Since I bought EXPI to the board I feel I should share that I sold my entire position early today.
I spoke with a realtor (who was a friend of a friend) that works with EXP reality. He explained how they get paid. A few posters at the time I brought them said they were a Multi Level Marketing (MLM) scheme. I had read all of the companies literature and it mentioned that employees got compensated for bring on new realtors, but did not have the composition of a MLM in what I read. However in speaking with someone who works for them and told me how the composition worked, it was very much an MLM. Now that being said, does not mean that the company will not be successful. Rich Devos made plenty of money with Amway.
The part that I really did not like is this system is not really explained on the companies website or in their investment literature. Anyway the whole thing made me feel uneasy and I decided the risk/reward profile was no longer in my comfort level.
Being willing to change your mind in the face of new information is SUCH an important asset to successful investing. Congratulations on doing it so well and promptly. Also, thanks for taking the courteous action of alerting the board to your change of mind on a stock that you originally brought to the board. That’s very appropriate, and a very nice thing to do.
Retirementdough, thank you for your post. I have found a lot of online debate about EXP from 2015 to date. Most often the conclusion is that it’s not a pyramid scheme, it’s “Multi-level Marketing with revenue sharing”, the latter being well described on various sites. The sharing being possible because of their low overhead costs (i.e. no bricks and mortar). Whether this is OK or not apparently depends on us. Can you expand on what in particular about their composition put you off? The Glassdoor ratings continue to be very high for this firm (98% approve of CEO, 96% would recommend to a friend, 988 reviews and they can’t all be shills).
I also shared your concern about the sustainability of the revenue share model. The model is explained at several locations online and on the Exp website.
The rev share extends 7 levels like Keller’s profit share model (this has been around since the 1980s). Basically, up to the 16k commission cap the agent keeps 80%, Exp keeps 10% (this is the most important thing), and the remaining 10% gets distributed to the 6 agent preceding levels. Exp. retaining 10% was introduced only in late 2019 and this greatly ensured the sustainability of the business model. Glenn Sanford explained the model and the business in an MF interview with Tim Beyers and Deidre last week. So, if you follow the math, Exp should end up with about 10% gross margins on their realtor business which is their long-term target. Their long-term target is also 4% net margins and Glenn stated that in the recent earnings call. Based on the above, I see the revenue model as quite sustainable.
They are projecting to add 50% agents/year over the next 5 years and end up with 250,000+ agents in US alone and an equal number abroad. 250k is 20% of all agents in the US! If you follow some of the RE journals like Inman and podcasts the general feeling seems to be that they are here to stay and not a fad.
Through the purchase of Showcase IDX they are developing a consumer-facing web portal like zillow.com or redfin.com to generate leads. This will help them own all levels of the customer journey. As of today, I like the growth and the direction they are moving in and am invested.
As always this is not a recommendation to buy. Please do your own DD.
Just seemed as if the company pushes the idea of building the base of agents underneath you and them having an emphasis on that.
Tex just posted a link that clearly describes how that process works. After reading it, it makes me feel better about the companies clarity on this issue. I just did not find this information during my earlier research.
I do think the company is growing very fast and has a bright future. I do also worry about dilution of shares which are paid to agents.
Like I said I believe the company will do well, just have decided it is not for me.
I saw this interesting bit of information in the Wall Street Journal (3/21)that may have some bearing on EXPI. I hope this is helpful.
"The red-hot housing market has achieved a number of milestones this past year. Perhaps the most telling is this: There are more real-estate agents than homes for sale in the U.S.
This phenomenon reflects both the extremely tight supply of homes on the market and how surging prices are persuading tens of thousands more Americans to try their hands at selling real estate."
(I have been a lurker on this board for a few months now, learning and hoping to one day be able to contribute meaningfully. I am a retired attorney, have invested in mostly index funs for over 35 years until I joined the Fool this year and found this board. My timing was terrible, after spending several weeks reading old board posts I invested in many of the “Saul Stocks” and Fool recs right before the downturn, so my stock portfolio is down over 20%. Fortunately, I didn’t risk any funds that I can’t afford to lose. It has been a lot of fun! I’ve learned so much about investing and about all these interesting businesses. Hopefully I’ll get better with the numbers and some of my stocks will eventually do well. Regardless, I’m very grateful for all the incredibly valuable contribution to this board. Saul, you are an amazing teacher- the knowledgebase is so clear and easy to understand. Thank-you! )
First, thank you for bringing EXPI to this board. I’m a lurker most of the time so this is my first post
Actually it took me exactly 2 weeks since I got interested in this company to when I purchased my first share (well, it is negative now). My biggest concern was exactly this: “EXP business model sounds really like an MLM or pyramid scheme”
However, after debating with myself and searching for different opinions, it seems not likely the case. Of course, different people have different point of view so I just leave some results from google “EXP pyramid scheme” so everyone can read and has their own opinion
I find it strange you use this as a reason to sell out EXPI. This info is not new. I knew about this right from the beginner that there’s a profit sharing model which upper level get some revenue from downlines. I think this is like a referal fee/affilate marketing.I can understand if you sell out EXPI because of interest risk or housing market is getting too hot because of COVID.
This is not tupperware party where the host tries to sell something to guests. This is not Herballife where recruiters ask you to buy products for ourselves to prove they works. I had experience with Herbalife more than 10 years ago. I was/am a skinny person. The recruits asked me to spend $500 to buy weight loss products from Herbalife to show I lose weight. They actually sent me a measuring tape to measure my waist line!
EXPI doesn’t sell houses to downlines. Revenue depends on actual house transactions bewteen customers not from agents buying houses!
Disclaimer: I reduced my Long growth stocks to just 5% of my net worth and I still have a position in EXPI. Whatever happens to this growth stocks portfolio won’t have major effect on my net worth.
I want to add that EXPI out performed many of the favorite SaaS stocks here. I am not saying it’ll continue to out perform. The biggest reason was EXPI was ignored for 2 years while revene was growing at 100% per year. It might slow down but the growth should still be decent.
1 year return:
Thanks for the input and the heads up on the change in position.
Just a few observations on this…
The business model and practices have remained a constant since initial introduction and performance has been excellent
The entire industry of even blue chip corporate real estate agents seems to run on an almost MLM basis. In fact you could make the argument that “partnerships” in professional service firms work the same way. Certainly - in dealing with real estate companies they appear to have a lead agent with sub agents working for them under a pyramid scheme of operation. Would I want to work in that environment - no way, does it perform - whether it is NuSkin or Tupperware etc you could make the case that it does.
I still think the bigger concern to me is the use of stock (and I don’t mean RSUs) but I mean equity as a the basis for the incentives is a bigger self serving red flag.
Overall the expansion into new markets is operating at an incredible rate.