Good afternoon, everyone, and thanks for joining us for our discussion with The Real Brokerage . Excited to have CFO Ravi Jani joining us. He's going to go through a number of slides, and then we're going to do some Q&A. If you have a question for Ravi, put it in the, there's a chat button below, or feel free to email me at jason.helfstein@opco.com. With that, Ravi, the floor is yours.
Thanks, Jason, and thanks to the Oppenheimer team for having us. As Jason mentioned, my name is Ravi Jani. I'm the CFO of Real. Real is a real estate technology company that was founded in 2014. We have a very compelling growth story in the industry, particularly given the current state of the industry. Our primary business is real estate brokerage, where we provide agents a platform to build their business. We offer some of the most compelling economics in the industry, a collaborative culture, and most importantly, an AI-driven tech stack that's centered on our own proprietary software, which is called reZEN, which I'll talk about in greater detail. Sorry, there's a little bit of feedback on my side. To give a little bit of background on our...
It's okay.
To give a little bit of background on our industry, there are approximately 1.5 million agents in the U.S., around 160,000 in Canada. In an average year, the industry generates roughly $100 billion in annual revenue that represents the total amount of commissions paid to agents. Every agent must be affiliated with a brokerage such as Keller Williams, Coldwell Banker, or a brokerage like Real. An agent can't work completely independently. They have to be affiliated with a larger brokerage or any brokerage for oversight. If you look at the market, it's been dominated by traditional players for many decades, all of whom operate in the same way. They rely on physical office space for distribution of service. They charge agents a lot of money for what we believe is poor value.
Even though we've been growing very rapidly for the last several years, we're still less than 2% of the overall market, which gives us confidence that we have a very long runway for growth ahead, regardless of how the end market recovers. To give you a little bit of perspective on why the company exists, when we started the company, we knew that there was a better opportunity to offer agents value relative to what incumbent models offered. If you go down the list of what differs Real from a traditional brokerage, it starts with the economics. It expands to technology, where we have our own proprietary software. We have 24/7 connectivity through our app, a culture that spans across zip codes, across state lines, across the country. Continuous training every day. There are new trainings available in Real Academy, led by some of our top agents in the country.
If you're an agent with Real, it doesn't matter if you're confined to a certain region, you have the best of the industry at your fingertips. As it relates to the growth potential, as I mentioned, it's a very fragmented market. We believe we're still in the first inning of what's going to be a very long growth trajectory. Lastly, I'll touch on ancillary services in greater detail, but we also offer title, mortgage, and fintech services to our agents. These are higher margin services that are, you know, quite nascent today, less than 5% of our gross profit, but will be long-term gross margin and profit drivers for the company. To give you a little bit of perspective on our growth trajectory, when the company went public in 2020, it was actually a very unusual decision because at the time, Real was generating around $15 million in annual revenue.
We believe that our agents were really our partners in building the business, and we wanted to create an equity incentive plan where they could participate in the upside of the business that we were all building together. Obviously, having public equity is much more attractive than having equity in a private company. We initially took the company public by listing on the TSX Venture Exchange in Canada. A year later, we direct listed in NASDAQ, and today, we're currently only listed on the NASDAQ. We're headquartered in the U.S. Going back to 2020, 2021, we really started growing like crazy. That was a very different housing market than the one that we're in today. Yet, despite the fact that the housing industry has now collapsed to what are trough-like levels, we've continued to deliver incredible growth.
If you compare our LTM revenue of $1.6 billion to the LTM revenue in Q2 2022, just before the market started to turn, we've 6x'd. That's, again, against a market that's declined by 25% over that time. We've proven that we can grow very rapidly despite a very challenged end market. That just gives us a lot of confidence that we'll continue to grow in 2025 and beyond, even if mortgage rates stay higher for longer. I think, you know, recent indications are that we could see rate cuts, which would obviously be a nice tailwind. The big question is really, why are agents joining us? Why are we seeing so much growth when others are struggling or losing agents? From our perspective, there's really four key reasons why agents join Real.
The first one is really the freedom and flexibility that we offer as being part of the Real platform. If you think about agents, they're independent contractors, they're entrepreneurs, they're essentially small business owners. Yet, the regulations require them to be affiliated with a brokerage. When an agent works for a traditional brokerage, like a RE/MAX or a Century 21, they end up building someone else's brand, right? They have a broker or a manager that tells them exactly what to do, when they come to the office, what their marketing material should look like. Someone else is effectively controlling their business, even though at the end of the day, they're an independent contractor. At Real, agents have the freedom and flexibility to build their businesses their way, which is a huge draw for entrepreneurial agents.
Last year, we introduced two programs called the Private Label and Pro Teams programs, which allow independent brokerages and teams to keep all of their external branding the same. They get to keep all of their individual compensation models on an agent team lead basis the same, yet they can still join Real. They can access all of our technology, all of our resources, benefit from lowering their own overhead costs, all while keeping their same external brand. Private Label has been a huge success. Somewhere around 15% of the agents who've joined over the last 18 months have joined under Private Label. I think it's really one of the most compelling opportunities for independent brokerages out there who are looking to align with, you know, a larger player. The second reason why agents join us is obviously the economics, which I mentioned at the start of the call.
We have a very unique compensation model that offers agents high commission splits, revenue sharing opportunities, and the potential to earn equity in the company by achieving certain milestones. The average agent who joins Real typically ends up paying half of what they would at a traditional brokerage. That means that for the vast majority of agents in the industry, they're likely leaving significant income on the table by affiliating with any brokerage other than Real. To put some numbers on it, most brokerages will likely charge something around 30% splits on every commission dollar an agent generates. At Real, our split starts at 85/15, meaning the agent gets to keep 85% of every commission dollar they generate.
That's up to a $12,000 annual cap, which means once an agent has paid $12,000 in splits to Real, they get to keep 100% of every commission they generate and only pay us a flat transaction fee of $325 per transaction. That's really appealing for high-performing agents and teams. That's obviously why we're seeing a lot of traction within those segments. Now, the next reason why agents join us is technology, which is truly our forte. We consider Real a technology company, although we operate a brokerage and a mortgage and title company. It's really our tech platform that sets us apart. At the core of our tech stack is a proprietary transaction management platform, which is called reZEN. reZEN is built around four main pillars, really meant to empower agents and streamline their workflows. The first one being productivity.
This includes everything agents need from a CRM to a transaction management platform, tools to draft and sign contracts, as well as a dashboard that gives them real-time visibility into their business 24/7. Everything is mobile-first. It's designed for our agent-facing app so that agents can manage their workflows from the palm of their hand, and they can spend more time out in the field with clients. Second under technology is marketing. We've consciously decided not to market Real as a consumer-facing brand. Unlike a traditional brokerage like a RE/MAX or Coldwell Banker, we don't think consumers choose agents based on their brand affiliation.
Nobody goes into a Coldwell Banker office and says, "Hey, I'm looking for a home, and so I'm here because I know Coldwell Banker has great agents." Instead, people choose agents based on referrals, based on knowing that that person is an expert in the area, or by seeing their yard signs on social. We're taking our marketing dollars and investing them in making our agents better known in their communities. Agents have the opportunity to order offline brochures, yard signs, magnets, everything directly through our platform. Every agent has a personal branded app, personal branded website that comes free as part of the package with Real, and all of this is managed through reZEN, as I mentioned. Now, the third bucket of technology is community. We don't have physical offices for agents to use.
Obviously, it's a huge cost savings for us, but we recognize the importance of agents being able to get together. Our app has a community feature for agents to do exactly that. Think of it like a Facebook feed. Agents can ask questions, they can share success stories, they can organize meetups. The beauty of this is that agents are not confined to a physical office anymore. They can interact and tap into the knowledge of thousands of agents across the country, rather than just, you know, the handful of folks who may be in their office. Finally, under technology, the true backbone of Real is our efficiencies on the brokerage operations side.
If you think about all the tasks that still get done by humans in the back office of a brokerage, things like reviewing files, signing documents, processing payments, we took all those tasks that consume human labor and we put software to work to automate as much of it as possible. Right now, it takes us two to three minutes of human labor to process a transaction and review a file versus a traditional brokerage, which would likely take two to three hours for, you know, a human sitting in an office space to get that work done. It's a huge competitive advantage for us that we believe sets us apart and allows us to operate with a much lower cost structure than a traditional brokerage. I think it's important to just double click on technology for a moment, particularly given the investments we're making in AI.
We do believe that we've built the leading tech platform for brokerage operations, and we've recently announced some AI innovations that represent the next step in our journey. Specifically, last year, we announced that we're centering reZEN around Leo CoPilot, which is our AI-powered command center. Anytime an agent logs into reZEN, at the top is a banner for Leo CoPilot. It's a virtual assistant that has visibility into all of an agent's transactions, all of their revenue share, basically their entire business.
It's your virtual assistant that knows everything about deals you have coming, transactions that need documentation review, anything that's missing, it's somebody proactively letting you know, "Hey, this is what's in the pipeline and make sure that you're ready and that you're not missing a beat." This AI-driven approach allows agents to spend a lot less time doing administrative work and focusing on what matters most, which is serving their clients and closing deals. It really is a game changer. As an anecdote, in the second quarter, we had Leo CoPilot act as the first layer in answering customer support calls or agent support calls out of the reZEN platform. In the second quarter alone, Leo CoPilot was able to answer 28% of calls into the support team, which means nearly 2,000 calls did not go to a human operator.
It gave agents a much faster response immediately, and it allowed our human support team to focus on more complex issues, elevating the bar for service. We are very excited about Leo CoPilot and AI. We are putting it to work every day. Because we have all of our agents on one common platform, we think it enables efficiencies that traditional brokerages are years away from being able to untap. Lastly, the fourth reason why agents join Real is our culture, which may not resonate a lot with the Wall Street crowd, but agents want to work in an environment where they can grow, where they can learn from others. I am very proud to say at Real, we built a culture of collaboration over competition. At a traditional brokerage, you may be competing with the person in the desk across the hall from you.
At Real, given the revenue sharing mentality, the collaboration mentality, we foster an environment where agents support each other. They want to share knowledge. They want to share in everybody's collective success. We think approximately 50% of our agents are shareholders in the company, and they want to participate in the shared success of the company. I think that really rings true for all of our agents, anybody who's interacted with our agents or attended one of our events, that the culture is something truly differentiated. I want to just spend a moment on the efficiency of our platform, which we talked about. The first chart at the top of the screen shows our fixed cash operating expenses as a percentage of revenue, which has continued to decline year over year. It demonstrates our ability to grow revenues much faster than fixed costs.
Another metric that we like to highlight is our headcount efficiency ratio, which is the ratio of agents to full-time brokerage employees. Typically, at a brokerage, you would have one employee for every 20 agents. At the end of the second quarter, our ratio was one full-time employee for every 87 agents. If you compare that to other brokerages, it is multiples of what any of the other public players out there have demonstrated. I think it is a huge competitive advantage. It allows us to support rapid growth while prudently scaling OpEx efficiently. We spent a lot of time talking about brokerage, but I think it's important to also talk about ancillary services.
In recent years, we've made two acquisitions of a title company and a mortgage company, and expanding into these business lines was very deliberate because our brokerage gross margins today are between 8%-1 0%, whereas title margins are north of 80% gross margins, and mortgage is in the 40% - 50% range. These are significantly higher revenue or significantly higher gross margin per transaction when you attach title and mortgage. We're in the process of scaling both of these businesses. When we look to the future, our success and our growth isn't just going to be about attracting more agents and more transactions. Obviously, we'll continue to do that, but it's also about maximizing the value of each transaction, and that comes from attaching more of these services. Today, we're around 4% attachment on the title side in the states we operate. We're around 1% in mortgage.
It's a huge opportunity for us to drive improved profitability and expand our margins by attaching more of these high margin services. When we think about the future of the company, our vision is really to transform the home buying experience for agents and their clients, and that's going to come from an AI-driven experience. Anyone who's bought a home today knows that the process is broken, it's not enjoyable, you don't have a lot of visibility into closing or even where you are in the process. We think that technology can dramatically improve that client experience. To that end, in October of last year, we announced that we're developing a new consumer-facing product named Leo CoPilot for Clients. This is an AI-powered text-based interface that will allow our agents and their clients a seamless experience from discovery to close.
You may have seen that last month, we announced we acquired the consumer-facing home search portal from Flyhomes, which is a prop tech startup that's invested significantly into enhancing the consumer experience. By leveraging the Flyhomes team and combining that with our AI engineers, we're really looking forward to launching the alpha version of Leo CoPilot for Clients later this fall. It really represents a huge opportunity to improve the client experience and also drive attachment of our higher margin mortgage and title services as we'll now have a direct line of contact into our agents' clients. Now, another major initiative that I think is worth spending a little bit of time on is Real Wallet, which is our first fintech product tailored specifically for real estate agents.
Previously, when an agent would close a transaction, we would collect the funds, we would transfer the agent's split directly into their bank accounts, and we wouldn't monetize 80% - 90% of that transaction. Last year, we launched the Real Wallet, which is a digital wallet that every agent at Real will have access to. Today, agents in the U.S. have the opportunity to open a business checking account. They can receive a Real branded debit card, and in Canada today, select Canadian agents have access to a line of credit. Since we've rolled out the wallet in the fourth quarter of last year, two full quarters later, we now have 3,600 active wallet users. The total deposit balance in Real Wallet checking accounts is $15 million. In Canada, we've extended $4 million in lines of credit.
If you think about the revenue streams from the wallet, first, it's interchange fees. Every time an agent swipes the debit card, we'll earn a percentage of that transaction. Second, it's the interest income on the float balance held in the wallet. Third, it's the APR on credit lines, which today are only available in Canada, but we anticipate launching the U.S. lines of credit this quarter. Just three quarters into the launch, we're run rating at over $1 million in annual revenue, and we look forward to watching this number grow as we're really in the first inning. We haven't rolled out rewards points, which are forthcoming, and we think the wallet adds a new layer of flexibility for agents.
It will create greater retention for agents using the wallet, and it really exemplifies our vision to go beyond a traditional brokerage and really build a comprehensive ecosystem for agents to manage their business, manage their wealth, grow their wealth all in one platform. I think we can close the prepared remarks with why I'm so excited about our future. If there's a few key messages I want to leave you with, it's first, we're very confident in our ability to deliver significant above-market growth regardless of how the macro recovers. Our proprietary software and AI-powered platform create a competitive advantage, streamlines workflows, reduces our operating costs, and really empowers our agents to deliver better outcomes for their clients. Lastly, our expansion into high-margin ancillary services such as mortgage, title, fintech positions us for substantial long-term profitability growth.
I think we can wrap the formal remarks there and go to Q&A.
All right. A reminder, if anyone wants to ask a question, feel free to put it into the chat. Ravi, first question. Basically, every brokerage firm—Louis, we can take down the slides—basically, every major brokerage firm claims to have strong technical capabilities. Historically, a lot of the benefits you got from being part of a big brokerage firm were discounts on third-party products. Maybe talk cumulatively, how much have you spent on your tech platform? I guess the ability to do a transaction end-to-end probably should be the hallmark of a true digital workflow. Maybe elaborate on that a bit.
Yeah, I mean, total investment into the tech platform is in the tens of millions. You know, in the second quarter, we spent about $4 million in R&D. We're run rating in the mid-teens, and that's annually, and that's growing. If you factor in Flyhomes that, you know, also spent a significant amount of money on their platform that's now a part of ours, it obviously pushed that number higher. You're right. A lot of real estate brokerages talk about being technology companies, but you're also right that today a lot of them still just offer a disparate collection of third-party services. I think what differentiates Real is that 100% of our agents use our technology. It's not optional, and that level of adoption is what allows us to operate incredibly efficiently and to pass those savings onto our agents through the higher splits.
I think with respect to that end-to-end platform, it starts with having all of your agents on one common platform. Because it's our own proprietary system, the ability to layer on ancillary services all in one ecosystem makes it easier. We're not stitching together a bunch of third-party tools or giving agents a bunch of discounts to a bunch of third parties, and they can choose their own adventure. We get to control the experience soup to nuts, and that's been our differentiated value prop both on the front end and the back end.
Right. Basically, like other firms kind of have technology that's maybe a nice-to-have. The point is that if you join Real, you have to use the technology. You just have this very, it's basically a forced buy-in.
Yeah, exactly. There's no other way for...
Oh, Ravi, you could stop sharing. I think that's the key here.
Got it. I would stop sharing.
There we go.
Nope, that's correct. It's, yeah, it's mandatory. I mean, at a traditional brokerage, and a lot of them have invested a lot of money in tech, but if you're an agent and you're working out of an office and you don't want to use the tech, that's fine. There's a human there who will process the file for you. At Real, we save that work for software, which can do it much more efficiently. Yeah, it's not optional.
I just want to jump over to some of the new products. A lot of companies in the industry have wanted to launch mortgage and title just because the fees are so attractive, and it's been difficult, whether it's RESPA rules or just actually getting the workflow right. Can you disclose what are the attach rates right now and just why do you think you figured this out where so many others have struggled to figure out how to get these products to scale?
Yeah, so I may have mentioned the attach rates today are quite low. On the mortgage side, we're around 1% in the states we operate. On the title side, we're closer to 4%. There's sort of a near-term and longer-term strategy with respect to driving attachment. I think in the near term, we're going to continue to do a lot of the traditional things that we have been doing that have driven the 80% growth of mortgage in the second quarter. That's getting in front of agents, coming up with innovative programs like Real Originate that allows agents to become licensed loan officers. We've launched an inside sales team on the mortgage side, bringing over some professionals from Rocket.
On the title side, we have a state-based JV strategy, which means that we are opening up joint ventures in the states where title is licensed, where some of our largest, most productive teams are joining as equity partners in the joint venture and sending a deal flow. As more agents in that state send volume to the joint venture, they can qualify to become investors in the JV as well, or partners in the JV rather. I think we're in the early innings of proving out the attachment thesis. I think that's sort of the near term is continue building on the progress that we have. The longer term is really building that better client experience and making title and mortgage part of the client experience and the flow, which is why we're investing so many resources into building a consumer-facing portal.
That's not a consumer app, but it's really a text-based interface that every agent will have their own unique phone number that they can use that's enhanced by AI. That way, when a client is looking for a home, they can search for a home, they can schedule viewings, and then when it's time to make an offer, they can get easily pre-approved all via one closed loop system that's all offered by Real.
Got it. So much of your growth has come from agent addition. Is there, how do you think about it, between individual agents versus teams? Is there a metric you can share, like the average team size, who's joined, let's say, over the last few years?
Yeah, you know, it's around 50% solo agents, 50% teams has been the mix. I think that it's been a little bit heavier on teams in the last two to three years than when we first went public in 2020, 2021. I think part of that is just a function of getting some really strong teams joining the platform. The business has really been validated by some wonderful teams who've come on board. With the advent of Private Label last year, now around 15% of agents who join Real are coming under the Private Label program, which is allowing independent brokerages to align with us. The mix of agents is around 50/50 agent solo versus teams, but the team mix has certainly improved.
The quality of teams joining is really top-notch relative to several years ago, where it was much harder to convince a large team to come join Real when we were sort of an unknown entity. Now we're a known player. We're a top five, six brokerage in the industry. We're a force. A lot of teams who are joining and aligning with us know that they see the future of the industry and where it's going, and they want to be aligned with the winners.
Maybe talk about the, is there a different economic incentive for teams versus, because the way the revenue sharing works, like, and that part of what's attractive about that?
I mean, the revenue share model is consistent across solo agents and teams. Teams, depending on the team size, can qualify for certain team-based caps. If you're an agent on a team, that $12,000 cap may be a $6,000 cap or a $4,000 cap, depending on the size of the team. Again, that's one of the benefits for teams coming or agents aligning with the team as opposed to solo agents. In general, the economics are largely the same. The revenue share model works the same whether or not it's a team or solo agent.
You've been operating on more high-producing agents, and again, based more on efficiency than just average home price. You know, what's been the driver of that?
What's been the driver of bringing on more high-producing agents? I think there's a couple of things happening in the market. One, you're seeing the less productive agents just leave the industry. It's a bit of a sign of the times with the industry operating at such low levels. More of the volume is just going to, you know, full-time agents, more productive agents. Our ability to attract some of the, you know, the most productive agents is really a function of just proving out the business model and the value prop. I think a lot of the most productive teams are still aligned with traditional players, and they've been with the Douglas Ellimans or the, you know, Century 21s for decades, and they've never thought to look outside of what they know. I think the next generation of producers is embracing this model as the future.
I know a number of top teams who have left some of those traditional models, they see the six-figure savings that they're getting from being a part of Real, and they would never go back. I think it's this sort of slow evolution of the industry from the traditional model to models like ours. I think we have, you know, one of the most attractive value propositions, if not the most in the industry. I think it's, we're accelerating that shift.
Can you talk a bit more about how the rev share model works with agents and agent recruitment?
Sure. The revenue share model is tiered. When agents join Real, if they attract other agents to join Real as well, they are then named as a sponsor for that agent they've attracted to the company. They can earn a royalty, effectively revenue share, off of all of the revenue that is generated by that agent they brought onto the platform. Depending on how many agents you've brought to Real, you can unlock subsequent tiers. In your first line of agents that you've brought on, you can earn up to 5% of that agent's gross commission income, which comes out of Real's split. Obviously, that scales up as you attract more agents to Real. The amount of revenue you can earn off of those agents also scales up, and you can unlock subsequent tiers of revenue share.
For Real, the way that the revenue share model works is that there's a cap on the amount of our split that we will pay out in revenue share, which is 60% of the company dollar split. Mathematically, if there's a 15% gross profit split, 60% of that would be nine points. We would pay out a maximum of nine points on that transaction into the revenue share pool.
Question on the wallet. Super interesting, kind of both adding functionality to the agents as well as, you know, kind of financially, this is helpful to them. On the loans, like how are the loans backstopped? What's the credit recourse? You send a $1 million, I mean, whatever, my $1 million, few hundred thousand dollar loan and the agent doesn't pay it back. What's your recourse?
Right. I think the agent that would qualify for a few hundred thousand dollar loan would be an agent that has a lot of production, an agent that has a lot of pending transactions, an agent that likely has revenue share. We obviously have a first part, first line of getting repaid just from the transactions in the pipeline. To the extent there was a need to collect or in default, there's the independent agreement that kind of stipulates the revenue share pool as a backstop, but ultimately that's not the goal.
The goal is really to just be very tight on our underwriting, make sure that we're only extending credit to those agents who are with the platform, who have production, who have assets on the platform, and we're being disciplined in extending credit to those that are really using it as a business line of credit and understand ROI, that if I invest X dollars into my business, it'll generate X return. Our ability to collect has not been a concern of ours.
The company has always been, I mean, look, it was founded as a tech-enabled brokerage platform. Really in the last, like, call it 18 months, there's been all of these new LLM agentic models and tools you can use. How much of that is already powering what you're doing versus there's just still much more to come either on the front end or the back end from an efficiency standpoint?
I think with anything, with AI, we're in the first inning. We're standing up our own in-house AI automation team as we speak this quarter that's going to be tasked with looking at every single process in the business to figure out what we can automate using AI if we're not already doing it. I think we were early in embracing AI. Like Leo CoPilot has been out for two years, so only a little bit longer than ChatGPT or a little less than ChatGPT. I think we've been leading the charge to embracing AI in the industry. I think we'll continue to, but it's day one of.
There is definitely some unlock to come. Last question, what are your thoughts on kind of the real estate market from here?
I think, as history would suggest, there's probably only one way you can go from here, which is up. We're at historic trough levels in terms of existing home sales activity. I won't venture to guess on timing of when the market recovers, but I think we've been bouncing along at this 4 million existing home sales level, which, if history is a guide, is basically as low as the end market gets. The rate environment, you've seen a little bit of a pullback in the long bond, and I think there's growing anticipation that rate cuts could be forthcoming. Ultimately, I think Americans need homes. I think the market's undersupplied. I think we're operating well below the historical mid-cycle average. The direction of travel will be up, but I won't venture to guess on timing.
Got it. Okay, we're going to stop there. Ravi, thank you very much for your time. If anyone has any questions, feel free to reach out to me and we can connect you with the company. Thanks, everybody.