A case in point for skeptics is the experience of ZipRealty, a maker of a real estate technology platform that went public in 2004 and peaked at about a $500 million market capitalization before selling to Realogy for $166 million in 2014 after the housing crisis hit home sales nationwide.
“What happened to ZipRealty is a pretty good indication of what the future looks like for a business model that sounds new, disruptive and sexy, but always loses money, year after year,” said Patrick Carlisle, an executive at Paragon Real Estate Group, an independent real estate brokerage in San Francisco not backed by venture capital.
Redfin plans to use cash from its IPO to fuel growth in its existing markets. Nationwide, it controls slightly more than a half-percent of home sales, it said in its IPO prospectus. Even in Seattle, Redfin’s biggest market, the company only has about a 4% to 5% market share of housing units sold, according to industry estimates. Redfin has higher costs than similar firms because it employs brokers full time rather than having them work on commission. The company tries to use that model to offer cheaper commissions to home sellers.
Glenn Kelman, Redfin’s CEO, acknowledges that growth isn’t as quick and profitable as pure software businesses. But he said his company benefits from tech investors getting interested in businesses like physical retail and automotive. “Investors are just seeing Amazon, Tesla, Google, every major internet company investing in real-world operations for more durable growth,” he said.