Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:35} We're investors in public markets and have been studying new cloud-based online real estate models and the real estate brokerage industry. We wanted to talk to you to get a better understanding of how this model will compete in the market, so could you tell us what your role in the industry was?

{audio:0:01:23} I was a real estate agent over 15 years ago and am a real estate agent now. I started at Keller Williams in 2011, in the support team. I was also in escalations and helped roll out their international program on the technical side. Before leaving, I rolled out 14 regions outside the United States, then went back to being project manager and scrum master, as I knew all the legacy software tech as they were going through a transition. I did that role until being recruited by RE/MAX world headquarters to be the head of CRM, but once I got there, they restructured the company and all the IT initiatives, so I became a solutions architect for everything an agent and a brokerage would interact with on a day-to-day basis, including recruiting tools. 

{audio:0:02:38} From there private equity; Providence had bought Boston Logic and Propertybase who was a reseller and ISV partner of Salesforce. I was recruited to run the Salesforce product manager, and after several months, was promoted to manage all the products as we made acquisitions. I oversaw the leads product, back agents, transaction management, Boston Logic's website and CRM and the Salesforce product. 

{audio:0:03:13} During Covid, I was recruited by Move Guru who specialize in home services, and connected to transaction management companies to understand when consumers were moving so we can nurture them and hopefully convert them back into a transaction, as well as monetize the move. Moving is very expensive in the United States because you have to turn on all your utilities, so we facilitated that and made a profit by partnering with agents and brokerages and even sharing the profits. My wife had a baby seven months ago.

{audio:0:04:15} Thanks for that overview; are you still an agent?

{audio:0:04:25} I renewed my license two weeks ago but haven't done a deal in over 10 years.

{audio:0:04:35} Are you running an independent one or are you working with someone?

{audio:0:04:42} I haven't decided because I'm also being recruited to do strategy and technical jobs at some startups and large brokerages and franchises, so I will see how that pans out. If I do join, I have connections at almost every major brokerage, but my gut would be to access the recruiting software to find the teams who are about to break from their current brokerage and go independent. I might join one of those to facilitate that for them and help grow a team.

{audio:0:05:44} Are you interested in closing deals as an agent or to help teams grow?

{audio:0:05:54} I would be interested in closing deals myself as I have a sales background and used to do commercial deals. I've never done residential deals so that's my only hesitancy. Before Keller Williams, I was with Moor Partners who were a tenant representation, so all we did was cold call and represent tenants, ideally with good credit, and got our 4% commission easily. Because I've been in the residential space for so long, it's time to put my money where my mouth is and try to close some deals.

{audio:0:06:41} Were you using CoStar software in the commercial real estate side?

{audio:0:06:51} Yes, CoStar is the number one commercial solution in the United States.

{audio:0:07:07} We also looked into that business, but let's focus on the residential side. You are in the process of joining one of these residential brokers to start closing deals; what key points would you consider in making that decision?

{audio:0:07:33} I will look at the commission structure, how it works and are caps; because some of them are straight cuts and others nickel and dime you and you pay per transaction. I will also look at coverage or how many MLSs they are connected to. I will also check out their websites to see what type of SEO they have, as well as look at the data from the back end to see how many deals they closed to ensure they are reputable. Ideally, I will ask everybody to see their technology because I want to know what it is. Some places make you pay for your tech even if don't use it, which is the case at 90% of the companies. RE/MAX in Fort Williams make you pay a tech fee, but most people buy their own so what's the point? Many people are leaving those brands for companies without tech fees who let you operate. Are you familiar with JPAR who tried to do that?

{audio:0:09:09} They recently sold but were headquartered in Dallas and had 30 or 40 locations. Their model was per transaction, so you didn't have to pay any tech fees but they made you use their transaction management system if you wanted to get paid. You could do whatever you want for lead generation and marketing, which is an interesting model to me because it puts more of the onus in my hands. If I run a marketing campaign and see there's no money in Facebook, I'll pull my money out, whereas an institution like that will continue pumping the money because they are simply looking for brand coverage instead of lead conversion.

{audio:0:10:12} Is tech used to get more leads or marketing or how do you guys use it?

{audio:0:10:24} Historically, tech was used more for leads and marketing, however more people are adopting CRM with a central database and marketing components, running algorithms and connecting it to a website with social media. Hundreds of CRMs compete and I have managed several of them, and they're all very similar. Agents are fickle and have type A personalities. You and I might look at a Ferrari or a Porsche and understand that inside that beautiful car is an extremely powerful engine, whereas agents only look at the new shiny coat of paint. I have talked to over 50,000 agents over the past 10 years when I was in support, helping them understand what they're trying to do, so I have some experience there.

{audio:0:12:07} If you end up working with Keller Williams or RE/MAX, whose tech solution is not great, which top three tech solutions would you use instead of theirs?

{audio:0:12:30} I would probably go with a WordPress site and plugin an IDX solution. I would not go custom as I know the industry, nor would I go with Propertybase, kvCORE or Boomtown, because they do it all but haven't upgraded their tech. I worked at one of them so understand the pain points because they have too many capabilities. WordPress is easy and you can get a website up and running for $400. The Follow Up Boss CRM license costs less than $50 a month and has full marketing and SMS capabilities. You get upgrades and it has an integration for all my MLS listings, social media and transaction management. I would use whatever the broker requires because, technically, agents cannot select. 

{audio:0:13:46} I've been looking into two companies, one is called SISU which is an analytics tool trying to be a transaction management system. It doesn't have all the capabilities yet, but it's getting there. It pulls in all the analytics so you can maximize your spend and know where every dollar is going from the front end to the back end. Another is Actom, who were recently acquired by Ylopo, which is a marketing engine. I believe real estate is about picking up the phone and calling your sphere, taking people to lunch, being active in the community and going door to door. Successful people do those things. I would never pay for online leads. 

{audio:0:14:55} Recently, as part of my consulting, I was an influencer with realty.com which is simply selling leads, like Zillow does. They are not warm and most agents don't understand that online leads are simply looking and are not ready. That's where the nurturing system comes in and Follow Up Boss is a great program. I'm familiar with Propertybase so I could always call them to get a discount, but I would only be a single agent and their software is geared for teams unless you buy their BoldLeads product, which I wouldn't pay for.

{audio:0:15:44} If you were to receive kvCORE in your own real estate brokerage, would you consider building your own WordPress plus CRM, or would you go with kvCORE?

{audio:0:15:57} If a brokerage gave me kvCORE, Boomtown or Propertybase, I would go with it, but I would never put my personal contacts in their CRM. I would get my own CRM and market them with my own branding, because at the end of the day, I'm doing those deals. If I put my contacts in kvCORE and leave, the brokerage would have access to and market to them. If George came in as a lead three months ago and I was nurturing you on a campaign and you kept seeing my Realty or RE/MAX, then suddenly you're ready to go and choose RE/MAX because you don't remember me. You only remember RE/MAX from getting their emails.

{audio:0:17:30} You touched on the recall value of the brand; how important is that in real estate because you said real estate is about social interaction with potential clients?

{audio:0:18:06} When I mentioned that people were using their sphere, 1% do most of the deals. There are 1.9 million real estate agents in the United States who don't do three deals a year and cannot make enough to hit the minimum income of the poverty rate. Those 1% of people continue to get repeat business and have systems in place so that, no matter which brokerage they go to, they will continue to pull those clients. As I am in a new city, I cannot do that so I will make a decision based on the brand, because it's more prominent to get the lead back with the brand than the agent. Less than 10% use the agent again and only 1% use referrals.

{audio:0:19:33} In terms of the number of transactions closed every year in the US, what percentage of those are led by the brand versus the agent or top producers?

{audio:0:19:58} I don't know the actual number on that but it's an interesting dilemma. The variables we do know are that, after seven years, 10% of consumers use the same agent, but 30% use the brand because they keep seeing the branding material. If I asked you who you bought your house from five years ago, you won't remember his name but he was with Keller Williams. If you call Keller Williams and go there, Bill no longer works there but they will introduce you to George who will take care of you immediately and be at your house in an hour. 

{audio:0:20:53} Brands are critical and real estate agents don't understand that, but there is already a shift. People are going to iBuyer online brands such as Compass and Opendoor, who are not geared to agents. Compass are salaried and bonused so you cannot get unlimited commissions. I like that model and think it will do better for low end and medium homes, whereas luxury will always be with a real estate agent. For a 1% fee, you can go online without an agent. For 2%, you get a qualified agent and for 3%, they bring photographers and a white glove treatment. That is the model we will see because the dollar is going down and interest rates are going up. It's a very low barrier of entry to get a real estate license. I got mine in less than 60 days after taking five online classes, getting my finger prints taken and paying money to pass a test.

{audio:0:22:42} Are you familiar with cloud-based online real estate brokerages like eXp, FATHOM and Compass?

{audio:0:23:02} We've seen eXp growing very quickly without a franchise model or any pure real estate branch in place; how are they competing and managing to grow so quickly?

{audio:0:23:29} Their business model is all about the agent and less about the brand. They have a very good way of saying it's all about the agent, but with their commission model, the worst split you could have is 80/20 at eXp. The best part about them is that they give you stock. If I work for RE/MAX, I get no benefit, I simply get a good split and can live my life. However, if I go with a FATHOM, eXp or Compass, I get part ownership and feel like an owner of the brand. As an owner, I might act differently than I would as an employee. An owner might try harder and recruit better people. They will be more proud versus simply collecting a pay check. 

{audio:0:24:44} eXp and FATHOM are going for a younger demographic whereas franchises want high producers. They also have good training programs so anybody who gets a license can recruit and get them trained. New real estate agents only know that model and are now ingrained. Because they are publicly traded, they're still getting a lot of money and I don't know how much is coming from the real estate transaction. Larger public companies have relationships, partnerships and integrations with many companies and are also geared and set up for other verticals. They can go into mortgage and can start doing loans and giving discounts. All the money stays within the same family versus your traditional model where it's getting bounced around. eXp, FATHOM and Compass will give you a point off if you go with their mortgage company. Redfin wants you to go straight online where you only use their agent for financing, insurance and home warranty. 

{audio:0:26:53} The big play is that, instead of only capitalizing on the brokerage services fee, they will capture the entire transaction and eventually build a home ownership portal. I did that at Move Guru and also consulted for others. That seven-year cycle is where they will go. When you log in and buy a home, you can manage all your devices from your Compass or Redfin eXp dashboard. That is why they are doing such fantastic partnerships and trying to get the consumers to move to a tech driven real estate industry, versus the more traditional agent driving the Mercedes Benz and going to the private school.

{audio:0:27:59} Have you considered joining one of those cloud-based models?

{audio:0:28:07} If you decided to go on one of those, which one would you pick?

{audio:0:28:16} I'm not close to making a decision yet, as I am slow at making decisions. I will put everything in a spreadsheet and weigh the benefits. Wherever I go, I want to be associated with the management team or at least influence leadership, because with my experience in the technology I can provide quick feedback. I am looking more of those other opportunities to hang my hat. If I had to choose between those, I like eXp's model if they brought on Mark Willis.

{audio:0:29:02} Yes, the ex-CEO of Keller Williams.

{audio:0:29:04} Yes, he is a fantastic leader and if he comes on full time, they will sky rocket.

{audio:0:29:17} Will you join at that point?

{audio:0:29:27} He's been trying to sell his shares but Gary Keller won't let him, but I'm sure he will be at eXp. The guy in the tech department who recruited me to Keller Williams was directly recruited by Mark Willis, so I respect him and spent time in his leadership classes. He is simply captivating and gets people to sell. When I was there in 2011, we had 72,000 agents, and when I left, we had 140,000 in five years. That's the kind of leader he would be. I am looking at eXp and if he joins, I would probably put my license there.

{audio:0:30:36} Have you taken a look at their CRM systems or their tech side?

{audio:0:30:45} I have not done that yet as I have been busy consulting and dealing with the baby.

{audio:0:31:02} Can a brokerage move from a pure transaction fee from closing a deal to related ancillary services like mortgage, title and escrow? Are they entitled to gain that part of the market and takes some of those fees themselves?

{audio:0:31:45} Everything is all under a “brokerage house” or real estate consulting firm, although they are different arms and entities. By law, you cannot co-mingle the data and you also have to give them options. You can give them options and say, if you do everything with us, we'll give you this great deal. A good example of this is iBuyer; are you familiar with them?

{audio:0:32:22} Currently, in a lot of search results pages, you see a button saying ‘what's my home worth’ or ‘iBuy’ or ‘buy my home now’, which are simply lead generations for agents. An agent partners with Opendoor or Zillow and asks them what they would buy the home for. They will set up an appointment and show up at the house and offer to buy your home immediately for $500,000 or do it traditionally, based on the market. They will follow that up with a listing presentation and show the different splits and where the fees are going. That's where you can go to Opendoor and select your title company. You can still choose because, by law, they have to explain and show multiple competitors, instead of simply forcing them in it, which is prohibited. 

{audio:0:33:35} Most people realize it's a much easier deal, they can get more money and the market is hot, so opt to keep everything with one brand in one place. Consumers like the choice but when you get to the lower price points, it doesn't matter. When you're in luxury, it's a different game. For a $300,000 home, hundreds of dollars is not much. People buy in those for convenience, they can do everything in one shop and all their taxes and documents are in one place. If they have a question, they can call Compass and it's all there. RE/MAX sell franchises and have Motto Mortgage, which most people don't think of. It's hard if you buy from a RE/MAX because you don't remember the name. With tech-enabled companies, the brand has the assets which house all the different industry applications.

{audio:0:34:58} Does it scale in terms of number of transaction flows and agents working for the same brokerage? Is it an advantage to win or build that ancillary part of the business or you can do that at a lower scale?

{audio:0:35:14} You can do it at a lower scale. You and I could start up all these other businesses; we simply need $400, in whatever state, to get the license and insurance. The hard part is scaling because we don't have the funds or resources to market like the bigger brands. If I went to Compass, they would take care of everything. Keller Williams are trying hard and restructured their company during the past few years because they realized if they didn't do it, they would be in trouble, whereas RE/MAX is struggling.

{audio:0:36:12} What could a decent attachment rate be for a mortgage transaction?

{audio:0:36:40} I don't know off the top of my head; I have not looked at those numbers since I left RE/MAX. My last few places were building technology, not looking at franchise and transaction volume.

{audio:0:36:55} It is closer to 10% of transactions or more like 50%?

{audio:0:37:00} I doubt it's 50%, but I'm sure it's higher than 10%.

{audio:0:37:07} Higher than 10%; that's perfect.

{audio:0:37:09} I would look to those online ones to see what they're doing. I will start looking at that when I interview with brokerages around here. I know where to get the transaction data but not without paying for it to understand who got the loans. For title and escrow, F&F has 50% with all their subsidiaries. Are you familiar with Fidelity?

{audio:0:37:58} They absolutely dominate the title industry.

{audio:0:38:03} Is there something else we should discuss, considering I'm trying to get more insights about which real estate brokerage model will win in five to 10 years?

{audio:0:38:25} Tech companies will win with models which give consumers a choice at the percentage and type of agency or engagement they want with that broker, brand and agent. Some people will only want the 1% and take and upload their own pictures, write their own bio and run the transaction. Others will be in the middle of the road and opt for traditional, but the 3% and higher luxury will never change. 

{audio:0:39:19} Something we haven't discussed, which many tech companies are doing, is buying properties and flipping them which is a fad that I believe they will end up losing big time. Pacaso only buy million-dollar vacation homes, then sell shares for $500,000. It's similar to timeshare but you own it, which I think will get beat out once the blockchain hits and there is no longer a reason to do that through a corporation. You will be able to crowd fund yourself once some of these other companies start coming up. Something to keep your eye on is crowd funding and how that integrates into transactions. If you and I can start buying multi-family homes from different parts of the world, with a very low barrier of entry and only need 1% to buy a home, many real estate agents will leave the industry.

{audio:0:40:49} Do you know Glenn Sanford, the CEO and founder of eXp?

{audio:0:40:57} I'm familiar with him, but I do not know him.

{audio:0:40:59} Do you have an opinion on him or his interactions with agents?

{audio:0:41:13} I think he's doing a great job and eXp is a good investment. They took a very similar model to Keller Williams, who dominated by having the best model and the best book. They wrote the book and everybody tried to copy Gary Keller, but Gary didn't change. He will go public soon, but eXp made the changes they saw 10 years ago, which Keller Williams didn't. There are only a handful of owners of Keller Williams International who have a profit share tree, but that only works if you recruit. It's not my job as a real estate agent to recruit. My job is to close deals and get money in my hands. eXp recognized that and switched. If you become an owner, your actions in the marketplace resonate with others which becomes an automatic recruiting tool. It's a simple model without cutting ups. There is no ‘how much money am I making this month’ because of a down line and seven levels. It's like soccer and football; I would rather watch a fluid soccer match than stopping all the time and trying to change.

{audio:0:43:00} Considering eXp is quickly gaining share and are still trying to recruit their ex-CEO Mark Willis, does that make sense or does he simply want to monetize because he's seeing this won't end up well?

{audio:0:43:35} I think he's seeing it will not end well, which is why they restructured. In the last two years, they terminated all existing management and brought in new management who have experience managing public companies. Gary is a smart guy and restructured everything. They couldn't take them public years ago because of the profit share. He's restructured it so it would just be a corporation, which is why it's KWX and not KWRI, so they can still profit share. 

{audio:0:44:34} When they take the company public, they will lose many people because no one has said if they will pay all of their regional people. People who invested in Keller Williams regions decades ago, might not be part of that initial offering. I heard some people might be upset, but I think it's the right thing for them to do. They have the management team in place, the resources, the brand, and are global with agents around the world. If they go public and can raise some money, they have an opportunity.

{audio:0:45:30} Many thanks for your time, it's been very insightful to talk to you.

{audio:0:45:39} You're welcome, don't hesitate to reach out with any additional questions.

eXp World Holdings, Keller Williams & US Real Estate Brokerage Competition

Former Manager at RE/MAX

inpractise.com/articles/exp-world-holdings-keller-williams-and-us-real-estate-brokerage-competition

eXp World Holdings, Keller Williams & US Real Estate Brokerage Competition(May 18, 2022)

Former Manager at RE/MAX

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