Real estate dreams – fact and fantasy

I was intrigued by the title “Big box broker lays off thousands, puts best producers on salary plus commission“. Who could it be, what company had done this? Reading the article, however, I realized it was just wishful thinking. No large brokerage has actually converted their commission-based agents to salary plus commission because it doesn’t make any sense.

If converting agents to employees or paying them a salary made financial sense, then brokerages would rush to convert all of their commission-based sales people into employees.

If it were possible to make money hiring agents and paying them a salary, then Foxton’s would still be in business.

If it made financial sense for real estate firms to have agents become employees, then Zip Realty wouldn’t have had to lay off all of their workers.

The argument made is that Redfin has agent employees, and they are “profitable”.

Do not believe Redfin’s press releases.

They may have, on occasion, made more money in a month than they spent, but they are still far from profitable.

Redfin is still $30M in the hole and the money they are refunding to their buyers is the money that they received from venture capitalists. The only hope they have to pay that back is to find a gullible buyer.

If this kind of business model made financial sense, there would be more imitators.

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Real Estate Gal
6 comments
  1. No way Redfin could be profitable. If Zip Realty was refunding just 20% of their commission and couldn’t make it work, how can Redfin refunding 50% make any money. Like you said, there may be months where they bring in monthly more than they spend, but they probably haven’t made a dent in that $30M they have to pay back to those VC’s.

    If real estate companies thought they could make more money paying a salary to agents then they would do it. The only company doing it is made up of software engineers who don’t know any better.

  2. One of these days those VC’s are going to not only want their money back, but they’re going to expect a return on their investment…

    As a small independent broker, I’d love to be able to pay my agents a salary. There are advantages to having employees over independent contractors.

    But you’re right, it just doesn’t work, nor make sense. I don’t have VC’s throwing bushels of money at me. I have children to feed and bills to pay, as do my agents, so we slog along. And our brokerage has been profitable for 37 straight months. Which isn’t bad given that it’s 38 months old…

  3. As I mentioned, Zip’s let all their employees go, except for office staff. Redfin sent out a press release once, saying they were “profitable”, but I’m pretty sure that was just some bookkeeping hanky-panky. And you’re right, at a certain point those VC’s are going to want their money back. If the current CEO steps down, they’ll start looking for a buyer.

    And congratulations on the success of your business in this market!

  4. real estate does not always materially impact the end result, specially when properly analyzed. This is a keeper! Good info! Another good post Marlow.

  5. Redfin claims x amount of profit and during this difficult period it is difficult to believe those numbers.

    Thanks for sharing your voice

  6. Real estate dreams – fact and fantasy | 360Digest…

    I was intrigued by the title Big box broker lays off thousands, puts best producers on salary plus commission. Who could it be, what company had done this?…

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