eXp is seeking to position itself as a safe haven for agents worried about navigating the upcoming changes created by the National Association of REALTORS®’ (NAR) settlement, set to go into effect on Aug. 17, speculating that transitioning will be difficult for smaller companies and claiming that MLSs are mulling extremely harsh penalties for agents who violate the agreement.
On an earnings call yesterday, the virtual-focused mega-brokerage announced relatively flat financial results for Q2—a 5% increase in revenues to $1.3 billion and net income of $12.4 million, up from $9.4 million a year ago. Agent count also grew a modest 2% from last quarter, and was actually down 1% year-over-year.
The company’s stock was down sharply, around 7%, in early trading Thursday.
But the company is currently very focused on preparing for what eXp President Leo Pareja described as a potentially turbulent several months starting in the next few weeks—which eXp hopes to take advantage of.
“I’ve been trying to brace the industry because (there is) this kind of collective pulling of their head out of the sand and having this ‘oh no’ moment that we’re kind of witnessing specifically this week,” Pareja said in response to an investor question. “You guys have all heard me talking about this without pause since the news broke in March…it’s been a very offensive strategy of education.”
Pareja claimed on the call that teams and brokers that have recently decided to affiliate with the company have said specifically they are looking for an organization that can help them navigate the upcoming transition. Smaller or independent brokerages, Pareja said, are going to suffer “headaches” and grow “fatigued” from all the compliance questions, pushing them to join companies with the resources or insights to handle those things.
“We’re continuing to see the highest level of operators join the company that they feel has longevity, sustainability, and it’s not a start-up. We are in turbulent times in our industry. There (are) a lot of ships coming,” he said.
He also noted that eXp recently “made a stance” by releasing a standard listing agreement that explicitly does not allow for sharing commission with buyer agents. That agreement still allows sellers to directly pay buyer commission through concessions.
Part of eXp’s hard line comes from what Pareja described as the “earliest signs” from MLSs, who will be charged with enforcing the agreement, indicating that penalties for violating the settlement agreement will be harsh.
“Agents could be subject to $2,500, $5,000 fines with immediate deletion of their listings. And some (MLSs) have kind of already floated the fact that they may be even suspending agents,” he said.
On the earnings call, Pareja also touted an endorsement of the company’s buyer agreement by the Consumer Federation of America, which contrasted it with an “unreadable” document issued by the California Association of REALTORS®. That document can be used by anyone in the industry, Pareja noted.
In the bigger picture, Pareja said that he doesn’t believe the changes will result in an overall lower usage of buyer agents by consumers, even as both groups adjust to “new rules of engagement.” The company saw a 127% attendance increase in training and education programs over the last year, according to Pareja.
The company’s small upward move in agent count was mostly driven by acquisitions, with Pareja saying that anecdotally, more mid-size and smaller independents are inquiring about eXp’s model. eXp recently acquired Realty Connect, a “limited-function referral company,” according to Pareja, which brought 2,900 agents under the company’s umbrella.
Glenn Sanford, eXp founder and CEO of the brokerage’s holding company, eXp World Holdings, said the company is also very focused on international business, specifically in Europe and South Africa.
But despite all the shifts, Pareja said eXp is not currently considering “tweaking the agent compensation structure” to attract more agents in the face of competitors who have sought to emulate eXp’s model, saying he feels confident that eXp’s “full scaled” business will remain attractive to agents.
“I just think it’s very dangerous to create a model that never gets to profitability, as we’ve seen so many examples in the last decade of well-funded disruptors who are no longer around or struggling to be around because of that,” he said.
