Over the last year, I have seen explosive growth for the real estate company, eXp Realty. They went from non-existent to sticking yard signs in my real estate market. While their growth can be applauded, I believe it’s fleeting and eXp Realty will fail and collapse.
They are the next Bitcoin or Dogecoin. We will see a meteoric rise and cataclysmic fall.
In this post, I’m breaking down my analysis on why I believe eXp will fail and collapse. You will find reasons to reconsider joining eXp Realty and the kind of risks you’re accepting if you decide to join eXp Realty.
Hasn’t Survived An Economic Downturn
I’m a big believer in many of the philosophies that Warren Buffet holds. One of his most famous quotes is, “A rising tide floats all boats… only when the tide goes out do you discover who’s been swimming naked.”
So, how does this apply to real estate and eXp Realty?
When the real estate market is good, all businesses are growing and making money. However, when things turn south, many companies are exposed for their poor business practices, financial management, and business models.
If you look at the history of eXp Realty, you find two key insights.
First, eXp has never been through an economic downturn. They’re business and business model has never been tested by the fire. How do we know it can survive a downturn?
We don’t. The only companies we know to survive a downturn are those that were well-established before the last recession in 2008 to 2012 and are still around today.
These companies include real estate brokers like Century 21, Exit Realty, and Keller-Williams.
Second, look at when most of eXp’s growth has occurred — over the last few years. When the real estate market has been on an incredible high. Covid and the pandemic weren’t a negative to the real estate market.
There is a correlation with eXp: most of their growth has occurred when the market is doing well. Indicating that eXp Realty is going to be a company that is caught swimming naked.
The tide will go out, eventually. Will eXp Realty be able to survive that?
I don’t think so.
What Made It Grow Fast Is Its Collapse
Part of eXp Realty’s growth is due to their revenue share plan. It’s also going to be the thing that causes them to collapse, and collapse fast. I’ve talked extensively about why the eXp revenue share plan sucks, you can check that out.
Here’s the gist of it. Since the eXp revenue share plan relies on direct recruits to unlock the different tiers, you’re going to have a big swing in your revenue share earnings if real estate agents leave.
An agent will leave the company here and there. No big deal, but you will have an accelerated rate of decline in the company once a tipping point is reached.
As agents leave eXp, remaining agents will take big hits in their revenue share. As the number of agents leaving the company increases, the number of agents leaving eXp in a given year will increase and accelerate.
Take a look at what happens to the eXp revenue share plan if you go from an unlocked second-tier to a locked second-tier because you lost one agent.
Imagine this happens for several agents across the company. This will spur a mass exodus. Creating sharp drops in revenue share for remaining agents.
If eXp Realty grew by 28,600 agents in 2021 — a 69 percent growth — you can expect them to decline by those levels, too.
So, once growth stops and a decline occurs, eXp will fall fast. Leaving agents hurt and damaged in its wake.
Their Competitive Advantage Can Be Taken
Here’s the big issue I have with eXp Realty. Most agents joining the company are doing so because of the favorable commission splits and revenue share plan.
In other words, they are competing on price. They learned how to deliver a low-cost brokerage model that allows agents to retain more of their commission and create additional revenue streams.
But, eXp isn’t the first one to do this. Look at the trends…
In 1973, Re/Max hit the market, offering a model that was revolutionary. They quickly grew and beat out traditional brokerages like Coldwell Banker.
Then a little company from Houston, called Keller Williams, came along and created a better model. People left Re/max for Keller Williams.
And now, Keller Williams is struggling to keep its agents, as many flock to eXp Realty. Look all around the web and you will find many people that are leaving for eXp come from Keller Williams.
Heck, even the CEO of Keller Williams tried to jump ship to eXp before the courts blocked his move.
My point is that all it’s going to take to end eXp is a brokerage model that offers agents more of their commission and a better revenue sharing plan. Someone needs to come along and find a way to deliver an even lower-cost brokerage model.
When you compete on price, you build a business on a shaky foundation. Businesses built on lower pricing are always at risk of being beat out by someone that can lower their prices even more.
For me, I’d rather be with a company that is built on agent training, support, technology, their culture, and a brand.
It Won’t Change How People Chew Gum
Warren Buffett is also famous for criticizing cryptocurrencies and internet companies. He’s famous for saying, “Take Wrigley’s chewing gum, I don’t think the internet is going to change how people chew gum.”
There might be some changes to how people buy gum, but it doesn’t change how they chew gum.
Real estate is the same way. We saw this as a perfect example from the collapse of Zillow’s ibuyer program. The company heavily underestimated the need of local real estate agents.
The real estate industry is a local game. Always has been. Always will be. The internet won’t change how people live in their homes.
Yes, we’re going to see minor changes for how people might find homes. But, at the end of the day, buyers are going to rely on local real estate agents and brokers.
Real estate agents are also going to rely on local brokerages to hold their licenses. But, it’s a virtual company that offers few local opportunities unless you happen to have a managing broker in your area.
Final Words On eXp Realty
eXp Realty, I predict, will collapse. It’s like a house built on sand. During a rainstorm, the company will collapse. It’s a poor foundation.
People who are going over to eXp are getting caught up in hype. It’s the same thing that happened to Bitcoin, Dogecoin, and internet companies during the internet bubble.
You’re relying on getting the next person to join. Once growth stops, a giant sell off happens and it loses its value.
The truth is that eXp has no real intrinsic value. It’s value only exists for as long as people are dubbed into believing there is value.
If you’re looking for a sponsoring broker, I encourage you to find one that is more established. A brokerage that has been through the Great Recession. These companies know how to survive hard times.
Consider joining Exit Realty. I wrote a great article about why you should join Exit Realty.
