EXP Realty Revenue Share – Is it Sustainable?

The revenue sharing aspect of the eXp Realty business model has drawn a lot of attention, both positive and negative. Critics have been pointing out what they deem as weaknesses in the business model.

There is admittedly, a lot of misunderstanding surround this particular pillar of the compensation model at eXp. It certainly is something that seems new to the real estate industry. Up until now, agents have not had the opportunity to share in the overall revenue of a real estate company.

Keller Williams introduced “profit sharing” to the industry many years ago. Many agents have become familiar with the concept. Is revenue sharing similar? Let’s break it down and talk about some of the misunderstandings and outright misrepresentations that are floating around regarding revenue sharing.

Revenue Sharing is Not New to the Real Estate Industry

Owners, brokers, and franchisees have been sharing in the revenue of their real estate companies for over 100 years. This is entrepreneurship. Owners put up all the money and take the risks to start and build a company. They deserve it, don’t you think?

There is a distinct difference between Keller William’s profit sharing program and eXp Realty’s revenue sharing program. Profit comes to agents after everything else has been paid. (Including the franchise owner’s, and regional owner’s, and corporate owner’s revenue). It comes monthly, when the local market center makes a profit, and it doesn’t come when the local market doesn’t make a profit. It also doesn’t come if the agent has not done a transaction that particular month. Suffice it to say, profit sharing comes off the bottom.

Revenue sharing comes off the top. Without getting too much into the weeds, (here’s a slide that explains the financial details of revenue sharing) each agent has a $16,000 cap with eXp. Roughly half of that revenue coming into the company is used to actually run the company, and roughly half is given back to the agents in the form of revenue share and stock awards. eXp Realty is NOT a multi-level marketing company.

Is Revenue Sharing Sustainable?

We’ve been hearing some neigh-sayers lately  – revenue sharing is not sustainable. Here’s the dirty secret…it’s been sustainable in the real estate industry for more than 100 years. The first brokerage business was opened circa 1908. Entrepreneurs have been owning brokerages since that time. Why would they do that if there was no revenue? Of course there is revenue for owners of companies.

There are billions of dollars funneling to the top of the traditional real estate company business model. Warren Buffet didn’t go buy a thousand houses during the recent real estate crash. Instead, he bought a bunch of real estate companies. He’s no fool. Ownership is where the money is.

The difference in the eXp Realty revenue sharing model is that the agents are the owners of the company, and as owners, they are sharing in the revenue. As long as eXp Realty is a real estate company and agents are helping buyers and sellers with their real estate transactions, there will be revenue. 

eXp Realty is a real estate company, first and foremost. Without real estate agents conducting business, there would be no revenue to share. When any company has ebb and flow of revenue and expenses, they make adjustments.

eXp has done exactly that. From the beginning of the revenue-sharing (2013) in the company, the plan was to adjust the compensation plan when we reached a certain growth marker…16,000 agents. That happened in December 2018, along with the Sustainable Equity Plan and Equity Offset Program. The plan was to maximize growth for a period of time, and then to move towards sustainability.

I marvel at the brilliant minds that put this company together! 

How eXp Realty Revenue Share Works

Revenue Share expands to 7 levels of agents…you sponsor and agent, they sponsor an agent, who sponsors an agent….all the way to seven levels. It is just like getting a referral check from the company each time one of those agents get paid on a transaction. IMPORTANT NOTE: we don’t get a portion of the agent’s commission, we get a portion of the company revenue from that transaction.

Each level, or tier, has a different percentage of referral pay. Each five producing agents that you sponsor open a bonus amount on the next tier:

 

What About eXp Realty and Profitability?

As eXp Realty has grown over the last few years, (eXponential growth!) we have made investments in the staff and infrastructure of the company to meet the needs of growth. Although the company has not been profitable yet, our Chief Financial Officer reported at last month’s Shareholder Summit that we will be profitable by the beginning of 2020, given our current trajectory. 

Here are corroborating reports from independent analysts:

EXPI is bordering on breakeven, according to the 3 Real Estate analysts. They anticipate the company to incur a final loss in 2020, before generating positive profits of US$8.0m in 2021. EXPI is therefore projected to breakeven around 2 years from now. In order to meet this breakeven date, I calculated the rate at which EXPI must grow year-on-year. It turns out an average annual growth rate of 96% is expected, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable at a later date than expected.

EXPI has managed its capital prudently, with debt making up 8.6% of equity. This means that EXPI has predominantly funded its operations from equity capital, and its low debt obligation reduces the risk around investing in the loss-making company.

From Simply Wall Street on June 8, 2019

Given the Recent Financial Report:

The company exceeded revenue of $1 billion in the second quarter, a new record. There were triple-digit percent gains in revenue (183%), gross profit (133%), earnings per share (300%), operating cash (185%), and net income (350%), as well. We saw an increase in agents of 87% since this time last year. 

Not only did we have an increase in agent count, it is clear that agents are doing more business, as all the triple-digit statistics show. Residential and commercial transactions increased 164%, and sales volume increased 210%.

We feel very confident that our growth will not not only meet expectations but exceed them. 

No one can predict the future, but our foundations are good. Our growth has been remarkable in every way. 

Other Revenue Streams for eXp World Holdings

eXp World Holdings, Inc. (NASDAQ: EXPI) is the holding company for a number of companies most notably eXp Realty. eXp World Holdings has several other verticals already, and more in the making. The main emphasis in the company’s choice in partners is CHOICE for the consumer.

• eXp Realty Technology – VirBELA offers a modern, cloud-based environment focused on education and team development with clients in various industries from government to retail. VirBELA developed eXp Realty’s current cloud campus, which provides 24/7 access to collaborative tools, training and socialization for the company’s agents and staff. 
• Our technology holdings also include the ShowMeNow app, home tour app that enables home shoppers to request immediate access to properties they are interested in. 
• eXp Realty Affiliated Partners – eXp World Holdings is adding affiliated partners like Introlend First Cloud, a lending platform in which eXp agents can opt to become shareholders and earn dividends.
• eXp Realty has added several service partners, like America’s Preferred Home Warranty, a platform that allows consumers to select their own service provider.
• Moving Hub, a service to help buyers and sellers connect with moving services.
• The future holds a lot of promise for Title partnerships, Insurance partnerships, a tax service, 360 photo and floor plan company, a currency exchange company (international buyers)…and who knows what else? In another year, our Director of Affiliate Services, Ted Laatz, surmises we’ll have a dozen partnerships.
• All of these partnerships and services will add to the company’s revenue. It’s a bright future for eXp World Holdings!  

 

Our Revenue Sharing Story

Karen and I have been extremely happy with the revenue share that we have received from eXp Realty. We have been at this company for six years. Our passive income is now covering our housing costs and our automobile costs. Who says revenue share doesn’t work??!!! 

Interested in eXp Realty Maryland…Reach out to us for more of the story! Chris Highland, Cell – 301-401-5119, chris@chrishighland.com, Broker – 888-860-7369.