Thank you, everyone, for joining us. My name is Bernie McTernan. I am the internet and consumer tech analyst here at Needham & Company, and my pleasure to introduce Tamir Poleg, CEO of the Real Brokerage, probably the fastest growing real estate company in the world, or has been, but I'll let him talk about that. About a 10-minute company presentation. I'll come back on for Q&A. If you have any questions, please type them into the portal or email me, and with that, I'll turn it over to Tamir.
Thank you, Bernie, and by the way, our ticker symbol is REAX. So over the next 10 minutes, I'll give you a brief presentation of the company, and then we can go back to Bernie for Q&A. But a brief overview of Real: We are a real estate experience company founded back in 2014. What we saw back then that inspired us was a couple of trends. One, more and more home buyers and sellers are using agents when they buy or sell a home. At the same time, there is a constant pressure on commissions that are paid to agents, and when we looked at the industry, we realized that there are 1.5 million agents in the country, in the U.S., plus 160,000 in Canada.
They generate roughly $100 billion in annual revenue for brokerages, and the market is pretty much dominated or has been dominated by traditional players, companies like Keller Williams, Century 21, RE/MAX, Coldwell Banker. You probably are aware of all of them. All of them offer what we think is low value at a high cost for agents. So back then, in 2014, we realized that consumers want to use agents. They obviously wanna pay less. Agents are underserved and overpaying, and at that point, we realized that there is an opportunity to create a different kind of brokerage in two ways. One, deliver better value at a lower cost for agents, and at the same time, create an operating model for a brokerage that's more sustainable, more efficient, and does not rely on manual labor, relies mainly on technology.
Because if you try to analyze all of the companies that I mentioned before, Coldwell Banker, RE/MAX, Century 21, all of them operate in the same way. All of them rely heavily on offices for distribution of services, and we thought that there's a better way or a better operating model for a brokerage. So that's how we started in 2014. Fast-forward to today, as Bernie said, we are the fastest-growing player in the market. We have been the fastest-growing for a couple of years. We're licensed in 50 states in the U.S. and in 4 provinces in Canada. We have over 12,000 agents working with us exclusively, which places us at around number 8 in the U.S. in terms of agent count. And in 2020, we decided to take the company public.
We were a tiny company back then. We had less than 1,000 agents, but we believe that agents are partners in this business, and we wanted to create an equity incentive program for our agents. Initially, we listed on the TSXV in Canada, then we listed on NASDAQ a year later. Right now, we're only listed on NASDAQ. This is our only listing at the moment. We don't plan on changing that. But going back to the summer of 2020, we started growing like crazy overnight, and when I say like crazy, in 2021, our revenue grew by 635%. Last year, revenue grew by north of 200% year-over-year.
Last quarter, the third quarter of 2023, probably most of you are aware that transaction volume in the real estate industry has dropped significantly this year, and the market conditions are not great, but we managed to grow revenue in the third quarter by 92%, and this is what we're talking about when we're saying the fastest-growing player in the market. It doesn't mean that we're not making progress towards meaningful profitability. We're cash flow positive. We had an adjusted EBITDA profit of $3.5 million in the third quarter of 2023. So we're executing quite well. The reason why we're growing so rapidly is because a lot of agents choose to join us.
They leave those traditional brokerages, and they join our model, and the reasons why they're joining us is probably a combination of a few reasons. One is the freedom and flexibility that we allow them in growing their businesses. So agents are independent contractors. When they join Real, we are a platform, and they can do whatever they want in their business. We allow them a lot of flexibility. Second is the favorable economics. The average agent will end up paying half compared to what they're currently paying at their traditional broker, so that's significant, especially for high-producing agents and teams. We're talking about potentially saving $hundreds of thousands a year from them. Third is the technology, and the technology really helps them save time, make more money, serve more buyers and sellers.
And the last reason why they're joining us is probably culture. We managed to create a culture of collaboration versus competition, and we allow agents to have access to a lot of high-performing, super successful agents across the country, and they're very attracted to that. A couple of words about our business model. The majority of our revenue comes from splitting commissions with our agents. So when they close a deal, 85% is paid to the agent, 15% stays with us, and then there are a few fees that we charge them. There's a joining fee of $249. There's an annual brokerage fee of $750 that we charge.
There's a transaction fee of $30, and then a couple of other fees that are associated with some programs that we have in place. Our technology and the way we look at technology is in four main segments, and I have to mention that we are a mobile-focused company, so everything that we built is for our mobile agent mobile app because we believe that agents should be out nurturing relationships with their clients, and they need to have access to their business in the palm of their hands. This is why we have an agent-facing app. So going back to the four pillars of technology, the first pillar is productivity.
Everything agents need, that can save them time and make them more money, from searching listings in real time, to a powerful CRM, to a 24/7 support, to a transaction management module that allows them to draft contracts and send them for review and e-signatures, an education system that allows them to educate themselves on different aspects of, of their business, a powerful dashboard that shows them exactly where they are. So everything that helps them provide more visibil- or gain more visibility, save time, and make money. Second segment of the com- of the technology is marketing. And you probably never heard about Real because we are not a consumer-facing brand. Nobody chooses an agent today based on their brand affiliation.
People choose agents because they know that that person is an expert or that person can help them buy or sell a home because they helped a friend, they helped a neighbor, maybe they've seen their yard signs on the streets. We decided to help our agents brand themselves within their community. There's an offline aspect to it. Everything that agents need from ordering business cards, yard signs, brochures, car magnets, swag, listing presentations, everything is available on our marketing platform. Everything is customizable. They have a lot of different options for each item. And again, we provide it to them, and there's an online aspect to it. Almost 100% of home buyers start their home buying journey or home search online, and you as an agent have to be there and meet them when they start the process.
So every agent that joins Real receives a personal branded website, a personal branded app. This is included in our package, so they don't have to pay anything extra for that, and they can invite their clients to download the app, look at their website, look at their bios, search listings, communicate with the agents directly through that. The third bucket of technology or segment is community. As a company, we don't have offices for agents to use. This is a huge cost saving, but we also understand that agents want to create those personal relationship, they want to interact, they want to learn from each other. And we have a community feature on the app, which is like a Facebook feed, where agents can post, ask questions, schedule in-person meetups, post videos, celebrate success.
It's pretty amazing to see all of the interactions on, on our community, and in many ways, it replaces the office or the need for office space, and it's in many ways even better than an, a physical office space. The fourth segment of technology is brokerage operation. Think about a brokerage. There are a lot of people in the background, in the back office, handling agent support, transaction management, payment processing. We have automated all of that. Instead of us spending a few hours to process a transaction, it takes us 2 minutes. We are by far the most efficient brokerage in the country. Typically, at a brokerage, you would need 20 employees, one employee for every 20 agents. In our case, it's more than one to 100.
That's the ratio, and that's due to a lot of technology that we have built in-house that allows us to process a huge volume of transactions and a huge volume of payments without needing to add headcount. So a lot of our automation in our business. Lastly, I would like to talk about the consumer-facing angle of our business. For about nine years, we were very, very focused on building an amazing platform for agents, and this is what allows us to grow and attract a lot of agents. And at the same time, we started thinking that there's a bigger opportunity in our space, and the opportunity is that right now, buying a home is not a great process. It's broken, it's full of anxiety, it's not friendly, it's not transparent enough.
How can we improve that using technology while leaving the agents in the center of the transaction? What we are now doing is building a consumer-facing app that initially will focus on home buyers, which will take them from searching listings until closing in a fast, transparent, smooth experience, that will end up saving them a lot of time and a lot of anxiety. In order to be able to build that, you need to own the main building blocks of a real estate transaction: brokerage services, which we currently have, mortgage, title, and home insurance. Last year, we acquired a mortgage company and a title company. Right now, we're integrating all of those into the app, and that app will serve our agents' clients. At the end of the day, this app will allow us to monetize transactions in a better way.
Right now, we're monetizing only through brokerage commissions, but if we were able to attach a title policy to that transaction or a mortgage for that buyer, we're able to 7x our revenue per transaction, and this is huge. The first version of our consumer-facing app is actually out there. It's called One Real App, and it's focused on the mortgage application process. And as time goes by, we will add more and more capabilities, listing search, as I said, a transaction tracker, communication, buying insurance, all of the things that you need to do when you're buying a home. Two last things. Couple of weeks ago, we announced the Real Wallet. The Real Wallet is a digital wallet that we will be offering each and every one of our agents, starting the second quarter of 2022.
Through the Real Wallet, they will have a debit card, so once they close a transaction, all of the money will be placed in their wallet. They can use the debit card to actually spend that money, and if they swipe the card, we will earn an interchange revenue from merchants. So it's another way for us to monetize transactions. On top of that, because we have so much data on our agents, on their performance, past performance, existing transactions, pending transactions, equity, everything, all of the assets that they have with us, it enables us to actually underwrite them for a dedicated credit line.
So on the wallet, that they will have a credit card, and they will be able to spend that credit line that we will be offering them, and that's another way for us to monetize it through interest and interchange fees as well. So I think that if you think about Real, we have been very focused on growing the brokerage piece and adding a lot of agents and transactions to the top of the funnel, and now we're starting to monetize transactions in various ways that will obviously have a positive impact on our gross margins and profitability in years to come. Last thing, and I know that a lot of people are interested in the real estate market and everything that's going on. So as I said, transaction volume in our industry has dropped by almost 20% this year.
Last year was a difficult year as well, at least the second half of 2022. We are very proud to be able to continue, and execute, and grow despite of market conditions. So as I said, third quarter, we grew revenue by 92%. We believe that it's going to be a cold winter for real estate. So the fourth quarter is going to be difficult in our industry. We think that January and February are going to be challenging as well for buyers and sellers. I think that as long as rates remain in the 7.5%-8%, it's going to weigh on affordability. I think that the second half of 2024 is actually going to be better, and we predict that the overall transaction in 2024 will increase compared to 2023.
So I think that we're close to the end of that downward cycle in real estate, at least closer to the end than to the beginning. Having said that, Real is managing to grow and become more profitable despite of the market conditions. So I'll end here, and we can open it up for Q&A. Bernie, back to you.
Yeah. No, thanks, Tamir. That's great. All right, so if anyone has any questions, please either email me or type them in the portal. We will be sure to get to them. Maybe just to start, would love to hit on kind of just like a simple question, but how do you grow agents? Like, is it, is it the tech? Is it the splits? Like, how much, like, agent education out there, like, how much... Like, do you have, like, a, I don't know, a team that goes out and, like, they're in charge of, like, going out and pitching Real to brokers or other agents? Like, would love to just get a bit of the nuts and bolts there.
Sure. So I'll separate my answer into two. One is, why do agents join us? And then, how do we actually attract them to the company? I would say a few things. One, the freedom and flexibility in building their businesses the way they want to, versus them currently at their traditional brokerages, where they're being dictated on what to do and how to do. So there's a lot of freedom and flexibility that we provide. Second is the favorable economics, which obviously attract a lot of agents. Third, technology, and then the culture and opportunity, and I touched on that a little bit.
So when agents try to analyze what Real offers versus where they're at right now, it's a very compelling offering, both from the economics, the tools, the technology, the opportunity, everything is just very attractive. Now, up to three years ago, we were actually trying to attract agents online. We were spending a lot of money on Facebook and Google, and we had a lot of ads, and we had, like, you know, conversion funnels, and when agents were interested, they would fill out a form. We would reach out to them over the phone. And then three years ago, we decided that we are going to try something new. Instead of taking those marketing dollars and spending them on Google and Facebook, maybe we could create a program that incentivizes our agents to go and attract their friends.
So just leveraging the fact that we have... Back then, it was, I don't know, 1,000 agents. Right now, it's more than 12,000 agents. How can we turn them into salespeople that don't only sell real estate, also pitch Real to their friends, and if they're successful, we will pay them those marketing dollars? So that's a revenue share program that's equivalent to an affiliate program at tech companies, and it has proved to be massively successful. Our agents are doing a great job at attracting other agents in their geographies, and obviously, we are paying them very generously for that. But for us, it's much better than going and spending that money on Google and Facebook, because it makes the model much more sticky to agents.
Because they make money with us, not only by closing real estate transactions, but also by their friends closing real estate transactions. So it's just a more efficient use of marketing dollars in our view.
Like, because that's, like, the ultimate network effect, right? If, like, you just-
Sure.
It may just keep growing. Like, is that even? Is that still, like, really early innings in that opportunity playing out, in your view?
100%. I mean, as I said, there are 1.5 million agents in the U.S., and we have less than 1% of them, so 12,000. I think that if you believe, like us, that this 1.5 million pie will be redistributed and traditional brokerages will lose a market share to newer models like ours, it's feasible to believe that we will continue to grow, and we mainly grow through agents attracting their friends. So I think that it's still very early on, when it comes to our growth.
... Okay. And then just wanted to touch on as well... Oh, yeah, and then the other piece on that was that agent, you mentioned that agents, like, don't have to spend on other areas that, you know, because they get, you know, cost efficiencies. Do you, like, what are those exactly? If there's like, and, like, is it technology they're using to solve it, or, or how, how are you providing those savings?
Sure. So I'll give you just a simple example. A transaction management software. There are a lot of transaction management softwares that basically allow agents to upload contracts and, like, you know, versions of contracts, and then make some edits to them, send them for their clients for signatures, and then you have to have an e-signature product that's either delivered through the transaction management software, or it's something like DocuSign that you have to add on top of that in terms of your cost. This is something that we offer our agents free of charge. This is a tool that we actually developed in-house. We have our own e-signature product that we developed. So this is one, just one thing. Another thing is a dashboard that shows you exactly where you are in your business.
So, we're talking about probably 10-12 different tools that agents would have used if they were not with us, and they would've paid separately to each and every one of those providers. Some of those tools are even not integrated, so they will have to access 12 different websites or 12 different apps.
Yeah
... and then, you know, somehow try to collect the data and have a more coherent way of looking at their business. When it comes to Real, everything is integrated, and everything is in one single place. So that's a huge benefit, both from a cost-saving perspective, but also from the ease of use perspective.
Yeah. Yeah, save time, too. Okay. And then, so you mentioned, you know, cold winter, you know, February and January being challenging. What gives you confidence in the second half of the year? Is that just like an easy comp? Is that thinking that, hey, even if mortgage rates are 7, let's just say 7.5% right now, if it's there for 6 more months, then the consumer's used to it, like, we love... Like, is it comps, is it interest rates, or, you know, what is it?
Sure. You know, Bernie, that I'm typically more pessimistic than other CEOs, and when we give our prediction-
Which is great for me.
Yeah. And unfortunately, I was right, at least when it comes to 2023. I think that what will happen, or the reason why the market is now constrained, both on the supply side and demand side, is obviously interest rates, and the lack of clarity of where interest rates are going. So right now, interest rates are weighing on affordability. People just... It's just too expensive.
Yeah.
But also the fact that you don't know if it's going to continue to increase or when it's going to become a little bit better. I think that the second half of 2024 will either have one or two rate decreases, or at least we will have some certainty that in the next 12 months, if I'm buying a home right now, and I'm paying, whatever, 7%-7.5% mortgage rate, it's very likely to think that 12 months later, I will be able to refi for a lower rate. So I think that that type of visibility or, I don't know, confidence, will arrive in the second half of 2024.
Okay
... and I'm not, I'm not necessarily saying that rates will come down, but at least you will be able to predict with a high degree of certainty that over the next 12 months, after June or July of 2024, it's very likely that you will be able to, to refi at, for a lower rate.
Okay. Interesting. But you still think the year will be positive, though?
I think that from a transaction volume perspective, we will see more transactions in 2024 compared to 2023. Having said that, you know, we're looking at an historic average of 5.2 million units sold-
Yeah
... in the U.S. every year. In 2023, that number is going to be anywhere between 4 and 4.1.
Yeah.
I think it'll take us until 2026 to go back to the 5.2 million homes sold. It will not happen overnight. I think it will be an improvement-
Even 2026 seems, like, that's, like... I don't know, that's pretty, that seems like pretty fast growth to get back to the-
Um-
I know it's crazy to be, like-
I mean, you have-
... years back, but it's-
I mean, you have, you have three years, and we also have to remember that that downward cycle started in 2022. So-
Yeah
... going back to average four years after starting a downward cycle, I think... I mean, in my eyes, it sounds logical at least, but-
Okay
... we'll see.
Well, you're you know... What do you think about pricing? 'Cause that's, it seems like that's the spot where you don't wanna touch on.
To be honest, I think that, and I said that in our annual conference, a couple of weeks ago. I told our agents that I think that the best thing that could happen to our industry, which is probably, agents are the one segment in the economy that's hurting the most at the moment, and I think we can acknowledge that. I think that, what could benefit our industry right now is probably a mild recession, and the reason for that is, you know, a mild recession will probably result in, in rates dropping and maybe home prices dropping a little bit. So I think that if, if someone predicts home prices to decrease by 5% over the next 12 months, yeah, that, that's reasonable to think. I'm not sure because-...
When you look at supply and demand, there's not enough supply to actually drop the prices enough. But I think that prices will be anywhere from -5% to +5% in the next 12 months.
Okay. Interesting. Do you think, do you think it could go down 5 if we don't have a recession? Like, if the economy's just kinda floating around like it has been? 'Cause it just seems like it, the market's so supply-constrained, it's like, it's, it's like, yeah, like, housing affordability is horrible, but there's also no houses.
We're starting to see some softness in some markets.
Okay.
But again, it goes back to the very basic fundamentals of supply and demand. In order for prices to come down, you have to have an oversupply, and it's not happening right now because homeowners have no incentive to go and list their home for sale and exchange their 3% mortgage for a 7.5% mortgage.
Right.
So there's not enough supply. This is why I think that we wouldn't see any huge fluctuation in home prices. So 5% is kind of... could be reasonable, but when I'm trying to analyze supply as a whole in the country, I just don't see a huge volume of supply coming into the market. We're also not seeing any uptick in foreclosures, so we will not see any supply coming from foreclosures or people defaulting on their mortgages. Yeah, it is what it is.
Yeah. How about, I mean, is there much... This is changing topics, but staying on the macro. Just the lawsuit, the Sitzer/Burnett, anything to say in terms of how you think that could impact the industry?
Yeah, well, the Sitzer/Burnett, and, you know, other lawsuits.
Yeah
we were not named, so I don't think it's appropriate for us to comment. I can maybe comment on a high level. I think that currently there's a lot of uncertainty of how those cases will play out. Obviously, NAR and KW said that they're going to appeal, and that will likely take a couple of years in courts, and we will see some follow-on lawsuits. I think that at the end of the day, it's all about whether people believe that agents provide value to home buyers and sellers. And if people believe that agents provide value, and I believe, obviously, that agents provide a ton of value, then people will be willing to pay for it. Now, maybe they will be willing to pay a little bit less.
Maybe, we will see a situation where seller pays their own agent and buyer pays their own agent, same way it's done in pretty much every country in the world, except for the U.S. and Canada, or the vast majority of countries. But the fundamentals are, people will be willing to pay for a service that provides them value, and I think that this is exactly what agents provide. So even though we might have a short-term uncertainty in the market as to the outcome of, and the impact of those lawsuits, I think that long term, I'm just very confident in our industry's ability to demonstrate value and provide value to buyers and sellers.
Understood. Okay. Maybe one of the areas that you guys are, are certainly adding value, just on the technology side, the consumer app. Can you just talk about, like, what do you think a realistic expectation for attach for, you know, title and mortgage could be, kinda like anything that you're kinda seeing in early days?
Sure. So the consumer-facing app that we're building is something that nobody has tried before, and this is another way to add value to our agents and to our agents' clients, so home buyers. And since this is something that nobody has tried before, it's very difficult to try and predict how it will pan out, even though I'm very confident in our ability to actually drive attach rates and have a lot of consumers using the app. I think that long term, we wanna be in a situation where attach rates for title and mortgage services on the app will be at around 20% and north of that, and it'll probably take a few years to get there.
But I think that if you try and think about other industries that have gone through a cycle of innovation, I mean, the easiest one to mention is probably the taxi industry and Uber, and the fact that, you know, nobody thought that people will go into someone else's car and drive from point A to point B without even knowing that person, without, you know, them having, like, a taxi banner on top. I think that what Uber did is they added more transparency, convenience, speed for consumers in a process that was suboptimal. I think that the home buying process right now is suboptimal, and there's a genuine opportunity to add more convenience, speed, transparency, and control for home buyers because right now they don't really control anything. The lender controls, the title company controls, the buyer themselves do not control.
I think that if you, if you try to think holistically about what consumers demand today, then there's a real chance that our consumer-facing app will be massively successful. But that's for us to prove.
Right. And so if it's successful, I mean, do you think that helps drive... Because, I mean, according to our math, like, your, your market share in just terms, you know, it's, it's approaching 2% now, which is pretty incredible for where it was. Like, do you think that can drive more market share, or it's really just about that, that attach of title and, and mortgage, and then therefore you're getting just more revenue per transaction?
Both. I mean, think about the impact it would have if consumers all of a sudden say, "Okay, I'm not gonna buy a home in any other way." I mean, I don't know when was the last time you went into a taxi in New York versus calling an Uber or, or a Lyft. I mean, obviously, once you try that, and once you, you understand the benefit, you never wanna go back. So I think that once consumers experience the app, and they understand how, how far better it is to buy a home with a real agent using the Real app, they will never wanna try it any other way.
So I think it provides a huge competitive advantage to our agents, which will probably result in a lot, a lot of agents wanting access to this technology, and in order to do that, they will have to join us. So going back to your question, I think that there's an opportunity to become the most valuable real estate tech company in the world, if this is successful.
But then, do you need to then kind of, like, educate the consumer again? 'Cause I know, like, in, like, pivot back to, or pivot towards telling consumers about, "Hey, here's this great app," or is that still gonna be on the agents to go out and get their funnel?
Initially, it's going to be on the agents until we reach some sort of a critical mass, where a lot of consumers start hearing about it. Maybe we as a company at some point will have a consumer-facing marketing strategy just to create a little bit more awareness. But the potential is definitely there. The potential of, you know, revamping and rethinking the home buying journey definitely exists, and I think that we are probably one of two companies that are currently thinking about doing something about it.
Excellent. All right, Tamir, let's leave it there. Thank you so much for joining us today. Always fun to hang out for a little bit. And thanks everyone who joined in the webcast. Appreciate the time, and talk to you soon.
Thanks for the opportunity. Thank you, everyone.