Redfin is the third-most-popular real-estate website in the country, but its brokerage business hasn’t upended the industry the way the company hoped — it sells just 0.6 percent of U.S. homes.
Redfin, the Seattle-based real-estate and technology company, launched the Puget Sound region’s first initial public offering of the year Friday and saw its stock rocket up. But its CEO worries about expanding in a city he says is becoming more like the Bay Area for housing costs.
Unlike Amazon, Expedia and other local tech companies that have upended traditional businesses, Redfin has struggled to carve out a big slice of the real-estate market. More than a decade after it started, it sells less than 1 percent of homes nationwide.
But the company’s strong showing on Wall Street is indicative of just how hot the local tech scene has become — helping fuel the rise in home prices locally. That’s good for Redfin’s business, which relies on selling homes, but bad for its recruitment and retention of employees struggling to afford living here.
Redfin fast facts
Homes sold:75,000 homes worth $40 billion through 2016
Revenues:$267.2 million for 2016, up 43 percent
Net loss:$25.5 million
Employees:2,200, up from 750 in 2013
Trading under the RDFN ticker on Nasdaq, Redfin stock soared 44.7 percent Friday. Redfin had priced its stock at $15 per share, but closed at $21.70 — raising its market cap to $1.7 billion.
Redfin has been expanding in recent years, moving into new markets and hiring more agents. Earlier this year, the company moved its 400 or so local employees into a new Denny Triangle office space that is twice the size of its old headquarters in Belltown.
“We’re recruiting on almost every front, but I think we’ve also been paying attention to how expensive Seattle is getting,” CEO Glenn Kelman said. “At first it seemed like such a great middle-class town where people could afford to live here on a middle-class wage. We’ve seen that change somewhat in the last few years.”
Kelman, a Seattle native who moved back here after several years in the San Francisco area, saw people get priced out in California. Seattle remains about half as expensive as San Francisco, but the gap has narrowed in the past year.
“We’ve noticed it become more and more like the Bay Area,” he said. “That’s something that weighs on our thinking.”
He says it’s gotten somewhat easier to recruit employees because Redfin’s profile is on the rise, but he wonders how that will be offset by the rising cost of living.
“It’s more likely someone comes in (to my office) and says, ‘I’m busting my butt here and I can’t afford a house within 20 minutes of the office.’ I hear more about people taking longer commutes from Snohomish and Pierce counties,” Kelman said. “That’s what I used to hear about in the Bay Area. I worry about it.”
The irony, of course, is that the same rise in Seattle tech culture that has helped Redfin grow has made Seattle more expensive. And the more successful Redfin gets — and the higher its stock rises — the more its employees might also bid up housing prices.
Kelman has been advocating for more housing here, saying the city should strive for a middle ground on density — closer to Brooklyn than Manhattan.
He says startups in Seattle need to not only offer good pay but establish a unique culture that sets them apart in the war for talent, since Silicon Valley companies have been expanding here in addition to local giants Amazon and Microsoft.
Kelman said that while he appreciated the first-day price bump, he cautioned that it didn’t mean much because so few shares were trading yet.
The IPO “gives us the capital and the time to take on even more ambitious projects,” like offering mortgages, Kelman said.
Redfin has its feet in two main markets: It has agents selling homes, putting it in competition with traditional brokerages like Windermere and John L. Scott Real Estate. It also provides detailed real-estate information online, going toe-to-toe with Seattle-based juggernaut Zillow and other sites.
Its website is popular, but unlike other internet startups that have overthrown traditional businesses, Redfin is far from overturning the established real-estate industry.
As a brokerage, Redfin’s main advantage is its prices: It charges only 1 to 1.5 percent commissions on home sales, about half the traditional 3 percent cut taken by most Realtors. But even on its home turf, Redfin last year sold only 4 percent of homes in King County, making it the sixth-most popular brokerage here, according to a Trendgraphix analysis of sales data. Nationwide, it sells just 0.6 percent of U.S. homes, up from 0.5 percent the previous year.
As an information site, Redfin has gained much more ground. It attracted 20.2 million unique users in June, the third most in the country and up 46 percent from a year ago, according to comScore. But it’s still way behind Zillow’s suite of sites (88.8 million unique users last month) and the Realtor.com network (44.5 million).
The company has never made an annual profit. But its revenues have climbed more than 35 percent in each of the least three years. It posted a loss of $28.1 million on revenue of $59.9 million in the first quarter this year.
The IPO is the first for the local economy since Bellevue-based tech company Apptio went public in September. Impinj and PhaseRx, both based in Seattle, each went public earlier in 2016, ending a 1½ -year drought for local IPOs.
Looking back over the past five years, Redfin is the 12th company based in Washington to go public, according to Renaissance Capital. Most have been in tech or health care. The three biggest by far, in terms of deal size, were Juno Therapeutics ($265 million raised in 2014), Tableau ($254 million in 2013) and zulily ($253 million in 2013).
Redfin filed for its IPO at the end of June, three years later than Kelman had once planned. It priced the stock at $15, higher than the expected $12-$14 range, and sold about 9.2 million shares, raising roughly $138 million before costs, and giving the company a market cap of $1.2 billion. That value grew by $500 million after trading closed Friday.
Correction: An earlier version of this story had an incorrect date for zulily’s IPO. It was in 2013, not 2014.