Good afternoon. Thanks for joining us for our presentation and Q&A with the Real Brokerage. I'm excited to have the company's CEO, Tamir Poleg, with us. Tamir is gonna go through a presentation, and then we will open it up to Q&A. If you have any questions, please use the little chat box down below the video feed, and I will ask your questions. And with that, Tamir, I'll turn it over to you. Thank you.
Thank you, Jason. Hi, everyone. Thank you for tuning in. I know it's the end of the day. It's been a long day, but happy to be here. Real is a real estate technology company. The company was founded back in 2014, and we have a very compelling growth story right now within our industry. Our primary business is real estate brokerage, where we provide real estate agents a differentiated platform to grow their businesses on, which is centered around our proprietary technology stack that we've been building since we started the company.
In the second quarter of that ended in June 2024, we grew revenue by 84%, compared to a 3% decline in existing home sales in the overall market, and over the prior 12 months, we actually generated over $900 million in revenue, and $23 million in Adjusted EBITDA. So obviously, a very compelling growth story, within the overall market, marketplace. To provide a little bit of background on our industry as a whole, there are about 1.5 million real estate agents in the U.S. and around 150,000-160,000 agents in Canada. We operate in all 50 states in the U.S. and in 4 Canadian provinces.
On average, in an average year, the industry generates roughly $100 billion in annual revenue for brokerages, which represent the total amount of commissions that are paid to agents by consumers. Every agent has to be affiliated with a brokerage. That's the regulation in the country and in Canada as well. So agents cannot work completely independently. They have to be affiliated with a company like, for example, Keller Williams or Coldwell Banker, Century 21 or Real. We are, again, a real estate brokerage like all of the other ones. The market for many, many years, for the past 50, 60, 70 years, was dominated by traditional players. Some of the companies that I mentioned before are some of those incumbents. All of them operate in the same way. All of them rely heavily on office space for distribution of services.
All of them charge agents a lot of money for what we believe is a lower, or poor value. So when we looked at the industry back in 2014, we realized that there's an opportunity to provide better value at a lower cost and, at the same time, also create an operating model for a brokerage that is more efficient, more scalable, relies more on automation and less on human labor, and that's how we started. Even though we've been growing very rapidly, we are still less than 2% of the overall real estate market, and that gives us a lot of confidence that we continue to, that we can continue to grow rapidly as models like ours become more and more prevalent in the market space.
When we started the company, as I said, we thought that there's an opportunity to create a better platform, one that's based on technology, while eliminating the need for physical locations, for all of those offices that you probably see when you're driving around, and eliminate the need to rely on human labor when processing transactions, so essentially, better value or more value at a lower cost. And that's exactly what we've been focused on since the very beginning, a lot of technology that provides brokerage automation, and just replacing the need of physical locations with technology. To give you some perspective on our recent performance, and those of you who've looked at our financials, they really stand out when you compare us to other companies. In 2020, we decided to take the company public.
Back then, we were making around $10 million in annual revenue, so it was a very unusual decision to take the company public. But we believe that agents are partners in building this company, and we wanted to create an equity incentive program that would incentivize agents to help us grow the company and turn them into partners. We initially went public on the TSXV in Canada. A year later, we did a direct listing on Nasdaq. As of last year, we're only listed on Nasdaq, but going back to the summer of 2020 and comparing it to where we are right now, we more than 14x'd our revenue from Q2 of 2021 to Q2 of 2024, and at the same time, transaction count in the marketplace actually declined by 30%, so obviously, an outstanding performance.
And we've proven that we know how to grow in good times and bad times. We grew dramatically in 2020 and 2021, which were good years for real estate, but we also grew pretty dramatically in 2022, 2023, and 2024. As I said, transaction count in the market dropped by 30%. Our revenue increased by 14x. So you might be asking yourselves, "Why are agents joining us?" And obviously, our revenue growth is propelled by the fact that we're managing to attract a lot of agents. Our agent growth in last quarter, in the second quarter of 2024, was 74% year-over-year. So we're doing a good job at attracting high-producing agents and retaining high-producing agents and also helping them improve their productivity, and there are multiple reasons why agents join us.
One is freedom and flexibility. The vast majority of agents are independent contractors, which means that they have no job security, but still, when they're affiliated with a traditional brokerage, they have to go into an office. There is a managing broker in the office. The broker or the manager tells them exactly when they need to come to the office, how they need to talk to their clients, how their marketing materials should look like. They pretty much dictate everything that agents have to do. When they join Real, they feel as if they have the freedom and flexibility to build their businesses the way they want to. So freedom and flexibility is a huge factor for agents joining Real. Second reason why they're joining us is the compelling economics. Typically, at a brokerage, agent would split their commissions with their broker on a 70/30%.
So they close a deal, 30% stays with the brokerage, 70% is paid to the agents. On top of that, they have to pay all kinds of monthly fees, transaction fees, risk fees. At Real, the average agent will end up paying half of what they're paying to their traditional brokerage. Our split is 85/15. We pay the agents 85%, and there's actually a cap on how much we charge them in commission splits. When they pay us $12,000 a year in commission splits, they get to keep 100% of their commission, and they only pay a transaction fee of $315. This is extremely attractive, especially for high-performing teams, because they end up saving tens of thousands of dollars, and in some cases, hundreds of thousands of dollars a year just by affiliating with our more attractive model.
The third reason why agents are joining us is technology. For 10 years, we've been building a tech stack that allows us to have a huge competitive advantage today. We look at technology as 4 main buckets. One is the bucket of productivity, which means that we help agents save time and make more money. We allow them to serve more clients at any given point in time because of the technology that we offer them. By the way, we are a mobile-first company. We believe that agents should be out there nurturing relationships, and they need an operating system for their businesses in the palm of their hands.
So when it comes to productivity, everything from searching listings in real time, to a powerful CRM, to a 24/7 support, to a transaction management system that allows them to draft contracts and send them for review, e-signatures, a dashboard that shows them where they are in their businesses, everything that agents need in order to make money at the end of the day. Second bucket of technology is marketing. You probably never heard about Real because we're not a consumer-facing brand. People do not choose agents today based on their brand affiliations. People choose agents because they know that that person is an expert. Maybe they heard about them, maybe they used them in the past. Maybe they have a friend or a neighbor that used the agent. Maybe they've seen the agent's yard signs.
We decided that we are going to help our agents brand themselves within their communities. It has an offline aspect to it. So if an agent needs to order business cards, yard signs, brochures, listing presentations, everything is customizable and can be ordered on our platform and shipped to the agents, and there's an online aspect to it. Every agent that's joining Real receives a personal branded website, a personal branded app. They can invite their clients to download the app, look at the website, look at the agent's bio, look at their listings, communicate with the agents through the website and the app, and by the way, everything is included as a part of the Real package. They don't have to pay anything extra. So obviously, we help them with the online visibility.
Otherwise, they would have paid hundreds and sometimes thousands of dollars every month for different tools, while we give them everything in an integrated platform. The third bucket of technology is community. Agents are highly social creatures, and they need to exchange leads, interact, ask questions, schedule in-person meetups, celebrate success. We don't have offices for the agents to use. This is a huge cost saving that we pass along to the agents, but we understand that agents do need a platform to talk to each other and interact. We have a community feature on the app where agents can chat on a national level, on a local level, on a one-to-one, one-on-one level.
It's pretty amazing to see all of the engagement, and for us, the community feature on the app really truly replaces the need for physical locations across the country and Canada. The fourth bucket of technology is brokerage operations. Typically, at a brokerage, you would have 1 employee for every 20 agents. Our ratio is 1 employee for every 140 agents. How are we able to do that? This is due to a lot of software that is built to cater to closing, processing transactions, and supporting agents. So try to imagine all of the people working in the back office of a brokerage, people that are doing agent support, transaction management, payment processing, compliance. We've automated all of these processes almost to the full extent possible. So instead of spending 2-3 hours on processing a transaction, we actually spend 2 minutes.
This is why we're able to scale, open new markets, add a large number of agents without adding too many costs. So we're by far the most efficient brokerage in America, and we believe that, that, that this is a, a huge competitive advantage that we have. And by the way, when I talk about scale, since the beginning of the year, we've been pretty consistent in adding about 1000 agents per month to our platform. And if you look at all of the companies in the field, everybody is losing market share, and we're almost the only market share gainer at this point. Another reason why agents join us is culture. Culture is extremely important for agents. Agents want to be in an environment where they're not competing with the agent sitting next to them.
They want to be in an environment where everybody is supporting them, rooting for them, invested in their success. Almost 100% of real agents are shareholders in the company, which means that if I'm an agent, I want the other person next to me to succeed, because if they succeed, me, as a shareholder, I gain from that. So, we managed to create a very unique culture of collaboration over competition, and that culture, there's a true buzz in the industry around that culture, and a lot of agents are joining us because of it. I know that it doesn't mean a lot for investors, but for agents, the culture here is very unique, very special, and it attracts a lot of agents. Moving on.
As I said, the technology itself allows us to scale very rapidly, without increasing our costs too much. We measure efficiency with the company in multiple ways. Here we show how fixed cash operating expenses as a percentage of revenue continue to decline year-over-year, so obviously, that's a good sign. Another metric, as I mentioned, is our efficiency ratio, the number of full-time employees per agent that we have, which is 1 to 140. If you look back to Q1 2022, the ratio was 1 to 55, now it's 1 to 138. We think that we can continue and improve that and maybe push towards the 1 to 200, which would be a terrific ratio.
But there aren't-- there isn't any company in the, in the industry that allows, that can, grow so efficiently. I mentioned that our main business is a real estate brokerage, but in the past couple of years, we made two very important acquisitions. We acquired a title company and a mortgage, and a mortgage company. The reason behind those two acquisitions is because we believe that there's an opportunity in improving the home buying experience for home buyers or consumers in general. Right now, if you're coming to buy a home, the experience is broken. You have to talk to different stakeholders. You do not control e- anything.
There's a lot of uncertainty throughout the process, and we believe that there is an opportunity using technology to create an end-to-end experience for home buyers that will integrate brokerage services, everything that you're doing with an agent, with mortgage services and title services, and in the future also, home insurance and other services as well. But if you truly want to build an end-to-end seamless consumer experience, you have to control the three main building blocks, which is brokerage services, mortgage services, and title services. We made those two acquisitions. Right now, in the background, we're trying to build this consumer-facing technology that will allow consumers to go from searching listings, to applying for a mortgage, to closing in one consumer-facing app or consumer-facing platform.
But in the meantime, we're growing our mortgage and title businesses, which are high-margin services. On title, we have over 80% gross margin. On mortgage, we have over 50% gross margin. On brokerage, as you have seen in our financials, gross margins are around 10, 10%. So if we continue to grow those two businesses and attach more and more mortgage products and title services to every transaction, we will be able to drastically improve the margin profile and the profitability of the company. So, in the next few years, we're trying to integrate everything into one technology platform and also increase those businesses. Right now, our attach rates are in the range of low single-digit %.
The longer term goal will be to get to the mid-teens when it comes to attach rates, and hopefully, we can go even beyond that. But at the end of the day, we're running a few different business lines on the same platform. Some of them have high margins, some of them have lower margins. I mentioned the One Real consumer mobile app in passing, but at the end of the day, as I said, if you're coming to buy a home today, the experience is not great, and I typically think about my kids that are now in their teens and what they would expect when they come to buy their first home. So obviously, they want more transparency, they want more speed.
There is no reason in the world why buying a home should be a process that takes, I don't know, 6 months or so, or closing on a home should take 60-90 days. Why not try and make it 14 days? Why not try and commit to a closing instead of hanging, leaving the buyer hanging in there and waiting for the clear to close from the lender? So what we're trying to do is create a process where you, the home buyer, controls everything. You dictate what's going to happen. You have full, full visibility into what's happening. You don't have to sign a bunch of documents that you know nothing about. Everything is smooth, everything is easy, everything is transparent.
And we will also provide you a closing guarantee, which means that once we commit you to giving you a mortgage, this is not going to change at the last minute and change all of your plans. So the consumer-facing app is something that we started working on about a year and a half ago. There is actually an initial version out there that focuses on the mortgage application process. In the next couple of quarters, we will add more and more features to that, but at the end of the day, we want it to take consumers from thinking about buying a home to closing in one single place.
As I said, an end-to-end solution, the benefit to the company is not only having a huge competitive advantage for our agents with their clients, because nobody else will have that, that technology, but also the ability to attach high-margin services, such as mortgage and title, throughout the transaction. So this is something that is being built, in the background. By the way, no other companies, no other company has, has done anything like that. This is why it's taking, longer than, than other products. The second product that I would like to touch on is the Real Wallet. The Real Wallet is a product that, again, nobody has, has introduced before, but think about agents today. When they close a transaction, we collect the commission check, and then we deposit their 85% directly into their bank accounts.
Soon, when, the, the Real Wallet will be launched, once they close a transaction, we actually deposit the money into their digital wallet, which is visible on our app, and at that point, they have the option to either withdraw the money into their own bank accounts or use a debit card that we will be issuing them in order to spend that money. And obviously, if they swipe the debit card, we earn the interchange fee, which is equivalent to around 1.2%. So we make money out of, in, in additional ways. But it's not only that. The Real Wallet is going to have a credit component. The fact that we own all of our technology and agents close all of their deals on our platform provides us a lot of visibility into their businesses.
We know exactly how many transactions they closed in the past 12 months. We know how many transactions they have pending right now. We know how many clients they are talking to. We know how much money they're making in revenue share by referring their friends to the company. We know how much equity they, they own in the company. We have a total understanding of their finances on our platform, and that allows us to underwrite agents to a dynamic individual credit line, which we will be offering them as a part of the Real Wallet. So the Real Wallet will have a credit component.
Agents will have a credit line that we will be offering them, and if they choose to use the credit line, obviously, we make an APR, and in the future, there will also be a credit card on the wallet as well. So every time they swipe it, we earn the APR plus the interchange fee. Very exciting product. Again, additional ways to monetize agent businesses and real estate transactions outside of just being a brokerage. So I just gave you a couple of ideas. I think that the wallet in the future can expand to more and more directions, maybe even consumer credit or things of that nature. So if I'm trying to summarize everything that I talked to so far, we've demonstrated that Real knows how to grow in bad times and good times.
We're very well positioned to capitalize on any housing recovery. Home sales right now are 25%-30% lower than their historical average. Typically, in the U.S., you would have 5 million homes sold every year. Right now, the pace is around 4 million. So even without adding any additional agents, there's an inherent 25%-30% upside in our business, just out of the market going back to normal. But obviously, we're continuing to grow. We're continuing to add agents to our platform. We're continuing to grow our market share at the expense of traditional brokerages. So we believe that we will continue to grow revenue. We will continue to grow EBITDA just by scaling the brokerage and adding those high-margin services that I talked about.
But at the end of the day, I think that the fact that if you look at our finances in the past 12 to 24 months, where the market was extremely challenging, we outperformed the market by a lot, and we demonstrated that we know how to execute. We have the right offering. The market opportunity is there. We have the right technology. We have the right team, and we are likely to continue and grow and get to tens of thousands of agents. Right now, we're around number six when it comes to largest brokerage in America. We believe that we can be one of the top five and then top three. And we're just excited about our journey. And that concludes my presentation. We can-
All right.
Turn to Q&A.
So... Sure. First question, I think public investors are probably most comfortable with kind of eXp and Compass as potentially comparable models. I mean, as well as Redfin as well. But if I think about it, probably the closest, at least with the kind of average transaction price point, might be eXp. So I guess, how would you compare, you know, what value you provide the agents relative to, you know, kind of what eXp compares? I mean, maybe we'll just start with them.
Yeah, it's a good question, and the name eXp comes a lot just because the two companies have some similar characteristics. One is the fact that both companies have a revenue share model embedded into our model, so we rely on our agents to attract their friends. This is how both companies grow. At least, you know, at least we're growing. eXp hasn't been growing for a while now. And then the second thing is the fact that both companies are non-brick-and-mortar, so we don't have offices for the agents to use. I think that there are many differences between those two companies. First, on the vision, both companies were born out of a true desire to make agents' lives better.
At the same time, eXp is trying to build a large brokerage, and we're trying to build something different. We're trying to build a financial ecosystem around home buying and selling and agent businesses. So we have a consumer-facing strategy. We're building tools and experiences for consumers. We have the Real Wallet. We're trying to branch out into fintech product and other ways to monetize transactions, whereas eXp is focused solely on building a brokerage. So that's one thing. Second, we're different on the agent economics. Our split is 85/15. In eXp's case, it's 80/20. Our agents cap at $12,000. At eXp, it's $16,000. There are multiple differences on the culture. eXp started five years before we did. They have about 85,000 agents.
I think that it's just an example of where Real could be in a few years. But I think that our vision is broader, and very different.
So, I mean, it's an interesting point on, like, culture, yet it sounds like it's 100%, you know, kind of remote for agents. Like, I mean, how, you know, how do you do that? Is it, you know, you bring agents together virtually? You're hosting events? I mean, how do you have a culture with that largely virtual organization?
It's a good question. As I mentioned, we have a community feature on the app where agents can interact and talk to each other and chat and just post. It's like a Facebook, a giant Facebook feed with a messenger as well. But you'd be surprised at the amount of in-person meetups that agents actually organize for themselves in every market. Sometimes we participate. Sometimes we don't participate. We have two annual conferences, one in Canada, one in the U.S. We have another annual online event where we invite all agents to participate, and agents outside of Real. We have a lot of... We have a monthly call with all of our agent population, where we provide updates, and we give them the opportunity to ask questions.
So there's a lot of interactions, both between corporate and agents and within the agent community, in local markets.
I mean, when I look at your agent growth, it definitely correlated with, like, a weaker, obviously, part of the cycle. I mean, do you think you benefited from that because you had agents saying, "Okay, I'm kind of doing less transactions. If I can make a more favorable split with a cap, like, that's better for my net bottom line in a tougher environment?
Yeah. I'm smiling because when the market was good in 2020 and 2021, investors asked us, "You know, everything's going well, and you're growing so rapidly. Do you think that a market downturn will actually play in your favor or will actually damage your growth?" And I kind of used the same thing that... As you said, I said that, you know, when the market slows down, agents will be looking for a brokerage that allows them to keep more money in their pockets because they will be closing fewer transactions. So I think that at this point, we demonstrated that we know how to grow through great markets and super bad markets. I think that we will continue to grow even when the market recovers.
Then, when you talk about the attached products, title and mortgage, like, you know, it, it's a grind, you build these products 'cause you have to get them approved in every state, and, you know, kind of make sure then you have enough overlap with your agents, right, to make justified. I mean, can you take us through, like, what states have you been approved so far for title and mortgage?
Yeah, both companies operate in about 12-15 states. In some states, we're licensed, but we're not really operating. The way it works today, and I'm not talking about Real, I'm talking about any kind of agent to lender or agent to title company relationship, is that it's relationship based. So every agent has their go-to lender, and they have their go-to title person. We believe that there's a way to actually break that tie using technology. So typically, when a brokerage becomes at a certain scale, they would acquire a title company and a mortgage company, and then they have to go to their agent and pretty much introduce their in-house title and mortgage companies and ask the agents to funnel their transactions into their in-house title and mortgage companies.
In our case, it's a little bit different because agents are shareholders, so they have kind of an incentive to see the company grow and succeed and gross margins improve. But we think that we're taking a different approach. Obviously, in the short term, yes, we are trying to educate the agents that we have a title company, that we own a title company and a mortgage company, and we're trying to have title JVs with our most successful teams around the country so that they can actually monetize their transactions through title as well. But long term, let's face it, consumers don't really care about title. For them, it's in many ways a necessary evil, and they don't care if you use your title, Real Title. It doesn't matter to them.
We think that there's an opportunity to actually create an advantage for consumers using technology so that they choose to use our mortgage company and our title company. Because using our, our title and mortgage companies results in a quicker experience, more transparent, less overhead, less headache, which, by the way, will benefit the agents as well.
You alluded, you're gonna give a guarantee, right?
Yeah.
That's-
And, and-
... guaranteed
... and that guarantee-
That is the number one reason why transactions get held up.
Exactly, exactly. So I think that we're taking an unconventional approach here when it comes to title and mortgage attach rates, but it takes a lot of tech build-up to get to that point.
Cumulatively, how much have you spent on kind of R&D and capitalized software to get to this point with the technology stack?
... roughly. Yeah, it's a good question. I'll tell you that our philosophy when it comes to teams in general, and then dev specifically, is that we're trying to find those individuals that have a 10X effect. So instead of having 1,000 software developers, let's find 100 that can operate as 1,000. So we've been very fortunate to have an amazing team on the dev side. We invested $20-$30 million to date in building the technology. But overall, we have a team of about 100 people, product/dev, but I think that their output is equivalent to a team of at least 500.
We haven't talked about the, I guess, fee structure in NAR settlement. So I guess I would assume your agents operate under the standard, you know, call it, you know, whatever, 2, you know, 2.5% per side, right? It's the standard. And then so far, like-
Yeah
... what is your view on NAR settlement? Is this gonna have an impact on buy-side commissions? Are you seeing, hearing, like, what are your views on this?
Yeah. So I think that last quarter, the average commission that was paid to our agents was in the range of 2.7%, which is a bit higher than the national average of 2.5%-2.55%. So a couple of changes that are coming up because of the NAR settlement. One is the fact that seller agents cannot offer any buyer agent compensation on the MLS. The seller can actually offer a buyer rebate on the MLS, or seller's agents, listing agents can offer buyer agent compensation outside of the MLS. So this is one change. The second change is that every buyer agent has to have a buyer representation agreement signed with their buyers, outlining the compensation that is owed to the buyer's agent by the buyer.
In the past, agents would come to their buyers and say, "You don't owe us anything, because we're getting paid by the seller's agent." Now they have to have this conversation of, "Mr. and Mrs. Buyer, I'm going to represent you. You owe me, whatever, 2.5%, 3%, but if I get anything or if you get anything from the seller, it'll be deducted from the amount that you owe me." So those are kind of new type of conversations that agents have to have with their buyers.
We believe that it's not going to have any meaningful effect on, on the market, at least not in the short term, because at the end of the day, if you're a seller and you're serious about selling your home, you will end up offering something to the buyer, or the buyer's agent, just because you want more traffic to your listing and you truly want your, your home to be sold. You can price it into the property or the ask price. So we don't think that there will be any meaningful effect. But at the same time, if you look at the percentage of commission that's paid to agent over the past 25 years, you can see a slow decline from a total of 6% to a total of 5.1% today. I believe that that trend will continue long term.
And maybe it will stabilize around 4.5%, maybe lower than that, but I don't think that anything dramatic is going to happen in the short term.
Sure. So last question. It seems that there's been a loosening of the MLS rules on kind of exclusives, where historically, you know, if you put something on your website that consumers could see, you had to put it on the MLS within 24 to 48 hours. Whereas now you're going to be able to basically have your agents show each other's exclusive, every MLS is different, but for at least some period of time, which will help build top of funnel. And, you know, historically, Zillow has just as dominated by top of funnel as obviously other competitors have got into it, but it seems like the larger brokerage firms with a digital-first presence, focus, will be this change will allow them to start to really organically build their top of funnel through exclusives.
Just what are your thoughts on that and how that could impact the business?
Yeah, I mean, exclusives are more prevalent in some markets than others. For example, Southern California, there are a lot of exclusive, whereas in other parts, let's say parts of Texas, you don't see so many exclusives. I think that at the end of the day, you want a listing or a property to have as much visibility as possible. I understand the exclusiveness of an exclusive listing and the fact that you can market it a little bit differently for a certain amount of time. Obviously, we had and still have some thoughts in-house on exclusives as well.
I'm not sure that this is the best use of our time and resources right now to build something for that, but definitely, I do think that you started the question by saying that there is a loosening within MLSs on what they allow and don't allow. I think that the NAR and MLSs are kind of in a tough spot, just because of all of those, the NAR settlement and the fact that a lot of agents feel as if the NAR did not protect them in an adequate way. I think that we will continue to see additional loosening on the MLS's side, and there are a lot of initiatives to try and actually replace the MLS and create a nationwide MLS outside of the National Association of Realtors.
Those are interesting times in the brokerage space.
We just have to call it something else besides an MLS.
Say again?
We just have to call it something else besides an MLS.
E- exactly.
Yeah.
And then everything is permissible, right? Definitely interesting times, and I think that the MLS or the NAR has to regain the trust of their constituents and, you know, the real estate industry as a whole.
Right. Well, I think it's a great way to end it. Tamir, thanks for the time, and if anyone has any questions-
Thank you very much.
... feel free to email us, and we'll make the connection. Thank you.
I appreciate your time. Thank you.