Opinion: Top-line growth at any cost may be a poor strategy

Redfin, RE/MAX, and Zillow have all reported their fourth quarter results and full-year 2022 results. Surprise was the fact that both Redfin and Zillow saw their top-line revenues decline in the full year 2022, while RE/MAX saw an increase in their revenues.
Zillow reported a loss in the full year of $88 million while Redfin reported a loss in the full year of $320 million. RE/MAX had net income of $4.8million.
RE/MAX, the incumbent company, achieved better results than any of the tech-driven, young companies. RE/MAX is celebrating 50 years, while Zillow and Redfin are closer to their 18th birthdays.
RE/MAX may be seen by some as the turtle of the turtle-hare story — slow, steady growth — rather than those who believe that top-line growth is inferior. “Slow and steady” is not inferior, as 2022 proved.
What do homeowners want from their housing?
Redfin results show that their web-driven, low-cost, employee-based model has not caught on with homeowners. Their data shows that they have a 1% national market share. Their gross margin in brokerage services is 28.6%, a decrease of 37.8% a previous year. This is not nearly as good than other lead-generating teams within the U.S. where an average team of medium- or large size has a gross margin between 60-62% according to 2022 RealTrends’ Team Profitability study.
We believe this is a fair comparison, as Redfin and Redfin teams both focus on lead generation investments. Agents are used to serve housing consumers who arise from these activities.
Redfin’s leadership is not sure what Redfin will do to get out of their current market share position.
Zillow’s market share strategy
Zillow’s results reveal that, despite investing in unique online tools for agents and consumers over nearly 18 years, their main source of revenue is still advertising spend from brokerage firms and agents.
They believe they can increase market share for brokerage commission revenues by focusing on what they call their five Pillars: touring, financing, selling solutions, enhancing partner networks, integrating our services, and enhancing their partner networks.
It is not clear how much they can make more from the sale and purchase of homes by real-estate agents.
It is well-known that their model is based upon closings and commissions. As their results show, their results depend on the health of their brokerage business.
The RE/MAX Challenge
The biggest challenge for RE/MAX is the retention and recruitment of real estate agents. They are growing overall, but the number of agents in the core market of North America is continuing to decline.
This is a problem that all national brands have faced for years. How can well-established national brands of real estate continue to grow the number and productivity of their agents?
RE/MAX has proven it can grow their Motto Mortgage franchise, and it is becoming increasingly important to their overall results
More earnings reports are yet to be released. As they become available, I will be reviewing them. One thing is certain: results will turn negative for the first time since 2011, often in significant ways, as the housing crisis hits all market participants.
Steve Murray is a Senior Advisor for RealTrends, and a Partner with RTC Consulting.
This column does not necessarily reflect RealTrends editorial department or its owners.
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