looked a little weird.
Through the iPhone is actually going to be something you're going to get hung up on I think the bigger trend really is that people are just hiring agents over the internet folks are focused on.
Gosh, you are buying the home over the internet, but for US what's really driving sales is that people are hiring the Egypt over the internet and that's because it used to be that look I was moving across the street and use the same real estate agent and I used last time change is going to be very slow and the real estate industry. Because it's all relationship driven but now everything is up for grabs because people are <unk>.
Moving across the country and they're turning to Google to find and real estate agent and Austin, Texas, or Boise, Idaho, and we just rank very highly for those searches and we offer push button convenience.
And so people can say look I just wanted to see the home I'm not ready to get married to my real estate agent and they give us a shot and that's all we need to win the business.
Got it thank you.
Our next question in queue.
Our next question will come from Jack <unk> with S. I G.
Hey, good afternoon I'm.
Chris looking through the guidance a little bit.
When you pull out the redfin now and you pull out the partner and the other you know the brokerage number.
And it looks like Theres, some conservatism there around units and terms of where the.
One of the markets. The early read on the first quarter volume sort of been through January.
Just trying to get a sense of it.
And do you agree with that view and where Youre conservative is it partly getting these agents ramped up and it won't hit stride until sort of mid year on the market share numbers are up how are you thinking about.
On the volume brokerage side of things and the one key Brad.
Yeah. So we don't give guidance specifically on the brokerage piece of the business, but I think if you were to take a look at revenue excluding our properties business.
It actually looks pretty robust and.
A meaningful.
Uptick certainly from last year.
And the way we provided guidance. This quarter is the same way, we always do it which is we take a look on our results from January and February and then we're making a projection on.
And what closings will look like in March as well, so <unk> gotten off to a good start and.
Absolutely reflected on our and our revenue growth.
Okay. Okay.
And then on the Redfin now revenue we spent a lot of talk about a lot less and and Glenn you made a great point on.
On the call today about it when you're not buying and <unk> youre not selling them and core Q.
The rebound and your number compared to last year.
More markets or is it better success ratio.
And the market share and to get you sort of back to flat year over year on the on the on.
On the revenue side.
Yes.
Yeah, So with regard to the redfin now revenue growth, we certainly have expanded the footprint.
There are markets, where and on redfin now and that's a contributor to our overall sales as we start to look at the picture going forward for the rest of the year that expansion and we will also be important and so it's about having a larger footprint for that business across all of the U S. And then hitting our stride just in terms of the <unk>.
Presentation of Redfin now offers to the customers.
Our next question will come from Stephen Sheldon with William Blair.
Hey, Thanks, and apologies if I missed it but can you talk about the traction you've seen so far with redfin direct and the markets, where it's available and and how the trend you've seen have influenced how youll expand by market and your view of the long term opportunity with it.
Glenn I think here on I think he may have muted your line.
Oh Man I noted myself nuts.
I would say that there are two components of redfin direct there's the self service access, which lets people access properties on their own without having to hire a real estate agent, we use that on redfin listings and it's been very successful. What's curious to me is the brokers we compete with have been asking us about how they can use redfin direct because.
Cuz theres, so much pressure from buyers to get into listings. The lines are a mile long as I said and our overview of the housing market.
In terms of making an offer on a redfin listing without using a real estate agent. We have not made much progress on that initiative and the past six months and the reason is that we have been so busy it has been flat out expanding redfin mortgage hiring redfin agents getting redfin now into.
A more markets, how do we world enough and time, we would do it all.
No idea how excited I am about that prospect, but we just have to pick our battles.
Our next question will come from <unk> Khan with Truest Securities.
Yeah, Hi, Thanks, a lot maybe a quick question from me on and <unk>.
Performance advertising.
I think Glenn on and on the last call and you've spoken about how.
And kind of a cross on threshold and consistently seeing positive ROI on the performance and spending.
And we're thinking about your ability to scale up spending on performance channels.
And <unk> and 'twenty and 'twenty, one and then I have a follow up.
And the limit on our performance AD spending as our capacity.
So I was just and a dialogue this morning with the person who runs performance marketing for redfin asking him why we're running ads and we didn't have enough agents to be able to handle the demand.
And what's interesting about this is that now we have been able to make money running performance marketing assets that generate demand for our partners that used to be a desk zone that we made so much less gross profit on.
Partner referrals that we couldn't run and against that business and it just limited our advertising to the capacity of employees, but that has changed some so we're also investing and infrastructure to share data with our advertising partners.
Because it's such a long sales cycle you can lose your shirt running ads without realizing that you're bringing people to our website, who have no intention of buying or who actually engage and real estate agent, but don't end up completing the sale.
So we are getting better and better and passing information back to our advertising partners about which customers are really profitable and which ones arent. So that we can optimize the ads and real time, even though the sales cycle of six months law. We just use early signals to identify profitable customers and then share that quickly.
The AD partners so far.
Sports marketing team is doing a fantastic job and we've really opened up more opportunity by being able to generate demand for our partners and not just our employees.
And last question in queue will come from Clark lamp and with V. T I G.
Good evening, Glenn I wanted to follow up on your comment on mortgage entitled to see if you might be willing to articulate what you think the attach rate opportunity could be.
It seems like you guys have a lot of levers to pull between.
Things like coverage expansion, adding loan options and eventually preapproved and your tour and customers and I'm curious if that sort.
Net SKU specific attach rate percentage and you think you could achieve.
And then on the title business you guys made note of some incumbent says on the last call that I think we're expected to hold that business back a little bit into early 'twenty, one and I'm curious a quarter in a place now or we might be seeing where we can see redfin leaning back into that opportunity.
While we hire John Roy to run title forward give them and some time you just shut up a few weeks ago, but I think we can run the table with that business, achieving and attach rate north of 50%. There is not a strong consumer preference around title. So if we can deliver a better customer experience, where we close on time.
And we make every step of the process transparent and frictionless will be and are positioned to recommend title. Almost every time and then I think the customer will accept our recommendation and quite often.
So having said that mortgage is more competitive people are always going to shop. The rate, we have been very competitive on rate, our investments and efficiency and the fact that we don't have any customer acquisition cost should allow us to be ferocious.
With our rates. Its also just in our blood that we want to give customers a good deal. So I think there we can get attach rates.
Maybe 15% to 25%, but you should remember that that business isn't just captive to our brokerage it's not just a subset of our brokerage customers. We ran and experiment 2020, where we let people who are using real estate agents employed by other brokers, but using redfin dot com to reach out to.
To redfin mortgage and we had to turn it off right away because so many did.
So I think lots of people have relationships with a real estate agent, but are still open to using redfin mortgage and get a better deal when they borrow money that is an asset where people are very price sensitive and where we think we can compete on price.
So if you couple that with the refinancing opportunity it's off our customer base and I really think the sky's the limit from mortgage you don't hear me say that very often but almost every earnings call at some point I will say that we're gonna be hiring as many lenders since we can for as far out as we can see with mortgage because we have just not been able to get in front of demand and we.
See so much demand ahead of US now of course, there could be some massive interest rate shock, but even then I think we'll be and a good position to grow redfin mortgage.
So I think that was the last question and I got to say they were such good questions. We had so much fun I'm going to turn it back over to Meg, but it was great to hear from everyone and the analyst community. Thanks for following along.
Thanks, Glenn and thanks to all of you for joining us on the call today, well look forward to talking to you on next quarter have a good day.
This concludes today's call and thank you for your participation you may now disconnect.
Okay.
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