Q3 2021 Redfin Corp Earnings Call
Good day and welcome to the Redfin Corporation Q3, 2021 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to you Meg mentally head of Investor Relations. Please go ahead.
Good afternoon, and welcome to Red Bend Financial result conference call for the third quarter ended September 30th 2021 I'm Meg nano ink bread Tim's head of Investor Relations.
Joining me on the call today is Glenn Kelman, our CEO and Chris Young our CFO.
You can find the press release on our website at investors Redfin Dot com.
Before we start note that some of our statements on today's call are forward looking in nature.
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 in 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.
This call the financial metrics will be presented on a GAAP basis and include stock based compensation as well as depreciation and amortization expenses.
When we discuss any non-GAAP measures today, we will post the most comparable GAAP measure and a reconciliation on our website.
Comparisons are made in the course of this call are against the same period in the prior year unless otherwise stated.
Lastly, we will providing you a copy of our prepared remarks on our website by the conclusion of today's call and a full transcript and audio replay will also be available soon after the call with that let me turn it over to Glenn.
Thanks, Meg and hi, everyone read since third quarter net income was better than we projected on our last earnings call.
Our revenue was at the high end of our expectation.
Third quarter revenue grew year over year by 128% from $237 million to $540 million $40 million coming from our April rent path acquisition.
For the real estate services delivered by our own agents and by our partner agents Redfin grew 23% to $258 million our market share was 1.16% up 12 basis points from the third quarter of last year similar in magnitude to pre pandemic game.
From the third quarter of 2020 to the third quarter of 2021 net income swung from a $34 million profit to a loss of $19 million.
Rent path accounted for $17 million of the losses. Another 22 million was for additional marketing costs, mostly to try running our annual TV campaign through November rather than May or June.
Gross profit was $127 million, an increase of $34 million over the third quarter of 2020, but $33 million of that came via the rent path acquisition.
Third quarter gross margin declined year over year from 39% to 24% driven in part by the increasing proportion of revenues coming from our lower margin properties business Redfin now.
Real estate services gross margins fell from 44% to 37%, especially in the third quarter of 2020, the housing boom led to our own agents working at unsustainable levels and more customers going to a higher margin partner business.
A more reasonable point of reference maybe the third quarter of 2019, when our gross margin on real estate services was 35%.
After everything we've done to take share through this pandemic, we can't wait to see what happens in the last quarter of 2021 and in 2022 or.
Our site will broaden its audience to include the 36% of Americans looking for a home direct our homebuyers will get into homes faster than ever and our agents will deliver better service and more gross profit when we reduce the number of customers each support.
We will save the people who want to sell a home hundreds of millions of dollars b or offer them the convenience and peace of mind of an immediate cash offer our title and mortgage business will contribute to our long term growth.
Still after all these years, there's so many ways redfin could be so much better the reasonable keep getting better or is that no. Other real estate company has our ability to pair service and technology are grinding financial discipline and long term thinking our culture of caring for one another and our overriding commitment, making real estate fundamentally better.
That's helpful.
But now let's dig into the details of our third quarter performance.
From the third quarter of 2020 to the third quarter of 2021, Redfin Dot Coms average monthly visitors remained at the same high level, we would normally be alarmed if the absence of growth, but here again, it's hard to compare ourselves to the third quarter of 2020.
In 2021, and the market return to a typical late summer pattern of declining traffic, whereas the fall of 2020 with my housing demand is at its most frenzy.
What's more important to us our third quarter search share gains against realtor Dot Com, we had previously expected to keep losing visitors to realtor dot com through December 2021.
These gains are likely in part due to traffic partnership better machine learning predictions will sell new data about climate related risks and design improvements to encourage visitors to set up their search into share listing.
As we add more information about neighborhoods and expand Red centre more market, we expect more traffic growth. The most significant redfin dot com upgrade is the addition of rental listening tour site still on schedule for March 2022.
Our marketing campaigns are also getting more effective.
Google searches on real estate terms that don't include the word redfin direct marketing has lowered the cost of media customer by nearly 20% over the past year.
This has been the result of technical rather than creative breakthroughs using data that only redfin has the improvement in AD efficiency, you want immediately contribute to our growth.
The next six months will be busy hiring agents just to serve the customers expected to come to redfin dot com on their own but.
But over time, if we can be better than any other broker lender at identifying people, who will buy a home we can take more share from our competitors.
Even as we reach more customers through our listing search site and our AD service improvements at every step of the home search should increase the likelihood of a sale from each customer.
From June to September 2021, the likelihood that a customer requesting a tour from a redfin agent, but actually complete that tour increased from 54% to 57%.
Some of this gain is due to improvements in tour scheduling software and some is the result of recruiting more contractors to host chores on our lead agents are busy.
Once a customer tours of homes for sale, if the job for redfin lead agents to guide her to a successful purchase with redfin.
Expanding the pilot we've been running since January 2020 reduced the number of homebuyers and agent support.
29% of our lead agents have been in the pilot, but by January 2022 will rollout new limits on customer assignments for the rest of this.
This initiative has been thoroughly tested and we feel sure that more of our customers will complete a purchase with redfin as a result.
As we discussed in our last call we evaluated agent compensation over the last few months just as we do each fall.
The primary adjustment. We've made is to is to pay more in 2022, the new lead agents were meeting customers that still havent closed the sale.
We've been more likely to lose the lead agent right out of the gate than at any other point in her tenure.
Actions, we took this summer already reduced overall lead agent attrition from 37% in the second quarter to 35% in the third quarter. The 2022 pay changes should have minimal marginal margin impact that are important to our goal to be real estate best employer.
On their own the changes, we're making to lower agent loads and increased pay with lower gross margins.
But we'll fund these service improvements with the small reduction in our commission refund homebuyers are data indicates that homebuyers value serviced over savings and we expect the commission refund reduction will completely offset the full year impact on 2022 real estate services gross margin our customers will love this change.
And our second channel for selling homes through a cash offer rather than a brokerage lifting we performed better than expected.
Redfin now its year over year revenue growth was above 1000 per stop when redfin nowadays the comparisons to the third quarter of 2020 are favorable.
Last year, we went into the third quarter with almost no homes yourself, having largely stopped making offers to the quarter before.
But no matter what had happened the year before redfin now could have grown to almost any size. If we haven't been disciplined in how much we pay for hubs.
In March 2021, we began lowering redfin now offers in anticipation of a summer deceleration and home price increase.
In June we based our redfin now offers on a calculation that the homes, we bought would decline in value by the time, we could get them on the market.
Continued to reduce redfin now offers through early September.
So good decision.
The sale closed in the third quarter have averaged 101, 1% of the forecasted priced the sales redfin now is booked so far in the fourth quarter have averaged 100.0% of the forecasted price.
The rate of these sales have been on pace with our expectations.
Redfin Now's main challenge has been renovation the time, we've needed to prepare at home for sale increased from 28 days in the second quarter to 37 days in the third quarter.
Our ability to renovate homes passed this often the difference between a home that can only rise port fall in value with the market and one that sells for a premium within days of its debut.
For now the additional holding in interest costs from renovation bottlenecks will likely lower fourth quarter property margins by about 35 basis points, but we still expect to generate a full year gross profit just as we had discussed on our February earnings call.
Spanning our renovations capacity quickly and already pricing higher renovation costs into our offer.
For our capacity to renovated home is limited will limit the number of homes. We bought our first priority is as always to build a sustainable business.
Since the sustainability of this business has gotten so much attention. This week you may wonder.
<unk> hopes to compete as an eye buyer depend on being smarter luckier grittier or just more cautious.
The answer is that redfin isn't in high buying company at all.
Part of what we do but it's not who we are.
The way, we define ourselves as that's the company that offers homeowners. The most complete set of options for selling one home and moving to another.
Buying is one of those options, we could never catch customers on the convenience of a cash offer without highlighting that a brokerage sale, especially at a fee as low as 1% put more money in their pocket.
Having this choice is as important for redfin is for our customers I buyers that live or die on whether a homeowner chooses just one option the cash offer can thrive only when market conditions favor I bought.
Medicine can be more flexible when home prices are uncertain or when it becomes costly to borrow the money for buying houses.
Redfin can buy fewer houses and listen more.
That flexibility is more important than scale.
For the year, we already expect to average of gross profit on each home we sell.
If we want an even higher margin buying more homes at higher prices isn't the only way to get it.
Dave and $20 by mowing three loans on the same street won't matter, if we overpaid for one of those homes by $5000.
And if offering $5000 less for a home limits redfin now scale, because our customers, they're more likely to lift at home instead.
All the better for redfin brokerage and for our customer Red.
<unk> investments and renovations and self service will let us earn more money for the owner regardless of whether the homes next occupant rides redfin now or one of our brokerage customers.
That's been now is struggling to keep pace with its own success redfin mortgage has the opposite problem comparing the third quarter of 2021 to the third quarter of 2020, redfin mortgage closed 24% more alone, but because rising rates had made the whole industry desperate for volume this was more than offset by a decline.
And revenue per sold loans.
Overall mortgage revenue fell 5% year over year.
Even if price pressure grows our experienced this summer with rock bottom rates has already caused us to raise prices at least modestly.
But what's most important is to scale, our sales organization organization and systems to the size of the opportunity the percentage of redfin homebuyers, who choose a redfin mortgage is still too low.
That's the departure of our mortgage leader in August.
We've made great progress on the search for a new leader and a role that will now report to me as the CEO.
We expect to make changes to our loan origination system in the first half of 2022 to support a wider range of along with the complete product suite and as allowed by the laws of different U S. States. We can then launch incentives brokerage sales, but also involve mortgage and title services.
With the mortgage bankers association forecasting that refinancings will fall, 62% in 2022 plenty of mortgage advisors will want to work for a company with tens of thousands of brokerage customers the need to purchase loans.
It'll take time to develop the foundational improvements needed for the business to be able to double each year with rising net income, but we're attacking the problem with urgency is one of redfin top priority.
The other business that needs attention as rent path. The rentals marketplace. We bought last April rent path revenues and net income were consistent consistent with the guidance. We gave you on our last earnings call. We knew this business would need time and money to turnaround, but also that the combination of rent path listings in redfin dot coms audience could bowl.
Foster both rent pass sales and redfin traffic.
Since the merger closed we've only become more confident about the deals rationale.
Due in part to high occupancy rates that are lowing, how much property managers spend on any online marketing the number of property management customers pain to promote their communities on rent path sites declined as expected.
Revenue declined 5% from the second quarter and 15% from the same period last year.
But setting aside visitors from online campaigns online AD campaigns accuse me visits the rent paths websites actually increased by 3% in the third quarter. The number of leads per customer increased 16%.
The plans promote rent past rental listings on redfin dot com, which should increase rent paths lead meaningfully in 2022 is on schedule for a March launch.
As apartment vacancies increase we expect the number of paying rent path properties increased quarter over quarter at some point in 2022.
The first order of business is increasing sales John Ziegler the rent past CEO, who started on August 16 has already brought on a chief operating officer to run sales and operations and introduce performance standards for rent House salespeople. He has discovered that rent past customers are eager for an alternative to the incumbent rental search site, we bill.
Many will want to invest more in our partnership as we broaden our audience through redfin dot com and as we develop more software products.
We also believe that consumers may have a natural affinity for rent dot com site in the rent path networks that we could develop into the flagship for our rental brands.
We'll have more details on this strategy and how much it will cost to pull off on our February call.
It's the only one more topic to discuss before I turn the call over to Chris.
Housing market is returning to sustainable levels and Oh, what a relief that is.
Year over year pricing peaked in May 2021 at 24% and a narrow it every month.
The 13% in September and the hottest pandemic markets like Boise, Salt Lake City, and Tacoma more than 40% of the listings on the market drop their price when earlier this year that number was below 12% from.
From April to September the percentage of Redfin offers facing competition decreased from 74% to 59%.
As we predicted in our last call home buying demand modestly strengthened since July in part because buyers are trying to get at home ahead of further rate increases.
Prospect of rising rates has motivated sellers to for most weeks of the summer the number of homes for sale was up by double digits over the prior year.
More buyers and more sellers have led to more sales from August to September seasonally adjusted existing home sales increased 7%.
That gain may moderate slightly in October is pending sales flipped from August and September, but only by two percentage points.
Relocation demand is still much stronger than it was pre pandemic, but slightly less so than in the first quarter of 2021 when it peaked.
The demand for second homes buttressed by a still storing stock market may be emerging as the pandemic most enduring impact.
Another source of demand as demographic over the next few years the largest group of millennials will be turning 33. The median age of the U S first time homebuyer.
Agents, who once described the market is crazy because demand was so strong in supply with solo now use words like Hector <unk>.
More chaotic.
Demand is more volatile and it's hard to predict which <unk> will sell.
Using competition among homebuyers has made it easier to put deals together and demographic and social changes are likely to sustain the market through early 2022.
Beyond that.
Hard to tell.
The housing market and our competitive landscape.
Block.
Rate increases are likely at some point to shorten next year's home buying season, and the shift the industry's priority from growth to profit.
As redfin hires agents and buys home, we'll monitor what consumers do at every stage of their move through our website and our brokerage.
Many of the opportunity as quickly as the threat.
With that let's turn the call over to Chris.
Thanks, Glenn this was a solid quarter for US revenue came in at the high end net loss guidance is homebuyer demand remains strong and we continue to benefit from a fully staffed brokerage that's well positioned to capitalize on work from home and technology adoption.
Third quarter revenue was $540 million up 128% from a year ago.
We acquired rent path, our rental segment business in April 2021.
Rentals generated $40 million of revenue and contributed approximately 17 percentage points to total revenue growth.
Real estate services revenue, which includes our brokerage and partner businesses generated $258 million in revenue up 23% year over year.
<unk> revenue or revenue from home sales caused by our own agents was up 25% on a 16% increase in brokerage transactions.
From our partners was down 8% on an 8% decrease in patent transactions.
During the third and fourth quarters of 2020, our redfin lead agents, we're swamp the strong customer demand arrived quickly after early COVID-19 decline.
That meant that we were introducing a greater portion of customers to partner agents last year.
Real estate services revenue per transaction was up 11% year over year and continues to benefit from rising home prices.
The property segment, which consists primarily of homes sold through redfin now generated $238 million in revenue, which was up from $19 million in revenue in the prior year.
Reminder, during 2020, we paused a redfin now home buying activity and then we started the business from a standstill. So thats whats driving strong year over year transaction growth of.
949%.
Our other segment, which includes mortgage title and other services contributed revenue of $8 million or 3% year over year decrease.
Total gross profit was $127 million up 37% year over year.
Real estate services gross margin was 37, 4% down 640 basis points year over year.
This was driven by a 380 basis point increase in personnel costs and transaction bonuses 210 basis point increase in towards the high cost and a 50 basis point increase in listing expenses. This compression was expected as the business was running at unsustainable levels in the third quarter of 2020.
For the third quarter of 2019 before the pandemic hit gross margins up 230 basis points.
Properties gross margin was up 770 basis points year over year. This was a breakeven quarter following two quarters of positive gross profit.
Improvement was primarily attributable to an 840 basis point decrease in personnel and transaction costs as the business scales. This improvement was offset by a 140 basis point increase in purchase maintenance and capital improvement costs.
As a reminder, we include in our property as cost of revenue home itself. The employees, who prepare offers to buy the home and close transactions.
Home renovations and repairs and maintenance costs and taxes, while we own the property selling expenses for the home the managers, who oversee the field operations and any charges. If we determine at home is worth less than our inventory carrying cost.
<unk> gross margin was 81, 7% for Q3 2021.
Other segment gross margin was negative 25, 3% down from positive, 38% a year ago.
Operating expenses were up $91 $1 million year over year and represented 27% of revenue up from 24% of revenue one year ago Approx.
Approximately $53 million of the increase was attributable to the acquisition of rent path and another $21 6 million was from marketing expenses, which were impacted by the timing shift of our annual campaign.
Technology and development expenses increased by $21 $2 million as compared to the same period in 2020.
The increase was primarily attributable to a $13 1 million increase from rent past. The remaining increase was primarily attributable to a $5 $7 million increase in personnel costs due to increased head count.
Total technology and development expenses represented 8% of revenue down from 9% one year ago.
Marketing expenses increased by $36 $7 million as compared to the same period in 2020.
The increase was primarily attributable to a $14 $1 million increase from that.
The remainder was primarily attributable to an increase in mass media marketing costs as we extended our TV campaign in the third quarter of 2021.
Total marketing expenses represented 9% of revenue up from 5% one year ago.
General and administrative expenses increased by $33 $2 million as compared to the same period in 2020.
The increase was primarily attributable to a $23 1 million increase from impact.
The remaining increase was primarily attributable to a $6 $7 million increase in personnel costs due to increased headcount.
Total G&A expenses represented 10% of revenue up from 9% one year ago.
Net loss of $18 9 million people bought around 20% to $24 million guidance range net income was positively impacted by a $4 $2 million gain on investments within our other income.
Related to the initial public offering of matter corn.
Diluted loss per share attributable to common stock was <unk> compared to diluted income per share attributable to common stock of <unk> 30 per share one year ago.
Now turning to our financial expectations for the fourth quarter of 2021.
Consolidated revenue is expected to be between $585 million from $606 million representing year over year growth between 139% kind of 148%.
Our real estate services segment to account for $225 million to $230 million of that revenue in the property segment between to be between $319 million and $334 million.
<unk> revenue is expected to be between $38 million $39 million in rent, perhaps contribution to net loss is expected to be approximately $15 million.
Our consolidated net loss is expected to be between $36 million $31 million compared to the total net income of $14 million in the fourth quarter of 2020.
We expect real estate services gross margin to decrease in the fourth quarter as compared with the same quarter in the prior year, primarily due to prior year comparisons when our lead agents were unseasonably visit.
We're also hiring lead agents earlier.
With our first significant cohort starting in late November instead of January as we reduce the number of customers or agency.
We'll give more time for training and ramp up which is great for operational execution, but way on our fourth quarter margins.
Even with that change, we expect real estate services gross margin in line or better than the fourth quarter of 2019.
On a consolidated basis. This guidance includes approximately $24 million in total company marketing expense $16 million of stock based compensation $15 million, depreciation and amortization and $4 million of interest expense associated with our convertible senior notes and other credit obligations.
As we compare to the first quarter of 2021, when our agents were unusually productive with the hot housing markets.
Gross margin will also be down slightly year over year in the second quarter and then we expect year over year gross margin improvement in the third and fourth quarters as we reap the benefits of having reduced the number of customers or agency.
It's important to note that these margin expectations only account for the net impact of the operational changes Glen discussed and do not account for other changes in the business or macro environment that may arise as the year unfolds.
And with that we'll take your questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again.
One to ask a question we will pause for just a moment to allow everyone the opportunity to signal.
Our first question comes from Edward <unk> with Keybanc capital markets. Please go ahead.
Hi. This is Avi survey next Hunter Eddie you Raimo. Thanks for taking my question. This is for Glenn I think you've always been a little more circumspect about the economics of the eye buying business across the cycle.
So given all that's happening what's your level of commitment and also your interest in committing capital to that business.
Well, we're committed to the business, but as part of a complete real estate solution not as a standalone business. If you have to buy houses everyday of the week and every type of market condition.
You are just forced feeding yourself potentially toxic assets and so.
Being able to be selective in offering customers. A choice is important because we are a fiduciary to those customers. So we have to do what's right for the customer.
Choice is also important to us because when we are end markets, where it doesn't make sense to buy homes. We can just shift to people in redfin now to the brokerage so that we can lift more of them.
Interest rates are very low so you can borrow capital at a low cost and that means that when you hold the property a long time. It just doesn't burn a hole in your pocket, but also inventory has been mild so it's been very easy to liquidate houses.
That is changing somewhat but I still think it's mostly a seller's market inter.
Interest rates.
Will rise and at the same time, you will see less homebuyer demand. So these two trends work together in lock step and it means that we'll have a more balanced market that probably favors more brokerage sale over more buyer purchases and what we want to do is just priced in to our offers the risks.
And our credibility in doing that has already been established we started doing that in March when other buyers who are paying more we were paying left and if that meant that we didn't grow as fast as we could.
Albeit this is a business that could scale to any size you want if you're willing to overpay for houses.
I think we're just going to be very agnostic about mix shifts theyre going to be markets, where <unk> is going to have significant share of the home sales market and other markets, where it doesn't make much sense.
And for Us.
We just want to be able to offer the choice to our customers on title and mortgage attach rates.
This is an area, where we just need to do better.
That depends on really having great leadership in title and mortgage John Roy Who's running title forward for Redfin has done a great job getting that business into shape and I think it's going to be ready to scale in 2022 better than it has in 2021.
We don't offer fantastic service to our customers and our real estate agents through our title business, we can't really put the hammer down on attach rate and with mortgage.
So we're thinking about things as we roll into 2022.
Thank you for the color.
Our next question comes from Ryan Mckenna with Zelman and Associates. Please go ahead.
Glenn and Chris Thank you for taking the question.
I wanted to ask about the progress and some of the newer high buyer.
It gets you've entered see a bunch of this quarter and some of what I'd call the more competitive markets Atlanta Charlotte Raleigh.
But you've also been somewhat pioneering into less competitive markets like Chicago.
Near quarters, Seattle D C. So.
So I understand you've got the flexibility to obviously not lean too heavy anywhere given the traditional listing business and just bought in golf for choice.
I'm curious if you can talk to any any market level performance or maybe learnings within the various geographies.
Whether they're structural aspects of certain markets that are proving either more or less challenging than others. When you actually are buying and selling homes through redfin now and then ultimately how those learnings because it is a pretty diverse set of markets you're operating in.
How that plays into your confidence going forward to keep expanding that as an option for customers, who want that choice in more geographies.
Great question, Ryan all of these questions have been fantastic. So.
There is a difference we don't want to Crow about it because we're not 100% sure that we're right, but we have been one step more willing to renovate homes than other eye buyers.
And we have been more active in the higher end of the market for buying that doesn't mean that you are buying a $3 million lifting their NOI buyers really doing that at scale, but it does mean that we're closer to $1 million.
Some cases, rather than $200000 as you saw in our bank first took off in Phoenix.
And what we've discovered is that when we buy the ugliest home on the block and we invest some in renovations, we're really adding value.
If all you're doing is taking the same how putting a middleman in between the seller and the ultimate buyer I think that.
Okay capabilities would be curious you take their thank you.
Sure what what you already offer that upgrade with our concierge service because we can't in good conscience upgrade houses one way or the owner without also offering to do it when our customers. The owner we want the customer to get the benefit of that listening through redfin, and then fixing up the house through this concierge service.
It is hard to scale. So we don't want to be talking about this at all there is a graveyard full of companies that have tried to automate general contractor services. We just become very opinionated about the kinds of renovation that actually pay you back paint and carpet certain types of lawn Moore.
Often have a high return on investment more structural work is usually a fool's errand uhm, we don't want to provide too much detail on this call because at some level of intellectual property for us maybe everybody else has already figured it out but it was painful for us to learn these lessons and we hope our competitors go through the same.
Processed or even take a longer route.
So.
The longterm view that every home could be a dream home that we would renovate properties for buyers than not just dollars tempting that could develop the revenue stream that you were talking about Ryan. It's just the buyers are pickier when you have to live with those renovations for the next 15 years that you own the home instead of just the three weeks it'll be.
Be on the market, you're gonna change your mind about paint colors, you're gonna want more structural work done and that can be a real hornet's nest. So at some point, we want to do it sometimes we do it just to keep our workforce Dizzy and.
And we have people swinging hammers for redfin, they're amazing people and we need to keep them going in the winter and the spring.
But mostly we're going to focus on getting homes ready to sell we think that colors. In those positions are just at a point, where they are willing to pay to get it on the market very fast and have it look very good that's where there's the biggest premium.
Very helpful. Thank you.
[noise] our neck.
[laughter]. Thank you. Our next question comes from Steven Sheldon with William Blair. Please go ahead.
I was just trying to manage your expectations. When I made six month comment that yes, we figured out a way to drive more demand for direct marketing, but we're not going to pour gas on the fire right now because we're going to be so busy hiring if we get into a place where we have a gap in our demand I think direct marketing is better able to fill it.
Than ever before because we've gotten better and better at using data to identify someone who is actually going to buy a home and that means we can bid higher for those buyers than anybody else in the digital auction.
So anyway.
I didn't mean to sound too long on the market.
Jittery time.
And we just are going to keep our finger on the pulse.
[laughter].
Talking about whether to use the word generate when we were in the prepared remarks that here I just got it.
In the Q&A, but I'm always jittery it doesn't matter, what's going on if you are not scared.
Running.
Our seasonal cyclical business with fixed cost, there's something wrong with you.
And I often tell other managers at redfin, you should be scared I know that fortune favors the bold, but you have to be scared that we might have it wrong.
Many people are counting on us to get it right, including all of you.
Hey, Chris can actually buy our stock analysts.
I think that's.
Up to their teams.
[laughter] Oh, well I appreciate it all right. Thank you think about whether we do well.
[laughter]. Thanks, Thanks, Glenn appreciate all the color.
Our next question comes from Eagle Iranian with Wedbush Securities. Please go ahead.
Hey, good afternoon guys.
First on the <unk> side just.
With everything that went on in the past couple of weeks a lot of focus on that.
The pricing algorithms and.
The approaches there and Glenn you mentioned that a little bit on the call.
What are your expectations and it sounds like you've priced them.
Pretty accurately.
Anything else you could share and how you think about that.
We're approaching it.
Moved into a market with home prices.
Home prices slightly declining a flattening out of over the past few months.
How the conversations with customers have gone your approach with with convenience fees and.
All of that just how things have changed.
And then.
Hum.
Just expand a little bit more on the philosophy between.
Service and price.
And.
Lowering the refund last time, you've you change the pricing.
I think there was a little bit of impact on demand is that something you expect to happen again is it being fully offset by.
The better service and fewer customers.
The better service and fewer customers.
Some of the ins and outs of that.
Thanks.
With the price ought to be for both the buyer's agent in their own Asia, but buyers are not and so whenever we have raised prices on home sellers, we have seen a significant impact on demand and we have been very titrated in our approach to that.
When we sort of homebuyers the issue is really being Johnny on the spot calling them back very quickly when they want to see a property and getting it set up.
And then having agents, who really have the time and energy to guide them through that whole process. So their consumers are not as price sensitive.
And we beat up this pilot black and Blue for 16, 17 months something like that to make sure that it fully cured that we knew it would be better for our customers that we knew it could have a good financial outcome for everyone else too and we are sure that this is the right thing to do now the best laid plans at <unk>.
And men can often go awry, maybe something weird will happen in 2022.
But based on what we saw in 2020 and 2021.
Good.
Thanks.
On the redfin outside just follow up on that is there anything you could share on that you are having those conversations with homebuyers and the offers are coming in a little bit lower is that in line with what they've been expected Inc.
Has there been any pushback.
That's a good follow up.
Forgot to address that in your original question. Some of them are disappointed in it affects our ability to win the listing because we just told them their baby was ugly.
And now we want to be their listing agent.
So that's the problem and I think sometimes you just have to develop the discipline to say.
This probably isn't a home that we should own.
As a buyer.
And not even give them a bid because people have sometimes been insulted.
By our offer and it also argues potentially for involving different partners, we have a partner business for our brokerage where we.
We recommend the partner when redfin isn't a good fit.
We have that for mortgage.
Through our mortgage marketplace.
Obviously, we've done that before with open door.
Going to need to do it again theyre just types of homes, where we are not the best bidder.
And instead of giving somebody a lower redfin now bid if somebody else is willing to pay more for.
Sherry, we should want them to take that offer from somebody else.
So we're going to have to work that out but you are right, sometimes when we bid low it affects our ability to.
When the lifting.
Thanks, Brian.
Our next question now.
So we've just invested significantly in our home sales advisers I was just on a call with that crew and happy you ask if it gives me an opportunity to give them a shot out they are awesome unifying our sales force and being able to present a customer with all of our options has been amazing we've got a long way to go we're going to keep.
Adding more products into our portfolio this complete real estate solution.
But the fact, we have licensed real estate agents, who are working in a sales center to guide customers through all their choices.
An amazing competitive weapon taken us a long time to build we still have plenty to do to get it right but.
But it's one of our best investment.
Okay Fair enough and then just as a follow up.
So appreciating that in terms of how are Ya.
But well priced.
Priced homes is is.
Better than some of your competitors.
Just thinking about what what is the average I guess holding time for your homes and I suppose how to think about the risks gift you know maybe youre doing with it for work on one of these homes.
And an environment like this theoretical we HVA starts to celebrating.
A unix.
A little.
Yes.
Hi, buying isn't going away.
Hi, Thanks.
We've argued that it's not going to be 20% of the market.
I just was on in men.
Page.
The industry conference, saying that I think it's somewhere between 1% and 10% of the market.
But I've never said, it's gonna be zero either.
So we think that many people before listing their house, they're going to wonder what they could get.
Cash offer.
Hum.
The challenge with <unk> is just not to overreact.
Isn't the end all and be all the future of real estate.
And it isn't.
The Alpha and Omega.
Yes.
<unk> got a destruction.
It's an option that some people are going to want to consider.
Makes sense I appreciate that and then last one here I just want make sure I get this correctly.
The elimination of the commission rebate, you guys eliminating that completely no no no wait wait wait wait it's going down a few hundred bucks.
Okay.
Cost me something in my store.
By design or just seasonality.
And just curious how you characterize retention that's been an issue earlier.
Earlier in the year.
And our our agent cost is generally going up in in 22, any any thoughts around that would be would be helpful. Thanks.
Yeah, I can comment on agent count, which is typically we do have agent accounts come down a little bit from the second to the third quarter since we're going into the fall season last customer activity and so there's no need.
Need for agents and so that's what you see.
<unk> <unk> Glen do you Wanna come out a little bit more on 2022.
What was the question about 2022.
I'm just curious an agent and author are generally going to get a trend higher next year Glenn.
Just in in light of.
Kind of tight labor market.
Maybe maybe competition and and just to to boost retention.
Yeah somewhat I just wanted to be wary of.
The possibility that agent and Linda compensation reached a high watermark in 2020 or 2021.
There has been a boom.
People have been raking it in.
Want our own agents to rake it in you want to address the.
Attrition that was.
Higher and Q2 and Q3 this year than it has been I think in my entire tenure at redfin.
But we also said at the time and we're saying now.
That.
We have to be measured in our response, because we want to give the customer a good deal we want investors to get a good return.
So I hope that we struck the right balance we want to be the best employer in real estate you want our people to get a fair deal.
But we also want to take care of our customer and so that's just a tightrope to walk on and I think we've done it but we'll see in 2022, if attrition comes down.
Thanks for the comment.
Thank you that concludes today's question and answer session. Meg at this time I'll turn the conference back to you for any final remarks.
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