14 RE Statistics: Redfin CEO Glenn Kelman at Inman Connect Las Vegas

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	Below is the transcript of Redfin CEO Glenn Kelman speaking at Inman Connect Las Vegas 2024 on Tuesday, 30 July 2024. Transcript: Redfin CEO Glenn Kelman Glenn Kelman (00:00): ... we do all this research on the state of our industry, how agents are fairing because we want to be the best place for agents to work just as every other brokerage does, and we just want to understand the state of play, especially now that the state of play is so radically changed. So I'm going to share with you a bunch of data at the best possible speed just because we never have enough time to get through all of it. If you have any questions, you can just hit me up by email or by social media. So you already know this number, 3.9 million is the number of homes the National Association of Realtors expects to be sold in the United States this year. We revise that number downwards in July of 2023-2024, excuse me. (00:55): It is the lowest number we've had since 1995. And back then the population was 33% smaller than it is today. So it is a hum dinger of a number. And just to put it in historical context, it hasn't been that low at any point even during the great financial crisis. So this is because inventory is 30% below pre-pandemic levels is because home affordability is at nearly a 40-year low. This has put the whole industry in a funk, but I think the same message that everyone has shared at this stage is the one that I believe in, that what doesn't kill you makes you stronger. All of us are going to come through this and cherish the years that we had together through the downturn because that's when the real great began. So the real issue though is that even though there are very few homes being sold, there are 1.5 million Realtors in America that is nearly double the number that we had in 2000 and back in 2000 again, there were 25% more sales than there are today. (01:57): So somehow we are having to divide the pot among a broader group of real estate agents even though the pot has gotten smaller. And what that means is that most real estate agents don't sell a home at all. So out of the 1.5 million [inaudible 00:02:12] members, plenty of those folks or transaction coordinators, touring agents, managing brokers, people who aren't even trying to close sales, but really the bigger problem is there are a bunch of people who are trying to sell houses and they fail. So as of July 12th, according to analysis, across all the analysis that Redfin done, about 23% of agents account for all the sales of homes in the United States. And it isn't just this year. That's a particularly tough year. Even when we have a good year, more real estate agents come into the industry. And so you have about 30% of all real estate agents year after year after year when you go out to a full year doing almost for all of the states. (02:52): So now we're going to get to some of the original research that we did. This is a survey that we do through a third party called Qualtrics. We don't tell people that it's a Redfin sponsored survey. Our name doesn't appear game in the survey. More than half of the agents who participate have 10 plus years of experience and spread out across the entire United States. We do donate to a charity, we give them a gift card for their participation just so we can get a good response. Here's the data about their income. We ask about that first because we know that people get into real estate hard to make a good living, and only about 22% of agents are earning more than a hundred thousand dollars a year. This is important for Redfin because on average, the average Redfin agent earns more than a hundred thousand dollars per year. (03:37): The real tragedy is that more than half the agents earn less than $50,000 a year, which is why more than a third of them have to work a second job just to be able to stay in real estate. But I'm not trying to be down about this industry. I've been doing it for 18 years. It's the industry that I love and the thing that I have learned by coming to this conference is where that love comes from. People love being their own boss. This industry has more entrepreneurs than any other industry is. Annie and Brad are just discussing and that is what people love about the job. They love being their own boss and they love helping people whose lives are in transition. That is what has kept me in this business for so long. You can't go to another job where the stakes are so high for another human being. (04:25): The concerns though, that people have been amplified by the markets, almost every negative that you saw in previous surveys is larger in this survey, and that's just because so many agents are in such a phone. So people worry about the unpredictability of income and it's hard for them to find customers. This is the challenge that we have been trying to address. It shouldn't be so hard to be a real estate agent and make a living. What to me was most interesting was some of the challenges people are having around dealing with other agents that has really gone up more agents and enter the industry. There's been this feeling and I'm dealing with an or somebody who's abusive or someone who doesn't respect my time, but the central issue is trying to find customers. This is a point that Amy just made on stage. (05:16): Most real estate agencies, two thirds, don't really help the agent build for business in the traditional sense of introducing that agent to customers. And that used to be why you join a brokerage because you thought it would help you build your business in that way. And that is why there is so much pressure on splits, so much pressure on margins in the brokerage industry because if you're not going to help me meet customers, why would I pay you a higher split than I would somewhere else? And then people are looking to get opportunities from any of the portals. And Redfin is included in this, whether it's or homes or Redfin, or Realtor. The consensus among agents is that contact quality has declined. So two thirds of agents say it's gone down, 4% said that it's actually increased. And I think some of this is just because consumer behavior has changed. (06:05): This has been a great frustration of agents at Redfin that people now treat us like Uber drivers where they haven't even given their credit card number to us. They want to see a home at three o'clock on Saturday afternoon and they have no intention of using that agent whatsoever. So people have begun to do real estate agent as this free utility instead of someone they build a lifelong relationship with. That is the central challenge of this industry, and that is why Redfin has spent so much energy investing in machine learning, investing in other technologies to qualify customers better because we cannot improve agent work-life balance without qualifying our customers better. (06:44): We once tried to reset consumer expectations if they aren't going to be able to see a house on short notice, if they're not going to be able to pick whatever time they want, that cat is out of the bag. That ship has sailed. People expect on demand service from everything in their life including real estate even though it's one person who's trying to cover an entire name. So instead, what we have to do is we have to make sure that customer really understands who that agent is and what that service entails. And that means that you get fewer opportunities flowing through your website, which is painful. (07:16): But if you're a website and you're paid on the agents closing sales, which increasingly more portals are doing, it's going to work out for you. You have to look and who actually closes. We asked agents about the greatest challenges in the industry. They highlighted affordability and inventory. There's no surprise there. We are meeting so many customers, interest rates have increased, who think they're able to buy a house and then they discover that what they could actually afford isn't anything they actually want to live in. And so you have more people touring and fewer people closing. It makes the job that much harder. (07:51): But what's interesting to me is that this survey was completed in December of 2023 before the National Association of Realtors settled its lawsuit already to see this anxiety that that's going to be a major issue. Only 19% of response said that it was going to be an issue in the earlier survey, but that more than doubled 45% in this survey. If you look at the next slide, oh, wait a minute, can I go back to, I might've deleted a few slides here, but Clever Agent did another survey showing how much concern there is. And now that concern in Gabriel and beyond has been off the hook. Lots of people think that agents are going to leave the industry, the fees are going to come down. We'll talk about that more in a minute. (08:35): But just speaking of the affordability issue first we did our own survey of homeowners and also people renting homes. And we asked people, what's the number one issue for you in an election? And for Baby Boomers, it was all the issues you'd expect. Abortion and gun rights and the environment, the economy, climate, what have you. But for Gen Z, for the youngest generation, they have lost faith in the American dream. It's hard to be optimistic about the American economy when you are living in your parents' basement. So they rated housing affordability as the number one issue. And you see that is the number one reason that mayors lose their jobs in big, expensive cities that hasn't been the national issue that it is now. And the truth is that no politician going to be able to solve it overnight because we have an inventory shortage of five to 10 million homes. It's going to take a long time to build them. It just means we need to get started now. (09:27): Home insurance doesn't seem like it's really growing as a challenge, but I want to provide some color here. Obviously climate change is affecting coastal areas more than other areas. There's wildfires in California, there's floods in hurricanes in Florida. And so if you just look at the agents in California and Florida, they'll say that 70% of the agents there really believe that home insurance has become a much bigger challenge. It's certainly one in our business where we've gotten a deal with the one yard line and all of a sudden we can't find an insurer to back the mortgage. And here is the bottom line on the survey. We always ask, "How likely are you to recommend this career to other people?" Because I always worry that real estates are going to become a gerontocracy, that we're not recruiting a new generation of talent, which is really excited about how amazing this industry is. And part of the problem is that many people participate in the survey said they would recommend it to someone who's just starting out their career. And that's what we want to change. (10:27): Here's the data about the settlement. This is from club agents just to give credit where credit is due. Many folks are now worried not just about the housing market, but of course about the settlement. Will agents make the industry, will there be more competition between buyer's agencies? And this is the last time we see data like this because we gathered it from the MLS, but it shows what's happened to buyer's agents commissions. And this is data that we have tracked over probably 15 years and it has been an absolute flat on. So my side commissions have remained very stable from up and down markets, but here you see about a 10 basis point drop and it's nothing to get too worried about. (11:06): But it's also the first time we've seen a drop of that magnitude. And just the anecdote from real estate agents at Redfin over the past three or four weeks is that more customers are asking about it. And some of the MLSs put in place these rules where we split their fees like that is going to put more pressure on agents to be productive. If you're trying to make a living on four or five sales and you're only getting 4 or 5% instead of 6, you're going to need to increase your productivity. This has obviously been an area of Redfin emphasis. Our agents close two or three deals a month, whereas the average is much lower than that. But I think what you're going to see is the industry is going to winnow out some agents and productivity across the board. All these is going to go up. (11:56): But I did want to talk about what this data meant to Redfin and why it told us that we really had to change. You may have heard that Redfin has rolled out this new compensation plan. It's much more similar to what we pay traditional agents. So it's a split based program. You can get Excel source deals a split as high as 75%. The Redfin source deals that split would be as high as 40% of the commission. And the reason we had to do that is because for the first time in my 18-year career at Redfin, we lost share. (12:26): In 2023, an entire business, this premise on growth suddenly came to a grinding halt. Not just because the housing market was off, but because we had laid out so many agents and they walked out the door with so many customers. And we found it especially troubling in our most expensive markets in California in particular, that we were having a hard time holding on the agents. Redfin is very proud that I think we're the number one brokerage in agent retention. You look at MLS data, but we have been having a difficult time going on the agents in the luxury segment. So our sales leader, Jason Lene, got us all in a conference room and said, we have to do something radical where we're still going to employ agents, but we're not going to offline a salary anymore. We're going to have a bonus instead. And that has been an earthquake in Redfin land. (13:13): And the reason I said an earthquake is because the original premise of Redfin was really at the opposite end of the spectrum from the traditional industry. So the traditional industry has embraced entrepreneurialism completely. And by coming to this conference you have year after year, I have learned to love that too. And I should, I mean, I'm an entrepreneur myself. I started country software before running Redfin, but the original Redfin premise was really a very systematic approach to being a real estate agent. (13:42): And over the years we learned that there's two different models you can think of, Redfin as something like a domesticated animal, maybe a lapdog. I don't know how you all think of us, it's not how we thought of ourselves, but I think the traditional agent can sometimes thought themselves as a lone wolf barking at the moon. But I think the industry is converging somewhere in the middle. So more portals are paying agents to close sales, so they earn referral fees instead of charging for leads upfront. And they're encouraging those agents to organize themselves in teams to recommend their title insurance company and their mortgage company. They're measuring those agents based on close rate, allocating more opportunities to the agents with high close rate. In effect, they are taking a very entrepreneurial agent and encouraging that agent to be more systematic. And as painful as it's from me to acknowledge this, Redfin and those other portals are sort of converging on that point, we know that we need a very entrepreneurial agent. (14:42): We're not going to manage someone through the process. Once you meet a customer, you're off to the races, you are closest to the customer. You should make a decision about what that customer needs, we are going to be very systematic about getting you in front of that customer, how you show up for that meeting. But once you've met them, it's all yours. And that I think is really where the industry is going. If we are just going to keep generating online opportunities but not change how we serve those customers, it's going to continue to lead frustration to poor contact quality. And it's going to be a bad customer experience where people are coming to a website to meet. So my hope is that you're going to see more teams joining together. That's the initial results from next have mostly been good. It hasn't been a total slam dunk for us. And sometimes when it sets that and think, man, it must be a populous now, and I'm just trying to be absolutely candid with you, it's been mostly good. (15:39): And the real conviction behind that is that we're expecting it as fast as we possibly can. It's been great for our luxury share, it has driven more shared overall. Some of our lowest producing agents are unhappy with it. They miss their salary. Every market I go to, I have to talk to them. All of the top producers love it. Overall, we're usually trying to please those top producers. We have data that the agents who have joined us from other industries that are the pay rates, but it's only about 5% who get thought it would be larger, but they're certainly working harder for it. So it's early days. We rolled out the program in January. We're only to measure sales, only able to measure sales results in April and May and June. But so far they're already making more money and for the top tier of agents for hiring for the real top. So that is my presentation. I finished with two minutes of des spare. I'm going to get a gold medal from Brad because he always gives me grief about running late. But I did it. Thank you so much.
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14 RE Statistics: Redfin CEO Glenn Kelman at Inman Connect Las Vegas20109