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In March, Rocket, America’s largest mortgage lender, announced plans to buy Redfin, a national broker that spent 20 years trying to “redefine” home property. There are a large number of people involved. The Redfin website attracts nearly 50 million viewers each month. Rocket says it processes over 100,000 phones every day. The transaction is worth around $1.75 billion.
But Redfin CEO Glenn Kelman and Rocket Companies CEO Varun Krishna say consumers are at the heart of the contract. “Homeownership is basically a human business,” Krishna said in a May investment call.
Still, partnerships come at an auspicious time. As USA Today reports, there is a deep rift in the industry as to how real estate listings are public and who should represent buyers and sellers, how much control a single company should have. At the same time, as Kelman remembers in his 2024 call with analysts, the rise in high-rise mortgage rates and home prices are fraying America’s dreams, challenging profits and margins.
USA Today sat with Krishna and Kerman for one of their first co-stars since the announcement.
This conversation has been edited for length and clarity.
USA Today: What does acquisition mean for consumers in the housing market, for buyers and sellers?
Varun Krishna: Today, when you think about the process of buying and selling a home, consumers are handed over from industry to industry. One industry supports the home search process and the process of working with real estate agents, while another supports the fundraising process. Among them are industries that support titles, insurance, closures and more. And they are passed on to service businesses that spend lifetime handling such as property taxes, monthly payments, and escrow. And the whole process is very complicated. It takes time, is energy-intensive and expensive. What we want to do is fix it. We want to take the expensive and outdated ones manually. And we want to make it all seamless and frictionless, ultimately creating more savings and value for our consumers.Glenn Kelman: The central financial problem people under the age of 40 are that they no longer believe in American dreams. They can’t afford a house, they get lost in the process and are overwhelmed by the fees. They spend half of their down payment on brokers and bankers. And I think we can fix that.
USA Today: The finishing real estate experience from the start has been the Holy Grail for a long time. We’ve all said it was outdated for decades. And at this particular moment there is a lot of lively debate in the industry about how much process a single company should control. There is one big player in the market who wants to have a list within the company and wants to represent both sides of the transaction. And there have been long questions about what professionals should be able to guide their business to others. I want consumers to get expert help, but how do you walk that line between allowing you to choose who to represent them?
Krishna: The problem with homeowners’ experience is that there is no transparency. It is difficult to understand whether the real estate agent you work with is your biggest interest. It’s hard to know that you’re getting the best rate. It’s difficult to understand where you stand in the process and how underwriting works. It is difficult to understand how your loan will be licensed and then serviced, then handed over to another lender. And I think the basic problem today is that there is an illusion of control, and there are absolutely options. And the fee structure makes sense, and the way consumers have to choose and how to choose…it’s a bit of the mistakes today, and we want to improve it. They deserve a more transparent system, better fees, they deserve to have a lower fee, they deserve to be able to enter the house faster or sell the house faster.Kelman: For me, it’s really hard to give consumers a better deal when title companies, brokers, bankers, and service companies are all fighting for their customers. Give your customers a choice. They can work with Redfin agents, and another banker. They can work with a rocket bunker and another agent. But our hope is that by working together we can give consumers a better experience like this and a lower fee to work with us what they want to do. But if you keep these industries in each other’s throats, then if we’re all spending money to acquire the same customers, it won’t make the industry more efficient. That’s why consumers pay a lot every time they move.
USA Today: There are many experiments, and many companies spend a lot of money on big bets, Redfin starts with payroll agents. Why is it so difficult to get the model right?
Kelman: I think consumers are really traditional. It’s a rare purchase, so at 10 years you’ll move and usually help to handle the sale to your neighbor or hire your uncle as a real estate agent. It is also a cooperative industry. So whenever you have a destroyer, the consumer should be worried. When she places a redfin sign in her yard, do other buyer agents want to show her list? You should be concerned if you have a RE/MAX agent that represents a buyer. Do other listing agents really tell that agent what’s going on in the deal? Whenever there was a disruptor, there was an industry response, so the challenge here is to adopt a highly fragmented industry and find a way to better coordinate it.
Krishna: I think part of the reason these things are difficult is local fragmentation, word of mouth when disrupting all kinds of hyperlocal dynamics, such as commercial transactions, real estate, financial services, etc. You have diversity in the landscape of how people do this job. There, some people sell one or two homes, while others employ it as a full-time occupation. You have different levels of stoic.Kelman: Most companies building technology in this industry don’t really want to get their hands dirty and serve their customers directly. The first thing Varun and I had in common was that we wanted to put consumers first, but the second was that we both invested hundreds of millions of dollars in our people. And in most industries, if you want to build a better gadget, you sell to a traditional agent or traditional lending officer who is selling it. For us, it seems difficult to build a better mouse, knock the world on the road to your door, and give people the same old service at the same old rate.USA Today: There are many concerns among some recent buyers who have bought at the highest cycle and very high home prices. The majority have fixed-rate mortgages, but we know that homeowners’ insurance costs are rising quite quickly and dramatically. Property taxes could also rise. How worried are you about those borrowers from the borrower’s perspective? And how worried are you, or how optimistic are you about a mortgage service system that lets you manage whether you are suffering and rising?
Krishna: Looking at trends like Hawks, we look at everything from key indicators to delay indicators about how consumers are spending. Usually, mortgages are the last thing to go to, so consumers do everything and make sure they stay home. Given everything we saw, we are not worried in the sense that we are seeing deep structural cracks in the way the industry is developing. But at the same time, affordability proves to be a challenge. I know that inventory is a challenge and there is also considerable friction in the overall experience.
We need to start thinking of it as a continuum. There, consumers continue from rental to eventually become homes that are still the bedrock of America’s dreams. And if you can help with that from a lifetime perspective, or if you can help them not only search and find a home, but also raise funds and title them to provide services, you can remove a lot of costs from the system. Part of the problem today is that when you think about costs, a lot of it becomes like a lead, right? Mortgage leads are one of the most expensive leads, with mortgage companies spending thousands of dollars on individual leads. So the margin is a little lower. And there is no lifelong value as consumers are in another part of the funnel for service. You can make it faster. This is how this helps you solve the problem, and you want to create a model that appears to be more sustainable as far as homeownership is concerned.