- Redfin Snapped Up By Rocket Mortgage Becoming A Notable Threat To Zillow
- Redfin, The Discount Real Estate Broker, Never Figured Out How To Be Profitable
- Rocket Has Always Seemed To Defy Interest Rate Gravity And Redfin Has Great Tech
Wow. Today is the birthday of the World Wide Web. No one saw the acquisition of Redfin by Rocket Mortgage coming, and perhaps that’s what makes this transaction so interesting. Discount real estate brokerage never lived up to its promise of lower transaction costs for consumers at scale. Redfin has always been the poster child for this fledgling industry niche even though it changed its business structure over time because the math didn’t math and still doesn’t. Originally their agents were non-commissioned, salaried types until they weren’t. But one thing Redfin did well as a firm, was present easy to use technology and always seemed to have the ability to make tough decisions, something the real estate brokerage industry stalwarts as well as NAR never did. Redfin is in the same arena as Zillow and Realtor.com but I find their technology better. Listing landing pages easier to read, their research more relevant, and their tools seem more accurate (based on probably nothing more than aesthetics).
About a decade ago, I gave a speech in Philadelphia to the board of Bright MLS after the MRIS-Trends merger. The Redfin CEO Glenn Kelman spoke first and wow, he was impressive. In fact, I tend to give greatest weight to his analysis of key industry issues above any other source. He seems much more thoughtful and trustworthy to me than most national industry executives, but perhaps that’s just good marketing. Speaking as someone who was involved with Trulia from their pre-website phase until their acquisition by Zillow, I believe Redfin has built a better mousetrap and has a huge user base and a lot of data. Their weakness is the “being reliably profitable part.”
Rocket Mortgage, formerly Quicken Loans, seems to have figured out how to defy gravity in the mortgage business, printing money even in slow times. Besides the founder’s prescient acquisition of half of downtown Detroit, their management prowess makes them industry leaders in the lending world.
Rocket Acquires Redfin
Rocket Companies and Redfin seem to go well together but are keeping their brands separate. Here are some thoughts on the acquisition:
- Rocket will purchase Redfin for $1.75B in 2025 in an all stock transaction paying $12.50 per share after peaking at about $96 per share in 2021. Rocket bought Redfin at a price about 90% below peak. Timing is everything.
- Rocket benefits from Redfin’s giant user base of 50 million monthlies to expand its mortgage footprint.
- Redfin benefits from the infusion of good management with the business acumen to be reliably profitable.
- Both firms have a tremendous amount of proprietary consumer data that they can leverage together.
- The acquisition creates the first significant threat to Zillow’s dominant position if they create a killer app that wins the consumer. Zillow has been working its mortgage company hard as a value creator after Zillow Offers imploded a few years ago.
- Costar has been trying to muscle into Zillow’s dominance for the past year through a $1 billion advertising campaign for their Homes.com product. Those ads are all over television. The Redfin purchase now provides another significant competitor for Costar whose rise in residential brand recognition seems wholely dependent on advertising for now. They own the commercial data market so they’re probably just getting started in residential and doesn’t strike me as a firm that will give up easily.
- Small mortgage and niche real estate brokerage companies are probably not too thrilled with the introduction of another super charged competitor.
- The potential for a Rocket/Redfin app to compete with the Zillow app seems high.
Final Thoughts
The consumer wins with more choices.
The Actual Final Thought – We need subtitles on listings, no?
Did you miss the previous Housing Notes?
Housing Notes Reads
- Mortgage lender Rocket Cos. to acquire real estate brokerage Redfin in deal valued at $1.75 billion [AP]
- CoStar touts Homes.com momentum after ad takeoff [The Real Deal]
- National Housing Survey [Fannie Mae]
- Manhattan Office Leasing Posts Strongest Start Since 2014 [Bloomberg]
- US layoffs reach highest since 2020 [Perplexity.ai]
- China’s high-end rental market struggles post-Covid amid dwindling expats, firms [South China Morning Post]
- New and existing home price gap shrinking [LBM Journal]
- Media titan Byron Allen has sold his Billionaires’ Row condo for $82.5M — and it’s NYC’s priciest deal so far this year [New York Post]
- Rising monthly fees for Manhattan condos and co-ops [Habitat Magazine]
- Exclusive | Will Arnett Sells $20.2 Million Beverly Hills Home Weeks After Listing It [Wall Street Journal]
- How the pandemic transformed the housing market in 5 years [Axios Media]
