The real estate services platform and residential brokerage saw quarterly revenue grow 81 percent from a year ago, to $90.1 million, as Fathom Realty added more than 3,000 agents in Q1.

Fathom Holdings Inc. executives say they expect continued revenue, agent, and transaction growth will keep the company on a path to profitability this year, despite projections that the real estate industry as a whole is headed for a slowdown.

Fathom reported a $6 million first-quarter net loss Wednesday, up 76 percent from $3.4 million a year ago. Revenue also grew 81 percent over that time, to $90.1 million, as the company’s real estate brokerage subsidiary, Fathom Realty, added more than 3,000 agents. The company’s entry into Montana and New Hampshire earlier this year puts Fathom Realty in 38 states and Washington, D.C.

With 9,006 agents as of March 31, Fathom Realty’s agent count was up 11 percent during the first three months of the year, and 49 percent from a year ago. Those agents were involved in 10,087 transactions during the first three months of the year, an increase of 47 percent from the same quarter a year ago.

That growth helped Fathom Realty move up from ninth to the sixth on the RealTrends 500 rankings of the largest indepednent U.S. brokerages.

With home sales expected to decline due to scarce inventory and rising prices and interest rates, Fathom Realty CEO Josh Harley thinks the company’s commission structure is helping it attract more agents.

Josh Harley

“While these market conditions are not good for the majority of real estate companies, Fathom offers real estate agents who join us from other brokerages the ability to net more income even if they sell fewer homes,” Harley said on a call with investment analysts. “That can result in more agents joining Fathom if, or perhaps when, they begin to feel the squeeze.”

Even though Fathom revised its commission structure for agents this year — increasing annual fees by 20 percent to $600, and transaction fees by 11 percent, to $500 for the first 12 transactions — the company estimates it still saves the average agent around $12,000 in commission splits compared to traditional brands.

There are “only two ways for a real estate agent to net more income,” Harley said. “Increase the revenue by closing more sales, which is hard to do in a down market, or decrease expenses. We believe we can help agents do both, and that is a truly distinguishing characteristic about Fathom.”

Harley acknowledged that surveys show would-be homebuyers are discouraged by rising home prices, interest rates, and economic uncertainty. But he said that “does not connect with what we’re actually seeing in the street. As our agents are talking to buyers, we’re not really seeing a reduction of people raising their hand saying, ‘I want to look for homes.’ ”

For the second quarter of 2022, Fathom issued guidance that it expects revenue to increase to between $110 million to $115 million, and that adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will be somewhere between a loss of $200,000 and $200,000 in the black.

On its last earnings call, Fathom executives said that if the company is able to grow to the point where it’s involved in 100,000 to 110,000 transactions per year, it will generate annual adjusted EBITDA of more than $40 million.

“While we’re not prepared to provide a timeline yet for that transaction milestone, we are confident that we can maintain the strong agents and transaction growth that we’ve achieved consistently for more than a decade,” Harley said on Wednesday’s call.

Acquisitions and ‘walkovers’ boost agent count

Fathom’s first quarter growth was boosted by its February acquisition of Utah-based iPro Realty Network, which employs 435 agents.

But Harley said that the company is more focused on recruiting large groups of 50 to 90 agents as “walkovers” from competing brokerages.

“Instead of acquiring their company and going through the auditing of their books … we basically acquire the group [of agents] by moving all the licensing over to Fathom,” Harley said. “It’s faster. Instead of taking four, five, six months to go through the whole process of the acquisition. Sometimes we get that done in 60 days or 90 days. So it cuts the time in half, it’s faster, and obviously it costs less because we don’t have as many legal fees and auditing fees, all the other fun stuff that goes into it.”

Although Fathom is still “actively pursuing acquisitions,” it’s often approached by brokers who don’t have much of a business to sell, he said.

“I think more and more companies, especially small companies who are barely surviving, are going to potentially die in a down market,” Harley said. “They’re struggling to pay the bills as it is, and if there’s a market downshift, then there’s no way to pay the bills, right? They’re dipping into savings to survive. So a lot of them would come to us as a potential walkover.”

Building an end-to-end services platform

While Fathom Realty accounted for 93 percent of its parent company’s first quarter revenue, Fathom’s goal is to create an end-to-end real estate services platform that integrates residential brokerage, mortgage, title, insurance and software-as-a-service offerings to brokerages and agents.

Fathom Holdings Q1 2022 revenue by source

Fathom got into the mortgage business last year with the $26.75 million acquisition of E4:9 Holdings and its three operating subsidiaries: Encompass Lending Group, Dagley Insurance Agency and Real Results.

In February, Fathom’s Encompass Lending Group subsidiary expanded its mortgage business by acquiring Cornerstone First Financial, which is headquartered in Washington, D.C. and also licensed to do business in California, Colorado, Florida, Georgia, Maryland, Pennsylvania and Virginia.

Fathom also sees the potential to build on last year’s acquisitions of home search and customer relationship management (CRM) company Naberly Solutions, and market data and technology platform LiveBy.

The Naberly deal helped Fathom develop intelliAgent 2.0, the company’s technology platform for brokerage operations and agent transaction management.

“With the rollout of intelliAgent 2.0, we now have everything we need in place to better serve our own agents, as well as begin to take the next steps necessary to license our platform to large teams and small- to medium-sized brokerages,” Harley said in announcing the platform’s debut in January.

In its most recent annual report to investors, Fathom revealed it also intends to launch a national, brand-agnostic home search portal on an enhanced version of the Naberly platform. The goal is for the portal to generate leads in markets where Fathom isn’t operating, and improve attach rates for mortgage, title and insurance, the company said.

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Email Matt Carter

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