But those incremental sales wouldn’t have been very profitable anyway, and we don’t want to carry the fixed cost. So we are shifting to partners. Here’s what’s new. This is what we talked about for the first time today, which is that we’re hiring a more traditional type of agents. So usually the trade-off at Redfin when we approach agents is you’ll get more Redfin customers, but at a lower split. So you have to close more sales to make the same amount of income or more income. Now we’re trying to offer agents the best of both worlds where we allow agents to close sales from their personal network at a split with Redfin. That’s similar to what they would get at a traditional broker while retaining the high margins on Redfin sourced sales. So let’s say an agent has closed 10, 15 sales in California above a $1 million, they could come over to Redfin and earn about the same income, but we could help them meet customers to close another 10 or 15 sales.
And that would be incremental, and that would be at the Redfin margin. This is what our competitors fear we would do. It is what they have always hoped we would not do. And we think it’s going to let us close sales at significantly higher rates where we can go out and compete for an agent who’s been very successful in the market, but who still wants a larger business. And that will increase close rates in these coastal markets where we’re seeing about a third of all the customers who end up buying a house, about a third of them contact Redfin for service, even though our share is 1.5% or something like that. And so we can do much better if we could increase close rates by hiring a better agent and we think this is going to unlock a lot of growth.
Ygal Arounian: Thanks. So you’re hiring just to follow up on that, you’re hiring these agents or are of the agents that you currently have switching them over to this model. So I’m not clear if you’re, if this means you’re hiring the people.
Glenn Kelman: We’re doing both. So we are announcing the plan we need to do better in coastal markets where the most lucrative home sales happen. So we have open requisitions in San Francisco that we’re going to aggressively start filling in the fourth quarter especially and we’re going to start hiring a different profile of agent with lower fixed cost, more variable pay. This is just a more traditional sales person who wants to augment his or her income with Redfin sourced sales and we’re switching our existing agents in those pilot markets to this pay plan.
Ygal Arounian: Got it. Really interesting, excited to see how that works out. Thank you.
Glenn Kelman: Me too.
Operator: Your next question comes from John Campbell with Stephens. Your line is open.
AJ Hayes: Hey guys, this is AJ Hayes stepping in for John. Thanks for taking our questions. So you obviously changed your adjusted EBITDA profit target here, but can you just talk to me about your confidence in hitting this new target of hitting adjusted EBITDA profitability over the next 12 months? And then if things play out as industry forecasters are currently expecting, are there additional cost levers that need to be pulled or are you set to achieve this target without any further cost reduction efforts? Can you just generally just help adjust to this new target?
Glenn Kelman: We’ve assumed there will be no further cost reductions in setting this target, and we’ve been careful about the revenue projections that we make. At some point, we do need to return to share gains, but we have a basis for believing that will happen, in part by looking at pending sales. The trends are already positive, but also just based on some of those one-time setbacks we already discussed, the closure of Redfin now accounts for 12% of our listings. We need to lap that we cut our sales force by a third. That disrupts the sales cycle for about six months. We’re about to get beyond that effect. And then we just have really strong traffic growth powering us right now in terms of the top of the funnel. So all those factors combined to make us believe that we can take share and we’re not expecting aggressive share gain when we made this earnings forecast.
