Elena Perron - Head of Investor Relations Glenn Kelman - Chief Executive Officer Chris Nielsen - Chief Financial Officer.

Jason Helfstein - Oppenheimer Mark Mahaney - RBC Capital Markets Brent Thill - Jefferies John Campbell - Stevens Heath Terry - Goldman Sachs Jason Deleeuw - Piper Jaffray John Egbert - Stifel.

Good day, and welcome to the Redfin Corporation’s Fourth Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Elena Perron. Please go ahead, ma’am..

Thank you, Kathy. Good afternoon and welcome to Redfin Financial Results Conference Call for the Fourth Quarter and Full Year Ended December 31, 2017. Joining me on the call today are Glenn Kelman, our CEO; and Chris Nielsen, our CFO. You can find the press release on our website at investors.redfin.com.

Before we start, note that some of our statements on today’s call are forward-looking. We believe our assumptions and expectations related to these forward-looking statements are reasonable, but our actual results may turn out to be materially different.

Please read and consider the risk factors in our SEC filings together with the content of today’s call. Any forward-looking statements are based on our assumptions today, and we don’t undertake to update these statements in light of new information or future events.

During this call, the financial metrics, unless otherwise noted, will be presented on a GAAP basis and include stock-based compensation as well as depreciation and amortization expenses. You will find reconciliations of non-GAAP measures discussed today to the most comparable GAAP measures in our earnings release.

All comparisons made in the course of this call are against the same period in the prior year unless otherwise stated. With that, let me turn the call over to Glenn..

Thanks, Elena. And hi, everyone. Redfin’s year-over-year market share gains continue to accelerate in the fourth quarter and our revenues exceeded the range we gave last November. More importantly, we invested in fundamental improvements to our customer service by reducing our loss from the fourth quarter of 2016 to the fourth quarter of 2017.

Our fourth quarter revenue was $95.8 million an increase of 43% over the fourth quarter of 2016, a more fair comparison excludes new businesses. To consider only the sales through our own agents and our partner agents, these revenues are up 36% over the fourth quarter of 2016.

Excluding revenue from new businesses is especially important because our new experimental service for buying homes outright from consumers Redfin now counts the entire sale price of a home as revenue even though our gain on the sale is only a tiny fraction of that price. Our first Redfin Now sales closed in the second quarter of 2017.

We still lost money for the quarter and the year. While this was by design, we have to soberly account in this call for what we are buying with those losses. Technologies to make our brokerage better, faster and more efficient, new products to broaden our customer appeal, new businesses to give each customer more value.

I have never worked so long in a business where there are still so many ways for it to grow. The most important measure of our performance is our customer satisfaction.

In a November 2017 survey of nearly 2,000 Americans who worked with an agent over the past year to buy or sell a home, Redfin’s Net Promoter Score was 52% higher than traditional agents, and Net Promoter Score is a measure of customer satisfaction.

This was the 5th consecutive survey in which Redfin’s customer satisfaction was higher than our competitors. Our market share by home value was 0.71% in the fourth quarter, the same as in the third quarter but a gain of 0.15 percentage points over the fourth of 2016.

Year-over-year share gains accelerated steadily throughout 2017 from 0.10 percentage points in the first quarter to 0.11 in the second, 0.14 in the third, and now 0.15 in the fourth quarter. We believe that share is the best measure of our competitive position because it excludes the housing market’s ups and downs.

As we predicted in our last two earnings calls, traffic growth moderated in the fourth quarter mostly because our audience has become so large in absolute terms. The redfin.com continue to be the U.S.’s fastest growing real estate website. Our year-over-year growth and online visitors was 33% in the fourth quarter compared to 38% in the third quarter.

We expect strong traffic growth in 2018 but with percentage trends continuing to moderate.

Beyond 2018, we believe our traffic growth will come from 77 markets that Redfin opened less than 10 years ago from Google searches, on real estate terms where we have been competitive before and as Redfin becomes more well known for listing search and from more people bypassing Google to come directly to our site.

We also expected our business will depend less on our growth as a listing search site and more on our growth as a brokerage with gains in repeat customers continuing to accelerate and more people coming to Redfin for on-demand home tours and lower fees. More advertising is also likely to contribute to our growth.

As our conviction deepens that we offer the best service, we want America to know about it. In the fourth quarter, we prepared the most comprehensive marketing campaign in Redfin’s history with our first major radio and billboard apps both promoting a 1% listing fee.

To illustrate the power of on-demand home tours, we also developed a new TV ad that shows a couple instantly moving from one listing to another by magic doors activated by our mobile application. Starting February 05, these ads began to run in more than a dozen U.S. cities.

Beyond traditional media, we planned to continue drawing on our unique data about which online visitors actually buy or sell a home. This will let us make better investments and we believe any broker can an online video search engine ad retargeting another digital media.

Finding advertising channels that we can profitably spend lots of money on continues to be a strategic priority for Redfin. Most of our potential customers still don’t know about us.

In November 2017, we asked thousands of people buying or selling a home in long established Redfin market to name their top three real estate websites, less than one in three named redfin.com when asked the name of top three brokerage, less than one in ten named Redfin even in markets where we run TV ad for three years.

One of the only reasons we may defer improving profits every year is to spend more on ads. We spent 20% of 2017 gross profits on advertising placements but if we find a winning formula in one year we might spend nearly double that percentage to get our name out there.

Those ads aren't going to be immediately profitable given that it typically takes six months to buy a home once you engage an agent and the many of the people who see an ad will be years away from moving. No mass market advertising is going to pay for itself the year it runs.

Even if an ad doesn’t bring us enough customers to immediately offset its expense our bet would be that we benefit from the increased awareness for years to come. Over time, our ads spending would grow much more slowly than our business likely returning to between 10% and 20% of gross profits.

But if this increased awareness accelerated listing share gains, it could create a virtuous cycle with yard science reinforcing other forms of advertising.

Already we have seen evidence that we may be able to create this virtuous cycle in Seattle where we have a home town advantage but also the highest listing shares nearly one in five Seattle real estate consumers named Redfin as the top three brokerage which is double the rate of our next best market and significantly higher than it was six months ago.

We’ll have data from our 2018 campaign across many markets by August and we’ll let know if Seattle’s awareness games hold up and broaden to other markets. For home buyers the simplest benefit we can count in our adds [ph] and on our site is speed by instantly scheduling home tours and we are faster.

We updated our scheduling software so that we can automatically find a time for an agent to meet a customer on 83% of our December home tours up from 68% in September. Confirming a tour request without any phone call is between coordinators, agents and customers lets us capture more with the customers with less work.

Just as a retailer increases revenues through liberate systems to get the right products to the right shelf, we’ve worked for years to ensure the right agent is available for each customer at the right time. The next step for us is rapidly confirming the availability of the listings the customer wants to tour.

Typically, the buyer’s agent calls the seller’s agent to see if the owner can get the house ready for a showing. But starting in the third quarter Redfin began using a combination of software and call center employees to do this more quickly and efficiently.

By the last week of December, we confirmed 90% of home tours without requiring a Redfin buyer’s agent to do anything except show up. A major 2018 focus will be confirming listing availability for nearly all tours.

Our goal overtime is to convey a competitive advantage, not just to Redfin but to our home buying customers who should never have to wait on an agent hot listing. This commitment to speed is why we’ve also invested in our own offer-writing software which lets our agents put together data enlisting in a few minutes.

In the fourth quarter, we expanded the markets to software supports from Chicago, DC and Virginia to Maryland. The localization involved for each market is extensive. Different states, counties and cities require different outperforms and local customs around earnest money amount and other deal terms require different default values for the [form CF].

In Maryland alone, we have to support 30 addenda. For these reasons it will take us years to adapt our offer-writing software to every major US market. But as we do we believe we will be able to move faster than any other broker at lower cost and with comprehensive data about what it takes to win in each neighborhood.

Even as we automate the opening and closing stages of the home buying process, we are investing in more personal service during the long search in between to give our home buying customers more guidance on how to win in an increasingly competitive market.

As we discussed on our last earnings call, we want shareholders to understand this investment which is a bet to spending more on our service can not only lead to happier home buyer and more sales but ultimately to more gross profits per sale. For that bet to pay off, we will have to buck an increasingly competitive market.

When home prices rose in the last boom, easy lending standards and lots of new construction let home buyers keep up, but now that the market is so much tighter our job as agents is to work harder at finding a way for each home buying customer to win.

Over the years, the number of customers that Redfin agent has met in order to generate one sale has very widely as we have made changes to our service which tells us that what we do can increase or decrease our customers’ rate of success.

And since most of the customers our agents spend time with don’t end up buying a home with us, we know that any improvements in our customer success rate can save our agents plenty of time. The stakes for customers are even higher as our service can be the difference between winning or losing a house.

And in an industry where referrals and repeat sales are so important, we believe the only way to be America’s most successful brokerage is to have the most successful customers.

Our investments in personal service began in the third quarter of 2017 with modest agent hiring in a season when we usually hire no agents whatsoever, but then in the fourth quarter we developed into higher program for asking agents to meet home buying customers more often and to give these customers more substantive data driven advice.

Coming into 2018, Redfin plans to lower the number of home buying customers each Redfin agent supports by 10% hiring more Redfin agents than we would have in 2017. The ratio of customers to agents will still be slightly lower than it was in 2016, a year when our buyer’s agents were nonetheless more productive than in 2017.

If this new level of personal service doesn’t make our customers more successful in 2018, agent productivity to profit per transaction will decline. But the dwindling number of homes for sales notwithstanding we have reason to believe our 2018 home buyers will in fact be more successful.

In 2012 when the market first swung sharply in seller saver reducing the number of buyers supported by each Redfin agent increased our customers’ success rate. We saw the same correlation in 2017. The agency served your customers at higher customer success rate.

We’ve also been encouraged by more recent developments including a successful trial last fall of coffee shop strategy sessions with our customers for comparing the terms of winning and losing offers.

To help our agents give customers more personal service, we also upgraded our software with a new online calendar that shows an agent what's going on with each of our customers this week whether it’s a home tour, a negotiating deadline or closing.

Other software released in the fourth quarter made it easier for Redfin agents to focus on customers who most need attention based on the customer's online search activity and brokerage interactions.

This let’s our agents immediately see the customers who signed up for one tour with Redfin but not a second or which customers have engaged a Redfin agent without subscribing to alerts or new listings in their price range.

We developed this software using the React java script library pioneered by Facebook for high performance and easy porting from desktop browsers to native mobile applications. We know no other brokerage taking such an aggressive approach to mobile software for ensuring that on-the-go agents deliver the right service to each customer.

By the second quarter of this year, we get our first data on whether these new programs and online tools help more buyers win an offer and what the effect will be on profit per sale. We’re also working hard to serve home sellers better primarily through lower prices.

At the beginning of the fourth quarter, we lowered our listing fee for a full-service Redfin agent from 1.5% to 1% in 18 additional markets. We offset that savings with the fee increase for our home buying customers by refunding a smaller portion of our commission as a buyer’s agent.

The 1% fee is now available in a total of 26 markets which accounted for 87% of 2017’s brokerage transactions, but we do not expect to extend it further any time soon as home prices are too low in the remaining 60 markets for it to be viable. At the beginning of 2017, 1% pricing was available in the market that accounted for 54% of our transaction.

Years of testing in Washington, D.C. then in Seattle, Chicago, Denver and San Diego has shown that these pricing increases are overall share and it’s easy to see why.

Sellers contractually agreed to see an advance when hiring the sellers’ agent whereas buyers retrieve their commission refund like the tooth fairy, they are skeptical or oblivious until discovering the money as they funded their pillow only once they closed and months after meeting the Redfin agent.

The 1% fee is also easier to provide and adds on redfin.com. We’re also exploring other ways customers can benefit from our efficiency, our experimenting with the level of service that we believe no brokerage has been able to consistently deliver before. I see that still lower than the commission typically charge by traditional agents.

We call this our Redfin Concierge Service and charge a fee of 2% rather than 1% to coordinate pay for staging and other cosmetic improvements that we believe can increase the final sales price. Redfin Concierge is only available for homes expected to sell for $500,000 or more.

We began testing this service in Los Angeles and Washington DC to see if it can broaden our customer appeal and also the determine if the 2% fee covers our costs. We expect it will take at least a year iterate on the offering and how we market and sell it and then to see how customers like it.

The second experimental offering for selling our customers houses is Redfin Now in which Redfin buys the consumers on out right letting the customer move on with cash under pocket, but we try to reset the home to selling to profit.

The owner typically nets less money than she would by hiring a Redfin agent, but gets money sooner with more certainty and less hassle. Redfin Now began buying homes in 2017 and recorded our first sale in April.

We’ve limited our sales to affordable parts to Southern California and are no more than $10 million in home purchases at any one time either on our books are under contract to be bought by Redfin. As we said in our last earnings call, we are no longer divulging exact transaction counts.

In the fourth quarter, we sold nearly all the homes we had already bought before with the remainder under contract to sell by the end of this month. We also continue to get plenty of opportunities throughout last quarter to buy more.

But at the same time, we experiment with paying homeowners less for their homes in an effort to widen our profit on the subsequent sale, it didn’t work. More homeowners rejected our offers and we bought far fewer homes in the fourth quarter of 2017 and the 19 reported in the third quarter.

In January and February, we’re now paying slightly more for Redfin Now Homes and completing purchases at a brisk pace. But since we payment to the first quarter of 2018, with few homes to sell we expect fewer sales. That said, it now seems likely the purchase activity will continue to accelerate.

So, by the second or third quarter of this year, we expect to allocate $20 million rather than $10 million for purchasing homes from consumers. Given our success to far selling all the homes we bought we view this as an acceptable risk.

We still haven’t hired engineers and business people to run Redfin Now at any scale except is an experiment, but we’ll continue to run as such evaluating each quarter whether Redfin Now can appeal to more than 10% of will be home sellers at prices to compensate us for our risk.

The other new business, we wanted to update you about is Redfin Mortgage, which we launched in the first quarter of 2017 to issue loans to our home buying customers.

We believe integrating a lending operation with Redfin's existing brokerage and title businesses, all running after own software can ultimately lead to an entirely digital closing where Redfin borrowers can compete almost like cash buyers.

As with Redfin Now we are no longer to closing exact transaction counts, but we were pleased to see loan volumes increase when purchase is slow.

Fourth quarter loan volume and taxes grew by nearly 40% over the 13 loans we closed in the third quarter in large part, because Redfin mortgage advisors worked harder to pre-approve loans faster and connect with our customers and our agents on nights and weekends when deals usually come together.

We also expanded to a second state Illinois where we closed a few loans and near the end of the year we expanded to Washington DC. And with that, I will turn it over to Chris..

Thanks, Glenn. We finished 2017 with solid fourth quarter results that our above our guidance range. Revenue was $96 million including a $5 million contribution from Redfin Now. Our revenue grew 43% year-over-year. Real estate which excludes Redfin Now, mortgage and other services was $89 million and grew 36% year-over-year.

Brokerage revenue or revenue from home sales closed by our own agents was up 37%, driven by a 34% growth in brokerage transactions. Revenue per brokerage transaction grew 2% year-over-year. We reduced our [self] commissions to 1% in 18 additional markets the beginning of the fourth quarter.

After this reduction in brokerage revenue we reduced refunds to home buyers being slightly ahead of the continued mix shift to our faster growing listings business. Revenue from our partner agents grew 24%, driven by 20% growth in partner transactions and a 3% increase in revenue per partner transaction.

Other segment revenue of $7.1 million was up from $1.6 million in the fourth quarter of 2016. This revenue includes Redfin Now sales, as well as revenue from title services, mortgage originations and other products. We had no revenue during the fourth quarter of 2016 from Redfin Now or mortgage originations. These businesses are new.

Gross profit was $29 million, up 37% year-over-year, including a very small contribution to gross profit from Redfin Now. Gross margin on the combined partner and brokerage business, known as our real estate segment, was nearly flat increasing 10 basis points from 33.4% in the fourth quarter of 2016 to 33.5% in the fourth quarter of 2017.

This was driven by a 59-basis point decrease in personnel expenses, a 30-basis point decrease in occupancy expenses and a 19-basis point decrease in stock-based compensation. It was partially offset by a 50-basis point increase in transaction bonuses and 33 basis point increase in tours and field event.

We continued to invest in the businesses accounted for in our other segment, including Redfin Now, mortgage and title services. We don’t break out the results of these businesses, but combined, they lost $524,000 in gross profit compared to a gross profit loss of $475,000 in the fourth quarter of 2016.

Operating expenses showed continued leverage, growing 18% year-over-year representing 33% of revenue, down from 40% of revenue one year ago. This reflects our continued commitment to growing of fixed costs slower than revenue and we expect this trend to continue into 2018.

One note, that we recorded $1.8 million expense during the fourth quarter of 2016 for a pending legal settlement. Our net income, including stock-based compensation and depreciation, was $1.8 million, an improvement from $5.3 million net loss in the fourth quarter of 2016.

The new tax regulation had no impact no our fourth quarter earnings because we currently hold a full valuation allowance against our deferred tax asset and liabilities. Diluted net loss per common share was $0.02 for the fourth quarter of 2017 compared with an $8.08 diluted net loss per common share in the fourth quarter of 2016.

The prior year loss was primarily driven by the fair market value feature of our redeemable convertible preferred stock which converted the common stock in connection with our IPO.

Excluding the impact of the redeemable convertible preferred stock, which is now converted to common stock, adjusted diluted net loss per common share for the fourth quarter of 2016 was $0.08. Adjusted diluted net loss per common share includes stock -based compensation.

Before I move to our 2018 outlook, I’d like to briefly recap our full year 2017 performance. Our customers booked over $21 billion in real estate transactions compared to a 5% commission we saved our brokerage customers over $121 million.

We delivered full year revenue of over $370 million up 38% year-over-year and gross profit of over $111 million up 35%. Our total operating expenses grew 21% and net loss for the year narrowed from $22.5 million in 2016 to $15.0 million in 2017. Now turning to our financial expectations for the first quarter of 2018.

Revenue is expected to be between $74.6 million and $78.4 million representing year-over-year growth between 25% and 31%. We expect Redfin now to account for $2.3 million to $3.1 million of total revenue. Net loss is expected to be between $38.7 million and $35.9 million compared with the $28.1 million net loss in the first quarter of 2017.

As a reminder, our losses are seasonal driven in part by the timing of our revenue. From 2015 through 2017 between 15.4% and 16.2% of our full year revenue came in the first quarter and March is by far the largest month of the first quarter given the seasonal ramp. It’s also the month that we have the least revenue visibility view as we speak today.

This guidance includes approximately $4.5 million of stock-based compensation and $1.8 million of depreciation and amortization. It assumes among other things that no additional business acquisitions, investments, restructuring or legal settlements are concluded that there were no further revisions to stock-based compensation estimate.

And with that, we will open it up to your questions..

[Operator Instructions] We’ll take our first question from Jason Helfstein with Oppenheimer..

Hey guys.

I fully understand the comments around productivity for 2018, but can you give us a more color around what type of assumptions you’re making for turnover in the first quarter, are you assuming against worst and then just overall outlook and do you said you figured out that there is a productivity or you can increase your client success rate with more support, how are you seeing the resonate industry reacts, it’s obviously buy our conversion rate or down in this environment? Thanks.

.

Hi Jason, this is Glenn. I just wanted to make sure, I understood your question.

Were you asking about turnover in agents?.

No, no, no. Housing turnover, housing sales of macro. .

Understood. So, we expect inventory to continue to decline and at the market we’ll continue to get more competitive as I said in the prepared remarks. We don’t think though that we can increase close rate modestly over the next 12 months and the reason we think that is at every time we made a change like this in the past. We’ve had a similar effect.

So, if you look at [indiscernible] agents you have your customers in 2017, we see that those agents close to higher rate. Even, if you look at markets where inventory was extremely low. If you look at years where was also strong sellers' market we limited the number of customers situation that, we saw higher close rate.

So, I think this is going to have a positive impact on close rates. What isn’t understood is how positive that will be. So, the market is going to work against us. And we’re just going to find the type. .

And then do you have maybe share your -- you want to share any technology roadmap of additional products coming out to help agent productivity in addition to what you said in the prepared remarks?.

Well, we try to understand that in two different ways.

There are ways to save agents time and then there are ways to increase close rate and most of our labor-saving software is really focused on the support staff, because those folks are performing a high number of repetitive task where we can either automate it or simplify it so that we can take $10, $20, $50 or $100 out of the deal, but just having fewer support staff per agent.

But with the agent, the name of the game is really to increase close rate and the way that we do that is giving agents better tools to serve our customer. So, if you notice the customers online on our website, but just hasn’t been active with the brokerage that’s a signal that you probably need to reach out and see what’s going on.

If you notice the customer is searching often, but hasn’t setup online alerts that’s a sign that you need to do that for the customer.

So, I think most of the software that we are developing over the course of this year is to personalize the service so that we know more about what that customer needs in any given moment and can be there to deliver that service at the right time.

And we think that can significantly increase close rate, because we still spend most of our time with people who don’t end up buying house. .

We’ll take our next question from Mark Mahaney with RBC Capital Markets..

I just had a question about what’s implied in the March quarter guidance making the reasonable range of assumptions. It looks like your real estate revenues going to grow high-teens maybe to low-20s something like that, which is a pretty sharp deceleration from the growth for the last four quarters.

Is that really all due to macro conditions, we’ve seen in January housing supply indicators get tougher? Is that what's really driving it, so just spell that out a little bit more it seems like a pretty drastic deceleration in the growth rate?.

Sure Mark. This is Chris. So, we’ve obviously reflected the best information we have right now into our Q1 guidance, it is fair to say that the year started with a more challenging macro environment than we otherwise might have expected.

You also noted in our reported January transaction volume was down 2% from January of last year and inventory levels about 10% lower than last year. And so that’s certainly what we reflected in our guidance.

As the quarter continues to progress, we have had some encouraging signs over the last couple of weeks and we have reflected in guidance as well..

And the time it would take some of these productivity improvements to offset those more challenging macro conditions, do you think those are -- is that quarters, is that years?.

They will take at least six months. So, we didn’t initiate this program just to accelerate revenue in the first quarter. We did it to make our customer more successful. We did it to make our business more efficient long-term.

And so, we trained people in February, we will continue to do so in March and actually have us well prepared for the heart of the home buying season which comes in the second and third quarters of the year. So, we don’t expect to give you an update on whether the program is working until our second quarter earnings call..

[Operator Instructions]. We will take our next question from Brent Thill with Jefferies. .

Glenn just on some of the comments around the ad campaign certainly many of us still in the Bay area have seen the billboards and just curious from a quarter or two back, are you finding this to be a more expensive endeavor than may be had originally planned, did you plan on accelerating these investments on the advertising side or is this been kind of in the books? I know you mentioned this is a large campaign that you go on.

I am just curious if you could kind of walk through how you are thinking about the expense structure?.

So, the expenses don’t really deviate from what we planned at least for 2018. But we do upside in future years to invest more aggressively in advertising and drive faster growth than we’d expected. So, we just wanted to put everyone on notice that if we see that opportunity to grow faster we will take it.

And the reason that we have increasing confidence in advertising is because we have started to see some durable awareness gains from ads that we ran last year. We have a campaign that we really believe in. The simplicity of the 1% message lend itself well to billboards and radio ads and we think it’s really going to result directly in more sales.

So just having seen some encouraging results, we wanted to maintain our discipline this year but also let everyone know that there is a possibility that we will invest more aggressively in the future. So that is the most likely outcome that we would see an opportunity in future years.

So, it’s also possible that we would say actually this is going so well, we want to invest more aggressively now. But that’s not what we had in mind when we prepared the marks. Our main thesis was in future years we could see a larger opportunity to advertise. So, we just need to get some early returns and then make a judgment. .

Okay. And just to clarify the deceleration in the guidance.

I just want to be clear, that is largely related to more the challenging macro conditions versus any internal execution on the internal team?.

Well we ask ourselves every time as there is slowdown our pickup is that after or is that the market and sometime success and sometimes it’s the market, but in this case, we believe that the market has to become more challenging, the U.S. sales volume was low in January as Chris has noted, the inventory has low.

And so, we’re trying to take measures to grow despite that and that’s why we focus so much on share. When you will see us really become trouble as if we start seeing market share gains significantly decelerate, its always going to be somewhat [indiscernible] but over quarters, perhaps years we expect market share to grow fairly steadily.

And so that’s why we focus on that and now the ups and downs of the market..

We’ll now take our next question from John Campbell with Stevens..

Hey guys, good afternoon. Just wanted to quick second on the sell side listing fee. Glenn, it sounds like you guys aren’t finding on doing the 1% across the board anytime soon but just two questions. Do you ever envision a day where that 1% will be across the board in U.S.

and then I guess secondly the industry starts to mimic your pricing, do you envision maybe even going below that 1% mark?.

Interesting question. So first of all, we are always focused on lowering our cost of goods sold so that we can expand our addressable market, sell homes at a very inexpensive and still make a profit or pass the savings on to our customer by offering 1% to more markets, but I don’t think we’ll do that in the next six months or 12 months.

That’s a long-term grind to make that pricing work in places where home sell for $150,000 a year. We do think that more competitors are going to try to match up price that is obviously ground on which we like to fight because we’ve been still focused on efficiency first along.

So, if the market begins to agree that consumers really care about price I think that’s world for Redfin can really prosper more than any other brokerage. To go below 1% is possible. I think you have to start thinking about other ways to sell houses that aren't so labor intensive.

A long time ago for example we ask customers to host their open houses and back in that day, they did not like it. They wanted us to be there putting directional out on the corner and bringing in flowers and everything else.

So, I think it’s possible that there is a new type of customer out there who wants a new product, but I would think about pricing it significantly below 1% as inviting a new listing product.

It would be a counter part on the other end to the concierge product that we developed, which really is serving a customer who wants a new level of convenience and we thought we could take the economic advantage we’ve developed actually let us invest more in the house more in the service than other brokers traditionally have.

So, we would just take that and look at it a different way if we were to try to go significantly below 1%..

Okay. That’s helpful.

So just onsite maybe less touch with service, less cost could allow you to do a little bit less than 1%?.

I wouldn’t do something like that for a little bit less than 1% we would do that probably everyone at the offering new product at a new price, but it’s really specific right now. It’s not as if we have some time molecule plan to do that next week here we just have to told you about.

We just rollout 1% almost all of our customers and is having a very sharp effect in 2017 and in 2018. So, I think we need to let that play through before or we say here is what we’re going to do next..

So, one more if I could squeeze in on the productivity, I guess the transaction per lead agent. It's just sounds like kind of a lot of that’s kind of market driven you guys back-to-back quarters of decline, you had a long stretch of gains there.

But if we just excluded the market impact what do you think the key production for agent possibly would be on total transactions per year?.

Well, in web market, in an idealized market, as a perfectly balance market with six months of supply. I think it’s sort of hard to hypothesize on what agent productivity could be in a market that isn’t today’s market.

We certainly think that Asia productivity can increase, that’s why we come to work every day is to make real estate better and more efficient and make an agents job easier. So that we can get customers better value. But we’re not sharing our forward-looking projections on where we want to take agent productivity. .

[Operator Instructions]. And we’ll take our next question from Heath Terry with Goldman Sachs..

Glenn, I’m curious, we saw a little bit of an increase in revenue, per transactional revenue per home sold in the brokerage part of the business, which is pretty counter to the trend that we had seen overtime.

How much of that -- what should we think about as being sort of the underlying drivers for that, is it an increase in the value of the homes being sold, is it a function of moving of market in certain areas.

And then as we think about the efforts around driving more traffic to the site and sort of brand building, should we expect that’s largely going to take the form of television advertising or do you see opportunities online beyond the performance-based advertising that you have been doing thus far?.

Well, let me take the first question first. I may ask Chris to weigh in with some additional detail. But the pricing or the revenue per transition is really a function of mix shift. So, we save customers a lot of money when they sell a house through us. We save then a still significant of less money, when they buy a house through us.

And so, we’re always calibrating our pricing especially the refunds that we give to buyers as a commission that’s paid us as the buyer's agent and then we give a portion of that to the buyer. And we change that amount as mixed shift towards listings.

So, we’re trying to keep revenue per transaction stay quarter-through-quarter-through-quarter and if the listing business grows a little faster than we expected then we have to lower the commission refund a little faster than we expected. So, what you saw happen now is just pricing ahead of that.

So, we know that listings are going to continue to grow very quickly and we wanted to price ahead of that. And I expect that will neutralize as listing’s share catches up to that, sort of revenue per transaction basis remains constant.

And what that means is that much of our gross margin upside comes from lowering cost per transaction, not trying to increase prices on consumers. I think it’s possible that we could move up market. Generally, as we do that, we also move down market where fairly acquisitive about share.

And so, if we sell more expensive houses, this just has a little bit allowed to also take on customers who are buying more affordable houses too.

Chris you want to add anything to that?.

Just one more comment echoing what you said, which is there is some movement quarter-to-quarter with regard to revenue per brokerage transaction and it has to do mostly with mix.

Over longer periods of time you can see that balance out a little bit but for all of last year revenue per brokerage transaction was actually quite consistent with that from 2016 at just over $9,400..

And then to come at your second question just about the shift from traditional media to digital, everyone sees that coming, more people are spending more time online. It’s just the major Internet platform surprising that into their ads. So, we will probably see some of our media move online.

But we are still definitely interested in learning about all the ways we can reach people through traditional media. So, we’ve just begun with radio and outdoor, the reason we did that just we had such a good message for say a billboard.

Everyone should just now in account that you can sell out for 1% spend 2.5 or 3 and a billboard is a perfect way to get that out. So, we wanted to try it. .

Great, that’s very helpful. And to the extent that the best way to think about your performance is the share gains that you are seeing.

Any change in your view or your perception of sort of where the share gains are coming from, who is losing that share to you?.

I don’t think there’s really been any change. There’s certainly new competitors but we haven’t really seen a change in the dynamics around market share. .

[Operator Instructions]. We will now take our next question from Jason Deleeuw with Piper Jaffray..

I just want to make sure I understand how the seller mix which sounds like it’s still growing as an overall mix versus the buyer mix, how does the seller mix actually impacts the gross margins of the business.

Could you have higher agent productivity because you are more or less guaranteed the sale representing the seller and you don’t have as much of an impact from the home buyer taking longer to find a house or close on a house.

So, I am just trying to understand the dynamics of the growing seller mix and how that impacts the gross margin?.

We make more money from buyers even though it’s harder to buy a house than it is to sell on and that’s just because our fees are higher when we represent a buyer then we represent the seller. We keep more of the commission in that situation.

So, what you are seeing is we have more and more listings as percentage of our overall sales is that we have to keep more of the commission that is given to us rather than refunding such a large portion to the buyer and that so we keep revenue per transaction between buyers and sellers basically flat year-to-year.

And what happened last year is we got a little bit behind that because listings grew a little faster than we expected and now what we’re doing is trying to price just a little bit ahead of that, but the goal is to keep revenue per transaction flat and trying to answer your question.

Just remember, we make more money from buyers and sellers so it’s a mix shift towards sellers we have to charge buyers just a little bit more to pay for that..

We’ll now take our next question from Steven Chaldean with William Blair..

Yeah, hi. Thanks for taking my question.

Just want to get an update on trends over the last few quarters in the markets where you have 1% commission rate that the environment is a little more challenge lightly, but we see any notable increase in market share over the last few quarters in those markets or is it still early I guess to see that impact?.

I didn’t say that it’s early in those markets to declare a victory, but it was a well-established finding before we launched in those markets that the overall impact on share among buyers and sellers accelerates modestly when we shift pricing toward the seller to benefit the seller and that’s as we said because the seller is so much more price sensitive, she signs a contract before listing her house, she agrees to a price before listing her house when she chooses an agent.

And so, in Denver and San Diego and Seattle and prices like that we had run 1% pricing for years and we carefully study by that heard our share among buyers whether held our share among sellers and what we determined was that overall it has a positive effect and it’s possible of course that as the market shifts which inevitably it will on toward buyers that we want to recalibrate that pricing to benefit the buyer more.

Right now, everybody in real estate wants to represent sellers and our pricing really favors that..

We’ll now take our next question from Tom [indiscernible] with Cowen..

Hi. Good afternoon.

Apologies if I missed it, but can you talk about your thoughts around gross margin expectations for full year 18’? I think there was some commentary about it on the last call? And then just a quick one, can you let us know your total market I think it’s mid to high 80s but just curious where you are now and maybe how that to trend going forward? Thank you..

Sure. So, this is Chris. We haven’t said any specific expectations for gross margin in 2018.

The commentary on the last call and a little bit on this call is a point that we are hiring more agents to help even more customers more deeply on the buy side helping start through low inventory situations, low inventory conditions to find the right home for them.

And so, on a relative basis that means the gross margin will have down, because we’ll sends to more on agent conversation to help our customers more than we otherwise would. So just directionally that’s the feedback that we’ve provided. In terms of market, we are in 86 markets across the U.S. at this point..

We’ll now take our next question from John Egbert with Stifel..

I was wondering how long time Redfin agents are responding to plans to lower the number of customers they will be working with. Are they worried this could hurt their individual earnings potential or do they buy into rationale that this get benefit closing rates across the company.

And also, how do you think traditional bookers are trying to navigate these same headwinds at the housing inventory crunch, are there employing different strategies or trying some of the same things? Thanks..

So, the strategy to reduce number of customers each agent supports was met with widespread enthusiasm at our annual kick off as we held on January 12th. Even among the most well tenured agents and I think it would be different if we were taking them to a level of customers that was radically lower than what they had experience in the past.

This is higher than what they had in 2016, just lower than 2017. And I think everyone just felt that this is exactly the service we want to provide and that we’ll actually do better by our customers given the difficulty of the housing environment.

So, I would say that, I’ve rolled out, Chris has rolled out, Scott, our President of Real Estate Operations has rolled out all sorts of initiatives that have been met with mixed responses at kick-offs. This was one that was universally or near universally embraced, people love it.

Was there a second part to that question or was that it?.

There was, how do you think traditional brokerages that you could be with trying to navigate those same headwinds.

Are they employing similar strategies or different strategies?.

You’d have to ask them. .

Okay. .

I’m not trying to be flip or coy. I know that when people try to speculate on what Redfin was thinking I wonder, I don’t think just ask us. And in this case, I think the most respectful thing to do will be to ask them. .

[Operator Instructions]. We’ll now take our next question from Brad Erickson with KeyBanc..

This is Elliot [indiscernible] for Brad. Just real quick on back to the deceleration implied for Q1. Can you just comment a little bit about the pace of agent hiring with volume growth? Thanks..

Sure. So, we’re not giving specific guidance for Q1 agent hiring.

But you can see that both in the third quarter and the fourth quarter, we did continue to step-up or hiring of lead agents and that’s in anticipation that being able to help even more customers, more deeply through the first part of this year and really have those customers in a good position to get them all the way through the post transaction in the second and third quarter.

So, we’re not providing any more detailed guidance on our expectations..

[Operator Instructions]. Appears there are no further questions at this time. Ms. Elena Perron, I would like to turn the conference back to you for any additional or closing remarks..

Thank you, Cathy. And thanks, everyone, for joining us today. We appreciate your interest in Redfin and look forward to speaking with you again next quarter..

Hat concludes today’s presentation. Thank you for your participation. You may now disconnect..