Glenn Sanford cuts a modest figure. Nope, wait, eXp Realty‘s Glenn Sanford isn’t cutting any real life figure at all.
It’s annual report time, and Sanford, the CEO of eXp, is cataloging the company’s eye-popping growth onscreen as a cartoon avatar during a cloud-based earnings call that looks like Second Life or The Sims.
Since Sanford found the company in 2008, most everything eXp (the name is because Sanford once looked in a dictionary and liked “exp” words – expert, expand, exponential…) is over the cloud. Here’s a residential real estate brokerage that owns no property, has no franchisees or branches, and leases nary an office save its Bellingham, Washington, headquarters.
Sim Sanford is small amid a huge, animated podium, and also offers small, pointed assertions. Instead of vowing exceptionalism (an “exc” word), Sanford wants eXp to fit in.
“Our model is now recognized as a totally viable and legitimate model for the entire industry,” Sanford said on the March 11 call.
In a phone interview days later, Sanford again is low-key. He politely answers questions like a local that’s giving directions, chalking up eXp’s profitability swing to “slight tweaks” in the business model.
But eXp has actually been on a rampage.
The company reported a profit in each quarter of 2020, including April through June when real estate was in COVID-induced panic mode. Revenue and sales volume grew 90% for the year.
Agent head count doubled to 48,000 salespeople in less than two years as eXp Realty plucked agents from brokerages including Sanford’s old employer, Keller Williams.
“I mean, they are just absolutely ravaging Keller Williams,” said Nick Solis, an industry consultant at One80 Realty in San Francisco.
And the eXp share price has shot up 1,500%, from trading at $3.66 on the Nasdaq stock market in March of last year to $55.79 at close of business March 17.
The company’s market cap hovers around $8 billion, four times the Wall Street value of Realogy, the No. 1 U.S. brokerage by sales volume.
“They have a good story, and good talent, and they have taken full advantage of that,” said Steve Murray, co-founder of RealTrends.
Within the next few years eXp could be one of the top three brokerages in the country, Murray said, duking it out with the likes of Realogy, Keller, RE/MAX and Berkshire Hathaway HomeServices.
Pretty impressive for a business criticized for having a pyramid-esque structure.
Lean with green
When you turn away from the festival booths that read “Agent count!” and “Stock price!” in dayglo neon, eXp Realty is a money-making but lean operation.
The company recorded $1.98 billion in 2020 gross revenue. But that figure includes the agent’s cut of sales commission, plus agent’s revenue from the recruitment of other agents (more on agent recruitment later).
Agents in the U.S. get an 80% cut of their commission, with 20% going back to the company. And money toward eXp is capped at $80,000 of an agent’s gross annual commission.
When agents’ commission income is deducted, eXp generated just $159.6 million in 2020 revenue.
But the cloud-based company’s non-agent operating expenses were just $128 million. The biggest cost was payroll, as eXp’s employee headcount leaped 42% to 900 in 2020. There are also managing brokers in each state. Without physical offices, the next biggest expense was “software equipment.”
That led to eXp Realty reporting $31.0 million in net income, a turnaround from losing money between 2009 and 2019.
“They have hit a critical mass of agents willing to adopt to the platform,” said Hannah Bomze, the co-founder of real estate app Casa Blanca, and a former Compass agent. “Having a cloud-based infrastructure proved very smart.”
The small tweaks Sanford alluded to include trimming agents’ discount to buying company stock. The company is recruiting agents in nine countries, and splits in countries including Mexico, Brazil, and South Africa hew closer to 70% agent, 30% eXp Realty.
Wall Street, Sanford argued, wants a real estate outfit with a legit tech value-add. And becoming profitable “created a big shift in investor perception” for a company that until 2018 traded on a Canadian penny stock exchange.
Sanford peppered his answers with little self-aggrandizement, and his flourishes of salesmanship are more idiosyncratic than anything.
For example, Sanford touted eXp’s $7 million purchase last year of Success magazine, a Plano, Texas-based publication featuring self-help listicles and panels hosted by former swimsuit model Kathy Ireland with “lifestyle entrepreneurs.”
“It is the longest running personal development brand,” Sanford said – an entry point to a “$14 billion personal development market.”
Success magazine is great for eXp’s virtual agent training, Sanford declared. But the CEO interrupts his own pitch with the quip that agents will buy-in if he asks, “Hey, do you want to be on the cover?”
“I wouldn’t necessarily call Glenn a stoic individual,” said James Dunn, an eXp agent based in Los Angeles. “Because I think he has a passion for what he’s doing.”
Dunn said that he took to Sanford, “Because his tone is different and kind of vibes with me. I try not to be too high or too low.”
Sanford, who is 53 years old, graduated from the University of Oklahoma with a degree in computer science and economics. After a try as a dot-com entrepreneur, he became a real estate agent at Prudential in 2002 and moved to Keller Williams in 2004.
On LinkedIn, Sanford does brag about his Keller days, writing, “I ran one of the top 50 real estate agent teams in the country doing over $60,000,000 a year in production my fourth full year in the business”
By what was to be year five, Sanford left and started eXp Realty.
He denied a rift with Gary Keller, noting Keller’s book, “The Million Dollar Real Estate Agent,” is taught in eXp’s training classes. But Sanford acknowledged he is driven to improve on Keller’s model.
(Keller Williams declined to comment on Sanford and eXp Realty beyond referring to the company’s own accomplishments from the past year. “We have nothing to add,” a spokesperson said.)
In building eXp Realty, Sanford exerts almost complete control. He, along with ex-spouse Penny Sanford, Jason Gerber, who is eXp’s vice-president of business development, and board member Gene Frederick, own 58.4 % of the company’s stock. There is no independent board of directors.
Sanford is “always having conversations with agents, brokers, and staff,” and those factor into eXp’s direction. However, Sanford said he is introverted, and spends a lot of time alone, processing data.
“Ultimately,” he noted, “I’m the one who is making the strategic decisions.”
A business plan that may resemble an upside-down triangle
Sanford’s biggest strategic decision – or “1A” with choosing to operate virtually – is running what’s politely called a “multi-level marketing plan,” according to Yousuf Hafuda, real estate equity analyst at Morningstar.
“I wouldn’t categorize it as a pyramid scheme, although the terms are somewhat conflated,” Hafuda said. “But you are using your own workforce to recruit agents, so there is a pyramid-type element.”
Here’s how it works.
An eXp agent who recruits an agent to join eXp gets part of that recruit’s commission from each home sale. The precise cut depends slightly on how many salespeople the “sponsor” agent has recruited. But it usually comes to about 3.5 % of total commission.
That 3.5% – eXp is quick to note – does not come out of the recruited agent’s 80% commission split, but rather eXp’s 20%.
The company’s financial reports do not break out the agent revenue sharing program. Sanford approximated the figure as over $10 million a month out of eXp’s operational budget.
Sanford staunchly defended revenue sharing.
“It is fundamentally the thing that I wanted in a real estate brokerage,” he said. “At Keller Williams, there was a profit share plan. It wasn’t very profitable for me. If it was, I would still be an agent there.”
Keller’s plan is based on profits instead of revenue. In other words, if the company lost money, the agents earn nothing for their recruitment efforts.
Money made from recruiting at eXp, then, is unlike any national brokerage, said Solis of One80 Realty. And that can make eXp’s workforce aggressive.
“Agents are very incentivized on recruiting,” Solis said. “For a while that was the big knock on eXp – that you are not going there to sell real estate, you’re going to recruit agents.”
The annals of YouTube are filled with eXp agents discussing their recruiting triumphs. Kyle Handy of San Antonio said that he made over $100,000 a year from revenue sharing (revenue sharing is capped so the sponsor agent cannot make more than $2,800 a year from who they recruit).
Sanford doesn’t apologize “for our agents being enthusiastic in growing the model.”
Hafuda of Morningstar saw nothing to ring the alarm about eXp’s agent recruitment, but noted, “It’s certainly not the predominant business model, and is a little fishy.”
One way that eXp Realty tries to normalize these triangular hierarchies is make them tantamount to franchises, branches, or agent teams.
Dunn, a former Keller Williams agent, was lured to eXp by Las Vegas agent David Golden, who’s brought dozens of agents to eXp (This is after Keller rewarded Golden a “black belt” for his agent recruiting there).
Golden has incentive that Dunn performs well, like a brokerage head might. And now Dunn is looking to recruit agents himself.
“I don’t have the high amounts of capital needed to start a brokerage,” Dunn said, “And I think this creates a new entrepreneurial path.”
Joining the heavyweight division
Brokerage (unlike a not yet invented avatar game “Brokerage!”) is not a zero-sum market.
While eXp Realty plundered thousands of agents from Keller Williams (both companies declined to provide an exact figure), Keller reported a 2% uptick in 2020 salesforce count to 176,000 agents worldwide.
And though eXp lapped Realogy on Wall Street, that New Jersey-based brokerage conglomerate still boasts six times as many agents, and annual sales volume more than twice the $72 billion eXp reported for 2020.
Brokerages are riding a sales boom. Agent license registrations are at a 15-year-peak, Sanford himself noted, along with home sales volume. But there lies concern that boom times never last, and more specifically that inventory hasn’t kept up with demand (one industry observer noted there may be more agents than listings).
One worry for eXp Realty is that one-size-fits-all commission splits and indiscriminate agent recruitment puts a ceiling on their growth by turning off mega-agents in luxury markets.
“I don’t think they can make a dent in New York City,” said Bomze, the former Compass agent. “It’s very hard to penetrate that market, and eXp is more mass market.”
While eXp Realty makes money and Compass loses money, Compass is already a force in New York, Los Angeles, and San Francisco.
On the other hand, eXp is a “Bread-and-butter real estate brokerage,” Sanford said. “Our average price point is $350,000.”
Where eXp soars, Sanford said, is the south and west. In Charlotte, for example, eXp is the No. 1 brokerage. Where the company is not soaring is the north and upper Midwest where incumbent brokerages – such as @properties in Chicago or Howard Hanna in Pennsylvania and Ohio – reign.
Sanford does not see eXp’s limited luxury presence as a big problem. But he also views international markets as a “way to attract more influential clientele.”
International growth is a priority – Sanford pointed out that fees to register as a brokerage in most countries are “less than $100,000.”
The company is also in early stages of iBuying as it keeps an eye on Zillow.
“When I think about competitors, I think of Zillow more than Keller or RE/MAX,” Sanford said. “Eventually Zillow will just make moves that challenge the real estate model.”
The eXp model may not appeal quite as much in a few months when colleagues can return to physical interactions.
“The brokerage world is still very brick-and-mortar,” Solis said.
That said, Solis added, “They are not going to be back-sliding because everybody is within six feet.”