Although revenue reached a record high in the third quarter, eXP World Holdings, the parent company of fast-growing brokerage eXp Realty, is being tested. Profits are down and agent attrition is up as the brokerage courts higher producing agents, executives said Wednesday.
As mortgage rates rose and homebuyer demand waned in the third quarter of 2022, eXp World Holdings managed to generate record Q3 revenue of $1.2 billion, up 12% compared to the same quarter a year ago. Brokerage executives attributed some of this increase to strong number of closed transactions and transaction volume, which were up 6% and 8% year over year, respectively, to 138,354 sides and $50.4 billion.
Despite this strong performance, the firm’s net income for the quarter was down to $4.4 million, compared to $23.8 million in the third quarter of 2021. And agents attrition is increasing.
“The two main drivers of that are lower operating margin based on higher investments and the second is lower tax benefits year over year, both in Q3 and on a year-to-date basis,” Jeff Whiteside, the firm’s CFO and chief collaboration officer, told investors during eXp’s third-quarter earnings call Wednesday morning.
The firm’s founder, chairman and CEO Glenn Sanford added: “We have not been immune to what has been taking place. Higher interest rates are a big indicator of a buyer’s ability to buy at current prices based on the fact that 70% or so of buyers use a mortgage to purchase a property. So, with that there has been a slowdown in the market.”
Due to the market slowdown, Sanford said they have started to see what he called “market attrition,” or agents canceling or not renewing their licenses.
According to eXp data, brokerage agents who make two or fewer sales per year have a 77.1% attrition rate, but that number drops to 13.6% when agents make three to seven sales per year. While Sanford expects this trend to continue, he is confident that eXp will continue to grow its agent count in 2023.
“Our focus on building the most agent-centric real estate brokerage on the planet, and truly doing that – it not just being a phrase that we use for marketing purposes – has resulted in agents wanting to be with us,” Sanford said. “We are starting to really see agents that are higher producing, taking a serious look at eXp. But our growth rate right now in terms of agent count has moderated, but we are still gaining market share thanks to attracting higher performing agents.”
On Sept. 30, eXp had just under 85,000 agents, up 30% year over year. Despite this growth, Sanford acknowledged that the firm will fall short of its goal, which was set late last year, of 100,000 by the end of 2022.
Although eXp executives are confident that the company is in a good place heading into another year of higher mortgage rates and lower transaction sides, they have made some adjustments to ensure the firm’s financial stability.
“Earlier this year we knew interest rates were going up and that we were going to need to halt hiring and then potentially shift the way that we work with our head count to make up more variable based elements,” Sanford said. “One of the things that we are looking at is how do we moderate our expense load to match up with our transaction load because that way I think about it is that once we get to this next level of where the market sort of bottoms out at, we become again a fairly profitable company because we are able to shift our resources in such a way that we are able to be profitable in good markets and bad markets.”
Executives also said that the firm is continuing to invest in Success Lending, its mortgage joint venture with Kind Lending, as well as growing its affiliated services.
“We are continuing to grow Success Lending, whereas almost everybody who is established, is shrinking their lending platform,” Sanford said. “We are in a really interesting place to be able to actually able to attract productive loan officers on the platform. It doesn’t mean that we are profitable in that segment yet, but we are optimistic because we are forming these businesses in a down market so we are actually better positioned to build out the infrastructure so that when the market gets back to normal we are able to grow at exactly the right time.”