Okay, we're gonna get going. I'm Darren Aftahi. I cover the internet and digital asset space here at Roth. Pleased to have the chairman and CEO of The Real Brokerage, Tamir Poleg. Tamir, good to see you.
Good to see you, too. Hi, everyone.
I have this long list of questions I was gonna ask Tamir, and then Friday afternoon, the NAR made a nice little announcement about potential settlement on commissions. Just, I guess, in real time, kind of wanted to get your thoughts, one, on that, and then two, perhaps how that kind of impacts your business or doesn't.
Sure. Well, that's a big question. I don't know if everyone's aware of all the antitrust lawsuits that were flying around, but I guess you do. So, I think there's a lot of disinformation right now and confusion around what does it mean and what actually happened. But, I think that what has not changed is the fact that agents bring value to home buyers and home sellers. And what did change is that under the settlement, a listing agent cannot offer any buyer agent compensation on the MLS. They can actually offer it outside of the MLS, on their website, on their yard signs, whatever it is. So they can offer a buyer agent compensation, but just not on the MLS.
They can offer concessions directly to buyers on the MLS, and buyers can use those concessions in order to pay their agents. That's basically the one thing that really changed. They also demand that buyer agents sign a direct buyer representation agreement with their buyers that lists exactly how much they're gonna get paid. So from a practical perspective, I think there will be a lot of workarounds, just because of the fact that, you know, they're not prohibiting sellers or seller agents from compensating buyer agents. They're just not allowing it to be explicit on the MLS. Obviously, people are expecting buyer agent commissions to compress or maybe buyer agents to go away. I don't believe that this is the case because, you know, reality is stronger than all of us.
But, I think that if even if it does happen, and we will see some sort of a compression on the buyer agent compensation side, because of our model, I think that this is actually an opportunity for us to grow market share, because at the end of the day, we do not operate brick-and-mortar locations, and we have a very lean operation. If there will be a compression on commissions, probably the traditional brokerages that are relying on offices for distribution of services and are not efficient will probably suffer. Some of them will go out of business, and that will drive a lot of agents our way. On top of that, and maybe I'm going a little bit too deep into our business, about 54% of our revenue is not correlated to any commission split.
So 50% of our gross profit is driven by fees that agents pay us, regardless of what the commission amount is. So I don't think that this will have any effect on our business, and if it will, it will probably be offset by an increase in agent count growth that we will experience.
I've asked you the obligatory NAR question. I guess if commissions do get compressed, theoretically, lower split models like yourself should benefit.
I think that if, if commissions are compressed, then if I'm an agent and I'm used to making, I don't know, $10,000 per deal, and now I'm making $5,000 per deal, all of a sudden, I need to be associated with a brokerage that allows me to keep more money in my, my pocket. So obviously, our model and maybe some other models, are becoming more attractive. So, yeah.
Okay, so I'm done with that topic. Last year, the market declined quite a bit for most of your peers, and you guys grew pretty, pretty nicely.
82% of-
82%, yes. What are you doing to have success in this space? So this is not anomalous. You've been growing, you know, north of 100%, 82% on top of a bigger base for multiple years. What's your recipe for success, and I guess, how do you continue that going into the future?
So our revenue growth is driven by two main things. One is agent count growth, so our ability to attract agents and have them close transactions, and we monetize them. And second is an increase in the per-agent productivity. So those two trends just result in revenue growth. I think that on the agent count growth, we probably figured out a few things that help us attract a lot of agents. So it starts with the economics that are more favorable here. So the average agent at Real will end up paying about half compared to what they're paying at their traditional brokerage. So obviously, that's attractive. I think that we managed to build technology that is both seamless and very beneficial for their businesses and just helps them operate all of their transactions, all of their finances in one single place.
So technology is a big plus. Probably the opportunity here, because agents are shareholders in the company, they have multiple revenue streams that they can build on our platform, and that's very attractive. And finally, the culture, that is very unique at Real. Typically, at a brokerage, everybody would be competing with each other, and at Real, we managed to build a culture of collaboration just because everyone's a shareholder and everybody wants the other person to succeed. That drives a lot of agents our way. So I think that, again, we managed to build a model that is probably close to perfect in today's environment, and that resonates with a lot of high-performing agents and teams, and this is why we're growing.
But the agents themselves are quite productive. So I guess it's one thing to kind of build a culture, make money off transactions in an ecosystem, but what is it that's attracting high-producing agents to Real?
As a company, we never focused on agent count growth. We focused on transactions. We want to attract as many transactions to Real because this is how we actually make money. This is what we want to monetize. And because of that, we were always focused on the agents that are productive, the agents that are producing more than others. And I think that the model itself is more attractive to them just because of the fact that if you're, let's say, closing 100 transactions a year or 50 transactions a year, you only pay us $12,000. And then sometimes we actually pay you back that amount because you're hitting a status. So I think that the model itself was designed to attract high-performing teams.
The technology itself is designed to help you save time on every transaction, so it allows you to service more clients. Also, the fact that there's a revenue share component in our business, which is somewhat of an affiliate program that incentivizes our agents to go and attract their friends, and if they're successful, we pay them a portion of the revenue that's generated by those friends. So high-performing agents typically have a lot of following. People look up to them. People want to see what they're doing. People want to be next to them. So if they're switching brokerages, others will follow, and high-performing teams understand that they can actually monetize that following. So that's within our model. And obviously, as an agent, you don't really have an exit strategy. So once you stop selling homes, that's it.
The fact that agents are partners, and we have an equity incentive program, and they can actually accumulate shares in the company, that becomes an exit strategy. So for high-performing agents, they're saying: "Okay, I can make more money here on every transaction. I can build additional revenue streams. I can build some sort of an asset towards retirement." So that speaks to them.
You recently launched two products. Larger brokers may not want to move over 'cause of the complexities of payments and whatnots, and some people want to keep the integrity of their brand. Can you kind of talk about Pro Teams and Private Label and why those are important? And then I guess, is there a contingent of prospective Real agents that didn't want to come over as a result of that, but now having those products, that conversation may have changed?
Yeah. So first of all, everything that we build comes from feedback from either our agents or the market. So obviously, ProTeams and Private Label were born because of some demand in the market. In January, we added more than 1,000 agents, net agent addition to the company in February, same number. And the fast growth that we've been experiencing since the beginning of the year was not really impacted by those two initiatives. So moving forward, we do think that those two initiatives will have a positive impact on growth. But let's focus on them. Private Label is a program that designed for us to step into an independent brokerage office and talk to the broker.
Typically, when brokers think about coming over, switching over to Real, one of their concerns is the fact that they have been building a brand locally for many years, and the fact that they invested a lot in marketing materials and brochures and yard signs and presentations and all of that, and if they want to switch over to Real, they will have to invest in changing all of the marketing materials, and maybe they, they will, lose some of the brand. Private Label enables us to onboard an independent brokerage without changing anything in their branding. So nothing changes for them. It's like a white label. We just take over their operation, we provide the technology, and, and they don't need to, to make any investments.
So, we have seen independent brokerages in the past that did not want to switch over because of that, and now it's gone. ProTeams is a little bit more sophisticated. Let's say you're running an independent brokerage or a team of 100 agents, and every team member could be on a different program. So some agents would pay you a fixed $1,000 per month. Other agents will pay you a 50/50 split on commissions. Some agents will pay you a transaction fee of $500. Now, if you're coming with our model and adding our economics on their existing economics, just... That just creates a, an accounting nightmare.
ProTeams is a dashboard that allows team leaders and independent brokerages to configure different programs for every team member, and then all of the monetary reconciliation is done in the background automatically by our software. So in the past, when teams were thinking about joining and some of the pushback was, "Okay, this is going to be complicated. Maybe I'll need to hire another accountant to deal with all of the payments," we just facilitated all of that. So those two programs were designed for us to go after larger teams and independent brokerages with as little friction as possible.
So you talk about actually, there's a lot of people in this industry that talk about technology, and anyone who's an investor here, and I encourage you to go to their user events in October. They're in various cities, but maybe Tamir can tell us where it's gonna be this year.
Vegas.
Vegas, okay, so there's no downside there. But, anyways, I'd highly encourage you. It's a good experience in terms of getting a taste for the ecosystem, but a lot of digital brokers talk about tech. You've launched a consumer app. You're using an AI engine to kind of automate a lot of back-end monkey work, if you will, in the transaction to allow people to kind of exploit what they do best, which is buying and selling homes. Can you just kind of talk about that roadmap and how that's built and the importance in terms of, like, when you talk to agents on a daily basis from the inside, how important is that piece of it. It's a real asset. It's a time saver, relative to working with another partner.
Sure. So obviously, everybody wants technology, but very few people and very few agents understand exactly what does technology mean and how can it actually help them. But let's try and focus on the facts for a second, because I think that the facts are important. 100% of our agents use our technology. Typically, when a brokerage rolls out any kind of technology, they will get an adoption rate of 10%-20%. In our case, it's 100%, which is a proof that something is actually working there because agents are using it. Now, couple of other things. Leo, which is our personal AI assistant for our agents, first in the industry. Leo is currently answering 1,000 questions, agent questions a day.
So think about the number of people that we would have needed on the support team in order to answer 1,000 questions a day, and you can only do that if you actually have the back-end technology. So Leo is like an AI layer on top of databases that we have in-house. We have our own transaction management systems and support systems and payment systems. Leo can be valuable only if Leo has access to all of this information. So that means that we can continue and grow very efficiently without adding more and more headcount. Additional product that we will be launching in a couple of weeks is the Real Wallet, which is a very exciting product.
Today, when an agent closes a deal, we collect the commission, and then we transfer it directly into their own bank accounts, which means that the majority of the revenue that's generated in a brokerage is not monetized. It's, it's pass-through. With the Real Wallet, which is a digital wallet that we will be offering our agents, there will be two components. One component is a debit card. So they close a deal, we transfer the money into their digital wallet. They have visibility on the app. They can choose whether to transfer the money into their own bank accounts or use a debit card that we offer them in order to spend that money. And if they actually swipe the debit card, we earn the interchange fee. They earn points that will help them offset some of our brokerage fees.
But because of the fact that we have so much data on our agents and we own our systems, we know exactly how many clients they're talking to, how many transactions they closed in the past six months, what the trajectory looks like, how many transactions they have under contract, how much equity they have in the company. We have a lot of data points, and that allows us to underwrite them to a dynamic and dedicated credit line, each and every one of them. So the wallet will have a credit card component, and if they swipe the credit card, obviously, we earn the APR, and we earn the interchange fee.
The reason why I'm saying that is this is only possible if you own a very robust technology stack in your back-office operation, and we are very unique in that sense. Now, how valuable is it to agents? It is valuable because it allows them, again, to service more clients in a given period of time, and it allows us to build things that can help them grow their businesses. For example, the credit line through the wallet is something that they don't have. If an agent wanted to have a business credit line and they would go to a bank, a bank doesn't know how to underwrite an agent business. We can do that. A bank cannot do it. So obviously, technology benefits with agents.
So, uh-
So-
... the Q&A, you know, AI as well as the wallet?
So Leo will have visibility into the wallet, but the wallet essentially is a debit card and a credit card. Obviously, agents could ask Leo questions about their credit line, about the upcoming payments, and all of that.
The data in Leo from a consumer perspective, where you're asking in one app and the back end for the agent, is that all first-party data?
Yes.
Okay.
Just for people to understand the potential with Leo, Leo started as a passive kind of creature. So if an agent had a question, they would reach out to Leo. Leo is now becoming proactive in a way that, for example, if you're an agent and you have a closing coming up in two days, and Leo notices that you're missing a document for us to be able to process the transaction or a signature on a certain agreement, Leo reaches out to you proactively and says, "Hey there, and you have a closing coming up in 48 hours. You need to complete this, this, and that, or have your buyer sign this, this addendum." So we're just scratching the surface with the potential of Leo, also on the consumer side.
So we are now starting to implement Leo in the mortgage application process on our consumer-facing app, so that if you're a homebuyer and you're going through the mortgage application process, Leo will actually help you. If you have a question, if you want to know something, if you're stuck and Leo notices that you haven't followed through, Leo will actually guide you through the process. So think about having a 24/7 kind of assistant when you're buying a home that is available to you to answer any question based on, on, like, your specific experience. Because Leo knows exactly what kind of properties you like, how much you qualify for on the mortgage, when was your last showing of a home, what papers did you sign? Leo knows everything.
So, Tamir and I have this ongoing debate about the value of an agent, and you're actually speaking a little bit to my thesis that Leo theoretically could actually become artificial general intelligence. Is there a day where Leo can actually be the agent or agent assist, if you will, meaning you need less agents to be as efficient as you are, but that technology can be leveraged?
I think that Leo can help and sometimes replace many of the tasks that agents are doing. Having said that, we are all humans, and there's a very strong emotional component when you're buying a home. So I think that people still, and would for the foreseeable future, need a trusted advisor, a human advisor, to to hold their hand and take them through that highly complicated, highly emotional transaction. So I think that Leo can really improve the experience, but you would still need a human. So the way we think about technology in general is not how can we replace agents, but how can we equip our agents with such a huge competitive advantage that will actually drive more buyers and sellers their way? Because people will want access to that technology and that experience that nobody else has.
Got about five minutes left. Can we talk about ancillary services? I know you've got a JV business in title. You own a mortgage business. Those two revenue streams are highly profitable. How do you scale those? And then maybe talk about kind of long-term... I think in the last call, you talked about long-term, gross margin and EBITDA targets and kinda, I guess, what needs to happen in order to kind of hit those.
So yeah. In the past, we made 2 acquisitions—we acquired a title company and a mortgage company. We have over 16,000 agents in 50 states in the U.S. And the reason why we acquired those companies is because we believe that the home buying experience is broken. It lacks transparency, it lacks speed, lacks control. When you're buying a home, it's just not great, and we think that technology can actually solve for that. But in order to be able to build an end-to-end home buying experience, starting from searching listings through mortgage application and showings and documents, and then closing in one single place, you need to own the three main building blocks of a real estate transaction: brokerage services, everything that you do with your agent, mortgage, and title.
So the reason why we acquired those is because we want—we are now integrating them into a consumer-facing app that is already out there, just a first version that focuses on the loan application process. But gross margins in title are about 80%. Gross margins in mortgage are around 50%. On brokerage, we have 9%-10% gross margin. So obviously, the more we can attach mortgage and title, the higher the profitability is. But in terms of adoption or attach rates, our short-term approach is to go to our agents and educate them and make them understand that there is an alternative in-house.
We also are inviting our highest-performing teams to become partners in the title company, so they have an incentive to actually send their deals to the title company because we make monthly or quarterly distributions. They can actually make money out of title, which was not available to them before. The long-term strategy is for the consumer-facing app to actually incorporate title and mortgage, and we hope that every agent will send their clients to the app, and start the journey there. Now, long term, the gross margins that we're targeting are in the mid-teens and EBITDA margins of, you know, high single digits, and that is not factoring in the Real Wallet that we touched on.
But I think that if you step out of thinking about Real as a new age brokerage, and you're starting to think about as a financial ecosystem for agents and home buyers and sellers, the opportunities are just endless because we can make money out of real estate commissions. We can make money out of the wallet. We can make money from title and mortgage and home insurance and moving services. We can go into consumer lending because there's such a strong trust because between our agents and their clients. There are so many ways to monetize real estate transactions, and we're just, you know, starting to scratch the surface. So in terms of long-term margins, I think that margins can continue to expand beyond the mid-teens. But obviously, it's on us to prove it.
I guess in the last two minutes, for 2024, like what are the things investors should be focused on and grading you on in terms of year-end targets?
I think that 2024 is going to be a very strong growth year for us. Just, you know, look at the way it started with us adding more than 1,000 agents in the past per month in the past two and a half months. So revenue growth is going to be strong. I think that investors should pay attention to the wallet that we are rolling out soon because the wallet is a very profitable product with no risk to the company. I think that people should be mindful of our ancillary services growth, so mortgage and title will outpace the growth of brokerage this year, and over time, we will start seeing gross margins increase. Obviously, we're Adjusted EBITDA profitable and cash flow positive, so I think that obviously you wanna look into that.
But I think that we had a thesis that 1.5 million agents in the country, 90% of them are affiliated with traditional brokerages. Over the next 5-10 years, probably 50% of them will switch to newer models like ours, and we are very well positioned to capture a meaningful portion of it. So I think that tracking our growth in terms of agent count and revenue is in line with this thesis. And then, if you're thinking about the industry for the next 10 years, you should think about who you want to bet on in terms of who's gonna capture a meaningful market share of those 1.5 million agents.
Great. On that note, excuse me, I think we're out of time. Thank you, Tamir.
Thank you, Darren. Thank you, everyone.