Great. Thanks, everyone, for joining. My name is Bernie McTernan. I'm one of the Internet Analysts here at Needham & Company, and my pleasure to host once again The Real Brokerage. We have CEO Tamir Poleg. Thanks so much for joining us.
Thanks for having us.
Thank you all.
Yeah, awesome. Well, maybe just to start, you know, since the end of 2022, the stock was at $1. You had 8,000 agents. You were EBITDA negative. Now, at least 24,000 agents, billion-dollar market cap, EBITDA positive past six quarters. What's gone right? Like, what's gone better than expected? If you were to think about, you know, when we were sitting here two years ago, what's gone ahead of plan?
We were just lucky. Yeah, we've grown tremendously over the past four years and over the past two years. Just, you know, even last year, which was a very bad year for real estate, we managed to grow revenue at least until Q3, which is our last earnings, by over 80% year over year. We demonstrated that we know how to grow through good cycles and bad cycles. To your question around why have we grown so dramatically, I think that we managed to find the right balance between creating the perfect platform for real estate agents that encompasses all the technology that they need, all the financial opportunities, great economics, and amazing culture that attracts a lot of agents, and at the same time price it in a way that will still be attractive for them.
So the average agent at Real will probably end up paying half compared to what they're currently paying at their current brokerage. So I think that what we've been doing well is executing and finding the right offering and continuing to innovate all the time with new ideas and new offerings, and the platform just becomes stickier and more attractive for agents.
Got it. Makes sense. Maybe the other side of the question, you know, you mentioned the housing market, but what's gone maybe more difficult or what's been more challenging than expected?
I think that for us, it's a little bit difficult to talk about challenges when you're growing 80% year over year. At the same time, we have to understand that our performance is the accumulation of all of our agents' performances, and when the market is down, our agents are feeling it, so I think that our agents individually have felt the slowdown, and they are probably closing less transactions than before, even though our per-agent productivity has been increasing, meaning that we managed to improve our agent profile and also help our existing agents close more deals. I think that agents do feel the pain out there, but challenges, I would say, growing so rapidly is a challenge because you need to constantly hire more people. You need to upgrade your systems. You need to come up with new ideas. You have to execute fast. Things are moving.
Sometimes you hire a person, and that person knows exactly what to do in a certain situation. But then a year later, the company is 100% bigger than they need to evolve. And I think that that has been a challenge maybe for some of the executives that are not with us at the moment. But those are good problems to have. Those are growing pains.
Yeah, absolutely. So sitting here at the beginning of the year, I would love to just get your thoughts. What's on the priority list for 2025? What would make it a successful year for Real?
We've been taking market share. We've been growing so rapidly and taking market share from traditional brokerages. One of the focuses moving forward is not to lose that momentum and continue to attract agents to our platform and retain them. That's always kind of a focus for the company. Having said that, the way we look at our business is that we managed to create this amazing funnel where we know how to attract agents to the top of the funnel, and agents bring their transactions to that funnel. We need to find more ways to monetize. We made a couple of acquisitions in the past. We acquired a title company and a mortgage company. Those are high-margin services. We have 80% gross margin on title. We have about 50% gross margin on mortgage.
And we need to find ways to attach more mortgage and title services to every transaction. So that is going to be a focus in 2025. We're going to do that through not only talking to our agents and telling them about those offerings, but also through product initiatives that will drive more adoption. So that's a focus. We put a lot of emphasis on AI, and AI serves our business in two main ways. One, about a year, more than a year ago, we launched an AI assistant for our agents. And since we own all of our technology, our AI assistant has visibility into everything our agents do on the platform. Our AI is called Leo. Leo knows exactly what an agent is doing, what their finances look like, what kind of transactions they have under contract. So Leo is currently answering about 2,000 agent questions a day.
So AI is helping us in becoming more efficient and providing a better level of service to our agents. But in the second quarter of this year, we're going to launch our Leo for Clients. And Leo for Clients is going to be a personal assistant for our agents in their conversations with their clients. Every agent will have a phone number that we will be providing them with. And that phone number will be powered by Leo so that if you're an agent at Real and you're meeting a client for the first time, Leo will be able to collect all of the information about what's interesting for that client, what kind of properties they're interested in.
Leo will be able to send properties for that client, refine the search, schedule showings, educate that client about the home buying process, get them pre-qualified for a mortgage, basically taking them from thinking about buying a home to closing in one single place. So AI is going to be a huge focus in 2025 as well.
Understood. Makes a lot of sense. You said 2,000 agent questions per day. What kinds of things is Leo helping with?
Anything from what's my broker phone number to where's my check to what document am I missing on the transaction in 123 Peach Lane Road? We now added a new feature to Leo, which is the ability to actually read contracts, and this is, by the way, mind-blowing. Think about the fact that right now at a brokerage, there needs to be a human being reviewing every document that agents sign with their clients, every purchase agreement, every addendum, everything. Leo is now able to look at the contracts and provide agents feedback within two seconds about what's missing, what's wrong with that document, what they need to change in order to get paid for the transaction, so it's that type of things. It could be things that are legal. It could be administrative. Leo just has visibility into everything.
Leo just becomes more and more smarter and smarter because Leo learns from every interaction it has with our clients.
Quick question on split with agents. The traditional guys are giving 80% splits. You said that. Putting that cap, could you share?
Sure. So the average agent who closes, I don't know, six, seven transactions a year would pay their brokerage anywhere between $100-$200 in monthly fees and then a little bit of transaction fees. And then the commission split would be 70/30 for the average agent. Our splits are 85/15 with a $12,000 cap, meaning that if you paid us $12,000 a year in commission splits, you get to keep 100% of your commission, and you only pay a transaction fee of $315. So let's say you're a high-performing agent. You're doing about $500,000 a year in commissions. You only pay us $12,000, which ends up being, I don't know, you keep 90-something% of your money.
Thank you.
Leo, also just so agent productivity that brings about, you said that's one of the reasons why agents come to Real. Any thoughts in terms of just like how many hours Leo is saving the agent? And ultimately, we'd love to know kind of if you guys are growing 80% year over year, if it's agents, like the amount of GTV or money flowing through the system, how much of that is driven by actual agent productivity over agent growth? And how much do we think agent growth maybe impacts the growth calculus? Sorry, agent productivity impacts the growth calculus for the company going forward?
Yeah, it's difficult to track agent productivity because agent productivity is very closely tied to market conditions. But I'll give you an example. In 2024, our most successful team is a team in Utah. And they set a goal of closing 1,000 transactions in 2024, which is something that no team in Utah has never done. But they managed to reach that goal. So they had their best year ever. So what I'm trying to say is that performance does not have to closely tie with market conditions. It has to do with execution. But for us, I think that what we're monitoring is our per-agent productivity over time. And we have managed to increase the per-agent productivity constantly for the past four years. And we want to continue and do that. And obviously, it's a combination of being able to attract better-producing agents, but also helping them with productivity.
I forgot the first question.
No, I mean, ultimately, what we're trying to figure out too is that can brokerages be more productive in this AI world, and therefore, we have the thesis that agents are going to go where they can make more money, so that might be where the split's better, but it also could be where the technology's better so that then they could be closing more deals and close 1,000 deals a year versus maybe you can only do 500 at a different brokerage.
I'll say something that may surprise you. I believe that 80% or 90% of the tasks that agents perform can be replaced or somewhat replaced by AI. It's only a matter of how you educate that AI on how to perform that task. Obviously, opening doors is something that AI cannot do, maybe a little bit down the road.
Elon thinks they can.
Yeah, but I had a conversation with someone who's kind of a futurist in the real estate space. That person told me something interesting. He said that I told him about Leo and Leo's capabilities and everything that we're trying to develop in-house and the fact that we will be able to help agents perform all of those tasks without them being present or with them being on the beach. Things will be done by Leo. He said that the interesting thing about AI is not necessarily what AI is able to do, but the fact that the people that are doing the work are going to change. I asked him, what do you exactly mean? He said, let's take somebody like Gary Vee, for example, somebody who has credibility, who has a massive following, somebody who has millions of followers.
If somebody like Gary Vee, for example, again, had a tool that enabled Gary to convert somebody from, I'm thinking about buying a home, to closing without being involved, just with that tool doing all of those tasks, why wouldn't you buy a home with Gary Vee? Gary Vee could actually sell you a home. You trust that person. You follow that person. You think that that person is credible. If they can help you buy a home, why not? But that might be an extreme case. What I'm trying to say is that the profile of the people that are in different industries is probably going to change because the tasks that they're performing are going to change as well or are going to be replaced by AI.
Right, and then so maybe combining two of the things you said, so 80%-90% of tasks an agent does can be replaced, but then also you have this consumer app coming out. I'm just trying to think about what's that consumer experience going to be like when they're giving up this information to how conversational will be? What kind of experience are you wanting to make sure that the consumer has?
Buying a home is a highly emotional transaction. It's a transaction, but it also involves a lot of emotions, and the reason why people use agents is partially because of that trust, because you know that that person is an expert. You need somebody to hold your hand. We tried to build a consumer-facing app because we wanted to take people through an end-to-end kind of experience from thinking about buying a home to closing in one single place. At some point, Pritesh, our CTO, and I were thinking that all of us have about 100 apps on our phones, but we probably use five, six, seven of them, so who are we to become one of those five, six, seven apps, and then we asked ourselves, how are agents doing most of their conversations or communications with their clients? and the answer is text. People text.
People like to text, and then we said, OK, what if we could have all of those capabilities that we're trying to put into an app on a textual basis using AI as the engine behind it, and then we came up with the idea of powering our agents with a phone number that will be powered by Leo, and Leo will actually be able to have all of those conversations if the agent chooses Leo to, so as an example, you have a phone number that we gave you. You meet a client for the first time. You tell them to start talking to that phone number, or they can start talking to you, but that phone number, Leo knows exactly how you work. Leo listens to you. Leo knows what kind of questions you're asking. Leo knows what kind of questions every agent at Real is asking.
Leo knows how to send you properties. Leo knows how to refine the search. Leo knows how to get you pre-qualified for a mortgage. Leo pretty much understands your style of communication, and when people will engage with that phone number over text, they wouldn't know if it's you or Leo because Leo would be able to imitate you one-on-one. In the future, Leo will be able to use your voice for voice conversations. Later on, Leo will actually be able to have video calls as if it was you. It's mind-blowing, but this is the future, so if you're able to feed that huge brain with sufficient information, at some point, that brain could become as powerful as yours and maybe even more so just because it's privy to so many conversations that other agents are having.
Right. Interesting. Well, because it does go to the point where right now it seems like most of the real estate world is done with referrals, right? I bought a home from someone that 10 years ago, I'm going to use that brokerage again. So it's a lot of personal relationships. And then you're talking about kind of moving to this AI world. So how do you think about bridging that gap?
But I mean, people want immediate answers. People want you to be 24/7, which you cannot, but AI can. And on a high level, when you're coming to buy a home, you don't care about a mortgage. You don't really care about the agent. What you really want is a house. Our industry is not delivering you a house. Our industry is delivering you a set of tasks that eventually result in you closing on a home. You have to deal with an agent, with a lender, with an inspector, with a title company. You don't care about that. If there was an easy way for you to get a house and say, OK, I'm willing to pay this. This is my down payment. I'm willing to commit to $3,000 a month, whatever. This is the type of homes that I'm looking for. Just deliver me a home.
You wouldn't care about all of those people that I just mentioned, the lender, the title company, the agent. So I think that the task that our industry has to solve is how do we deliver a home to consumers? How do we do it easily, transparently, and enjoyably? Like buying a home is not great. It's not a great experience right now.
It's not super fun.
Yeah.
On the split side, there are teams. So does this go by per team or per? Let's say there's a team of 40 agents. Do they cap team at 12,000 or?
Per individual. Yeah, we do have lower caps for team members at $6,000.
OK. And then just another quick follow-up is, are most of your agents Real-branded, or do they have their own DBAs?
Some of them do have DBAs, but the vast majority, I would say 90-something%, are using the Real brand. But people don't choose agents based on their brand affiliation. The reason why they put Real in their yard signs or marketing materials is because regulation requires them to.
Yeah. And then could you share what your reputation is?
Sure.
I know you're adding a lot, but the existing one, what is your?
Yeah. So we operate in a high-turn industry in general, and we monitor revenue churn because what you truly care about is the agents that are contributing to revenue, and those are the ones that you want to retain. Last quarter, Q3, our revenue churn was 2% for the quarter, so very low.
2%?
2% per quarter. It's typically around 1.7%-2%.
Last one on just the technology. Just where do you think you are relative to the industry right now?
I think that we're not compared to the right industry, probably. I mean, the majority of our revenue comes from our brokerage services. But I think that that's a little bit kind of misleading because we're in the same bucket as RE/MAX and Century 21 and all of those traditional players. I would say our moat in terms of technology is our automation, transaction automation. We have one employee for every 140 agents. Typically, the ratio in the industry is one employee for every 20 agents. So it results in the ability to scale faster, process a large number of transactions without adding operating expenses, and I would say over there, we're at least five years ahead of everybody else.
And then the fact that we own all of our software platform enables us to add services like Leo, like the Real Wallet, which is a digital wallet that we recently launched that our agents are using. All of those things are things that are just non-existent in the industry. And I mean, we're years ahead of everybody. The sad thing is that they're not even thinking about that. I think that's the disappointing part.
So if we kind of combine all this, we were just talking about splits. You mentioned the Real Wallet, the technology. There's a strong referral program as well. How would you rank order those in importance in terms of what ultimately gets agents to Real?
It's a combination. There isn't a single thing that you would say, OK, if I'm the best at this, then agents will probably flock to my company. It's a combination of the economics, of the technology, of the culture, of the overall opportunity. There's one thing that people are probably not mindful of, which is the freedom and flexibility. Agents are 1099 contractors, and when they go and work for a traditional brokerage, there's typically a broker, a manager in the office that tells them when they need to show up, what kind of meetings they have to attend, what their marketing materials should look like. They end up building somebody else's brand, and when they come to Real, they're on a platform that allows them to grow their businesses the way they want to, and that freedom and flexibility is super powerful for agents.
This is not tangible because it's not about economics. It's about how people feel about their day-to-day and about their businesses.
And then, thinking about you mentioned 1.7%-2% revenue churn is generally what happens. So I think that's kind of roughly where the industry is as well, or some of the larger players. But just wanted to get a sense, or maybe you disagree with that. But either way, wanted to get a sense in terms of given where the market has been in terms of down double digits back-to-back years, like more or less flat in 2024, does that kind of environment make churn more likely, less likely? Just trying to think if we do get this upcycle in 2025 and 2026 for the housing market, what would that mean for just overall agent flow through the industry?
First of all, I would disagree that the 1.7%-2% is the average in the industry.
I felt it.
If you look at some of our peers, they have been hurting. And they have been losing a lot of agents and a lot of revenue. So I'm not sure that this is correct, at least not for North America. We've been asking ourselves the same question. Is a good market better for us? Is a bad market better for us? We've grown tremendously in 2021 and 2022, which were good years for real estate. And we've grown tremendously in 2023 and 2024. I think that what we're noticing is that for larger teams, it takes longer to convert when times are tough. Just the cycle of conversations with them and onboarding takes a little bit longer. Maybe that could change if the market becomes better. And also, there's another effect of a lot of agents just leaving the industry when they're not closing enough deals.
So there's just natural churn because of that. But I think that in general, as a company, we're trying to be independent of market conditions. I think that, again, it all comes down to execution. And you can demonstrate 80% year-over-year growth when the market is down, I don't know, 20%, 30% compared to where it was two years ago. And this is where we try to focus. We try not to focus on market conditions, but focus on what we can do to actually gain market share.
Got it. And how has the composition of your agent adds changed as you've gotten larger? I mean, I think there's a larger focus on bigger teams now. But just how has that shifted over the last few years?
Yeah. I mean, obviously, when we started back in 2014, we were capturing the low-hanging fruits and the non-productive agents. And as you grow and mature and your offering becomes stronger and you're becoming a household name, you're kind of going up the chain. I would say that, yes, in the past two or three years, we have seen more and more teams joining us. I think that it's just a perfect platform for teams. But right now, we're adding about 50/50 solo agents and team-affiliated agents.
OK. Gotcha. How's the pipeline look? I saw there's two announcements this year. You add the.
Transaction or agent count?
Well, let's get both. Let's start with agent count. We'll go into the macro next. The Bergman Group in Florida, Harvest Realty in Southern California, just I think those were two larger, or at least you had the press release. So it probably means they're larger. But just how the pipeline looks for these larger agent additions.
Yeah. Well, Harvest is a brokerage that has more than 500 agents. That's our largest team to date. And if you've been following our numbers, you can see that we added, I don't know, about 1,000 agents in the first two weeks in January. So the pipeline is strong. We have some even bigger opportunities that we work on. They might materialize. They might not. But I think that having conversations now with teams of 500 agents or 1,000 agents is something that two or three years ago, or three or four years ago, we just didn't have. We're a household name in the industry. It's becoming a little bit easier to convert opportunities. So we're grateful for that. But it's a grind. You have to continue to push.
Was that a flywheel, or I know you introduced, it was probably a year or two years ago, you introduced the new product, the private label product, to bring larger teams on, so how much of that is more your products are now fit to bring on those bigger teams versus Real having real substantial market share in the industry where it just wasn't a couple of years ago?
Yeah. Private Label is a program that allows independent brokerages to come over to Real without changing anything in their branding. So they can continue to operate as Joe Realty, for example. And we are just powering their business in the background. It eliminates some of the friction in the switching. So if you're running a brokerage in a certain market and you don't want to change anything in your marketing materials, and you don't want to invest in that, you don't want to lose your branding, you can join Real without doing that. So obviously, it helps. Last year, I think we added about 1,000 agents under the Private Label program. Harvest Realty that joined about a week ago, 550 agents came under the Private Label program.
So I would say that all of those programs end up eliminating friction and just making it easier for large teams to join us.
Understood. Like I said, I wanted to move over to the macro. Just thoughts on the housing market next year? I mean, I think there's pretty.
This year.
Yeah, this year. You're right. It's the old question. Just thoughts on where, obviously, interest rates matter a lot. And so where you think interest rates goes, ultimately where you think the housing market goes, just what kind of budgeting are you guys doing for 2025, or think is a realistic outcome?
Yeah. I mean, obviously, when you're building a budget, you have to make some assumptions as to what the market is going to do. We think that transaction volume is going to increase slightly this year, so low single digit, and home prices are going to increase slightly as well. Obviously, we'll be happy to be surprised for the better, but yeah, I think that what we are seeing is that people are now less sensitive to mortgage rates compared to where they were a year ago, two years ago. Two years ago, all people were talking about is, OK, when are rates going to go back to 3%? Now, everybody understands that this is not going to happen anytime soon, and then people were seeing 7% mortgage rates instead of 7.5%, and then when rates went back to 6%, then all of a sudden, it became an opportunity.
I think that what we're seeing right now in this winter market is that people are transacting. And it's probably stronger than people outside of the industry thought it was going to be. So I think it's going to be a solid year for us. We gain market share. So a part of me wants the market to continue and be depressed for a while just because our competitors are hurting. But I don't know. We'll see.
Was there anything just from a market standpoint post-election? I don't know if all of a sudden, people were more likely to buy homes, less likely, or it just didn't really matter?
Yeah. Well, obviously, the stock market is reacting to changes or to the news much faster than the real estate market. I think that there was some sort of a psychological effect of people waiting for after the elections to transact just because people always have some kind of a milestone they want to wait for. But maybe that has been offset by the rise in the ten-year and the mortgage rates as well. I think that if you want to buy a home, if you need to buy a home, then you go ahead and do it despite who the president is.
Right. Yep. And I know it's very early. And obviously, it's talking about the devastation in LA with terrible, what's going on out there. But any thoughts in terms of what happens in that housing market?
First of all, it's devastating. We have some agents that were impacted. We have a relief fund within the company that helps agents go through that hardship. They can access the funds and never pay it back. I think it's just too early to tell. Obviously, so many homes were burned. They will need to be rebuilt. That will probably create demand in adjacent areas. I mean, we're in all 50 states and in four provinces in Canada. I think that that kind of an isolated, even though devastating occurrence is not really making an impact on the business. I think we will see some pent-up demand in neighboring areas in the short term.
Yep. Understood. Global Clear Cooperation when your competitors are very focused on it. Do you think it's a big deal?
For them?
Yeah.
Yeah. I mean, we haven't made any public stance. At the end of the day, we think that if you're trying to sell your home, you want to have as many eyeballs on your listing as possible. So Clear Cooperation makes sense in that sense. But at the same time, maybe as a seller, you want to be able to control how to market your property. So maybe Clear Cooperation does make sense. I think that anyone who's talking about Clear Cooperation at the moment is talking out of a position. But for us, we're kind of indifferent to what's going to happen with it.
OK. Just indifferent. Would there be any major processes you would change if it went through versus not? Or again, you just don't think it's that big of an impact on the industry?
I mean, you can try and leverage it and build all kinds of databases and maybe lead exchanges or things that kind of complement that. But there's so much noise in this industry and so many things that you can hear from agents about, we need this or we need that tool, or this is going to change. You need to have a plan. And you have to execute on that plan. And you have to stick to that plan and kind of focus on the big picture. And I think that this is what we're trying to do.
OK. The other big NAR topic, just the buy-side rates. Obviously, we've been focused on this for the past six or nine months. Ultimately, has it resulted in reduced rates at all? Or have you seen any impact in the industry?
We're monitoring that internally, and we're also monitoring the industry, what's happening in the industry. Based on the industry data, nothing has changed. Buy-side commission rates have not shifted. Actually, I think that there was one month, whether it was September or October, when commission rates were higher than before, which was funny. I think that long term, we will probably see a continuation of the trend of compressing commissions kind of very slowly, as we have seen over the past two and a half decades. We haven't seen any sign of immediate effect of the NAR changes on the buy-side commissions. Who knows?
We'll see. Got it, and so I wanted to see, yeah, if there's a question in the audience.
This is great, what you're doing. But there seems to be one agent for every two homes that sold. And you're growing from a very small base. But you're not Douglas Elliman, and you're not selling all the beach. What is your agent look like? And the cohort you're going after, how many homes are they selling? You could cut all the real estate agents in the past over the two million to one million. And they're selling four homes. And what are the economics?
Yeah. Yeah. There are roughly 1.5 million agents in the country. And on a normalized year, they would be selling 5 million homes. And then every home has two sides. So we're talking about 10 million transaction sides. So we're talking about 10 million divided by 1.5, roughly 6-ish per agent. Our per agent productivity is around seven transactions a year per agent, maybe a little bit more than that, depending on the quarter. And those are the folks that we focus on. So.
How much money do they make?
Yeah. Typical commission is around $10,000. So if you're selling six homes a year at $10,000, you're talking about $60,000. You have to remember that there are many part-timers. There are many agents that just have a license. About 80% of the transaction volume is handled by 20% of the agents. So there's the 20-agent rule, 20-80 rule.
Do you guys let your competitors get transition money to pay to have each one?
We don't do that. No. No. We believe that our model is attractive enough for agents to come on board without us incentivizing them in any other way. So no sign-up bonuses, nothing like that.
And then on your rating report, you're adjusting the VAT. I was just reading something there. There's some kind of rev share, I think, on marketing. On a $16.8 million VAT number, what is free cash flow?
It pretty much converts one to one to free cash flow.
So you have almost no CapEx, and you're not capitalizing?
No. Yeah. Yeah. It's almost one to one.
Anything else from the audience?
What % of the total transactions are you also the listing?
About 45%, 40% to 45% were representing.
Percentage of buyers' listing broker, the larger percentage interesting at selling broker?
No. No. It's 85%-15%, no matter if you're representing the buy-side or sell-side.
Any last questions from the audience at the last minute here? If not, well, Tamir, thank you so much.
Thank you very much.
Great to have you here as always.
Thanks.