This is the fifth in a series of 9 reports on the challenges the country’s largest brokerages, portals and iBuyers face in 2023. Check back as Inman dives into the biggest obstacles of the new year for Anywhere, Offerpad, RE/MAX and more all this month. And look back at the challenges they faced in 2022 here.
One of the world’s fastest-growing brokerage companies has emerged from the ups and downs of 2022 leaner in support staff but bigger in terms of agent count.
This cost-cutting was a move that eXp World Holdings founder and eXp Realty CEO Glenn Sanford deemed essential as the housing market saw transaction levels fall back down to earth after the recent era of ultra-cheap mortgage rates came to an end, he said.
As the executive prepared to turn the page to 2023, Sanford joined Inman on a video call to discuss the biggest challenges facing eXp in the year ahead as home transactions continue to dwindle and the economy flirts with a recession in the coming months.
The plan, for now? Keep expanding — albeit at more of a jog than the sprint of years past. With low expenses and relatively few liabilities, Sanford told Inman he believes eXp can continue adding agents to its ranks in this volatile market.
“Instead of seeing 30 percent to 40 percent year-over-year growth” in agent count, Sanford said, “it’ll be more like 10 percent to 15 percent. Counting international, maybe we hit 20 percent year-over-year growth.”
In the third quarter of the year, the company held more than $134 million in cash on hand and was making more money than it spent, although those profits had been shrinking as real estate transactions became increasingly hard to find.
This combination of factors puts eXp in a position to weather a downturn better than most fast-growing companies, said Chris Heller, the former Keller Williams co-CEO who now serves as chief real estate officer for tech company OJO.
“They have good momentum and a strong foundation,” Heller wrote in an email to Inman. “If the leadership team can stay ahead of that and can continue to bring value, then they have a positive outlook for the next several years.”
But for eXp to end up there, the company will have to continue to manage the financial fallout of the housing downturn alongside its grand ambitions of expansion.
Pursuing growth in a shrinking market
At the beginning of 2022, eXp’s agent count stood around 73,000 after years of fast-paced growth. By the end of the year, Sanford told Inman they were on track to hit 87,000 or 88,000 agents.
With its all-online brokerage model, eXp has pushed to grow its agent count for years with Sanford announcing ambitious targets like reaching 500,000 agents by 2026 at a previous EXPCON.
But the cooling housing market appears to have put a damper on those more ambitious projections, at least for now. Sanford expects they will end up with around 107,000 to 110,000 agents by the end of 2023.
It’s yet to be seen whether this slowdown in agent count growth is a mere blip due to the ongoing real estate slowdown, or whether it’s a sign that eXp’s red-hot rise in market share is beginning to cool.
“There is a ceiling in terms of that growth — it’s a math problem,” real estate analyst Mike DelPrete told Inman. “It cannot keep growing exponentially. There’s only so many real estate transactions, only so many agents. It has to slow down at some point. But I don’t know where that point is. We’ll see.”
A big chunk of the new agents over the next year, perhaps more than half, are expected to come from international markets, Sanford said. He acknowledges those overseas markets are also where eXp harbors a bit more risk in its expansion efforts as the company launches in new countries and hires staff to assist with the efforts.
But in the U.S. and existing markets, Sanford’s company can add agents without much concern for overextending itself, unlike many growing businesses in a period of economic contraction.
“We’ve got pretty low risk,” Sanford said. “The biggest risk for us is not to match the market.”
The company has few brick-and-mortar expenses, given its completely cloud-based model. Adding agents comes with certain expenses, such as software licenses, but most of the company’s administrative costs are tied to sales volume, Sanford said.
“The thing that’s always stuck out to me about eXp is its entire business model is more efficient than a standard brokerage,” DelPrete said. “And what I mean by that is its operating expenses. It’s a pretty lightweight operating model.”
This has shown up in eXp’s recent earnings reports where the company has posted profits in recent quarters, even as it has grown its agent count and has seen the number of home transactions per agent dip.
And observers across the industry have taken note of how a brokerage already so large has poured itself into further growth.
At his “state of the industry” talk in September, T3 Sixty Executive Chairman Stefan Swanepoel said that eXp remains the fastest-growing real estate company “of note” in the country. The sustained growth rates of recent years are impressive considering how large the company had already become, he said.
And those strides in market share could open up tantalizing business opportunities for eXp once the market recovers.
“I know agents are not everything — people said that about Keller [Williams] as well — but sales volume [and] profitability usually follows … agent count,” Swanepoel said.
‘Deleveraging’ while retaining agents
Any business that adds jobs or takes on debt during good times risks being overexposed when the market takes a turn for the worse, Sanford said. And while his company doesn’t have the debt levels of some quickly-growing competitors, Sanford came to realize that eXp had overhired once transactions came back down.
“Depending on where you created leverage, you’re going to have to figure out a way to deleverage in some way — and probably a lot more than you expected,” Sanford said.
For eXp that has mainly meant two things: Cutting jobs related to facilitating home transactions and outsourcing some of that work to people in countries where this type of labor is cheaper, Sanford said.
And if transactions continue to fall, eXp may not be done adjusting, Sanford told Inman.
“We’ve cut back considerably on some of our expenses,” he said. “I think what we’re recognizing is that we may have to go deeper.”
Many real estate companies have made similar tough calls this year in hopes to position themselves for success in the months to come.
“It’s commendable that these large companies are thinking ahead,” Swanepoel said. “They would probably hire back very quickly if we do not turn out to have a recession or the downturn is not as bad as some are predicting.”
Still, if a company cuts jobs too quickly and finds itself in need of support staff to help with higher transaction volume, it might find it tough to hire quality replacements, Swanepoel said.
In the case of one of eXp’s top competitors, Compass, the worsening economic environment coincided with a much-talked-about decision to ditch some of its competitive stock and financial incentives when recruiting agents.
Sanford’s company isn’t planning any similar changes to its recruitment tools.
“We think all of those will stay in place; I don’t see any reason why those are going to change,” Sanford said. “The fortunate part is we didn’t have an internal cash burn rate like Compass did.”
Getting creative on agent income
Heller believes eXp is positioned well for the coming months.
But he doesn’t expect they’ll be satisfied with merely reducing costs and maximizing revenue.
“They’ll also be looking at partnerships and opportunities to help generate [business] for their agents, their affiliated businesses and how do they increase company dollars per transaction,” Heller wrote.
Sanford told Inman that eXp is taking this type of opportunity seriously.
“The unfortunate reality is we’re going to have a lot of agents looking for other ways to make money beyond real estate,” Sanford said. “I think that’s just because of the much lower transactions; it’s going to be just a little bit rougher.”
A number of these ideas remain in the early stages of vetting, he says. Some of them are products and services that agents could take directly to homeowners.
Brokerages may take a closer look at services in the emerging “environmental social governance” space, he said. One of the ideas here is that in the future, homes with higher ESG scores might qualify for lower mortgage rates — making them more attractive to an eventual buyer. Perhaps agents could be part of helping homeowners obtain scores for their homes, Sanford mused.
Other business opportunities deserve a closer look by agents, he said.
With home prices falling and more recent homebuyers finding themselves underwater, agents may need to become more familiar with foreclosures and distressed property sales, Sanford said.
“There’s still going to be a percentage of the population that’s going to need to move regardless,” Sanford said. “If they are break-even or a little underwater and they’re having trouble competing on price, how do they get out from underneath the payments that they’re obligated to?”
Exploring the cutting edge — with care
This time last year, eXp had grand ideas for all kinds of forward-thinking business opportunities they could explore.
These include allowing home purchases paid with cryptocurrency, expanding further into iBuying and growing their footprint in the second-home and fractional ownership markets.
Now, most of that is on hold — although not off the table.
“Almost all of those are things that will take place primarily in what I’ll call upward-biased markets,” Sanford said. “[Cryptocurrencies] obviously are in the toilet compared to where they were a year-and-a-half ago, and so we’re seeing fewer and fewer crypto-based transactions. So we’re not heavily focused on creating opportunities there.”
If cryptocurrency values had continued to rise last year, eXp expected more crypto owners would express interest in conducting real estate transactions in crypto. They were already getting in touch with platforms like Bitpay to look into ways of facilitating more of these transactions.
But over the last year, crypto prices have tanked even faster than the stock market as investors have dealt with market volatility, speculation and even the collapse and allegations of fraud against the major crypto-trading platform FTX.
Sanford said he plans to keep an eye on this type of opportunity. It would be relatively easy to tie back into that ecosystem if there was enough interest in conducting real estate transactions in cryptocurrency in the future, he said.
Last year was also tough on companies with designs to get more involved with iBuying. Zillow had already begun winding down its cash-offer service when the calendar turned to 2022 and has since finished selling off its inventory.
Redfin has since closed its own iBuyer program as well, and others have drawn back on their purchases, Sanford said. It’s a dramatic setback for an industry that some had predicted would eventually account for a significant share of all home sales.
“I think that what we’re going to see is that iBuying is not going to become the driver of a lot of real estate transactions as we were thinking,” Sanford said. “If interest rates had stayed low, I think we’d be having a different conversation today.”
In the meantime, eXp’s ExpressOffers is still in operation. It’s the brokerage’s software platform that connects sellers with institutional investors, facilitating potential offers that the client can consider.
Eyes on recession: Preparing for the worst
Looking ahead to the year to come, Sanford doesn’t strike the most optimistic tone about the market broadly, at least in the short run.
He said he spends a good deal of time thinking about whether he’s cutting costs fast enough and positioning the company well enough for some of the more pessimistic scenarios that could occur in the months ahead.
“I think the biggest challenge is just understanding how much slower the market could get from today,” Sanford said. “Because we’re trying to match the business [of the market], but what we’re realizing is that we’re still slow to make all the changes that are necessary to match what we’re seeing in real-time.”
His company’s place with one foot in the real estate industry and another in the tech world has also affected his outlook, he said. It’s partly why eXp is working to prepare agents for a possible rise in foreclosures.
“I think that we’re kind of the canaries in the coal mine on that, because we’re seeing our markets shrink faster than other markets because of interest rates,” Sanford said. “But we’re obviously seeing the layoffs from Google and Amazon and a bunch of the big tech companies. We’re seeing all of these layoffs take place, and that will eventually start to show up.”
Still, he expects even if the country falls into recession, it will turn around shortly thereafter, possibly beginning in the fourth quarter of 2023.
The question, he said, is how real estate companies will get through the period in between responsibly.
“We had $130-something on the books at the end of the third quarter, so we can weather it,” Sanford said. “But how much of that cash are we gonna dip into before we get to the other side because we haven’t downsized fast enough? So for us, it’s just understanding where we need to downsize faster.”
New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here.