How One Brokerage Market-Proofed Their Business

February 16, 2023
8:00 am

The following questions and answers summarize Josh Harley, Fathom Holdings, Inc. Founder and CEO’s presentation at the Housing Wire 2022 Annual Conference entitled “Building the Amazon of Real Estate.”

The emerging real estate brokerage model includes more than just mortgage, title, and insurance. Many brokerages are expanding to concierge services, iBuying, innovative financial offerings, home repair, and more to compete. That creates challenges from training agents to marketing to consumers. 

Joining Josh on the panel were Nick Bailey, President and CEO of RE/MAX LLC, and Mark King, President of Keller Williams, to discuss how they are streamlining ancillary services and why some are moving away from in-house technology platforms, particularly in the real estate market shift.

Q: Interest rates rose dramatically, inventory is still tight, and housing affordability is at an all-time low. Across the country, we see these market conditions negatively affect brokerage revenue and growth. What are some recent actions you took as a leader to market-proof your company?

I started Fathom twelve years ago during the last housing recession. I wanted to build a company that could weather any market conditions while lifting up our agents. So I created an asset-light business model built on technology that allows Fathom to operate at lower costs. This allows us to put more money back into our agents’ pockets. 

There are only two ways to increase profits, increase your revenue and decrease your costs. Thanks to running our business with extremely low overhead, Fathom doesn’t just survive. It thrives in a down market. 

Q: I understand how reducing your overhead and cutting costs helps a brokerage survive, but how does your business model allow you to thrive in a down market?

A: When a brokerage operates with low overhead, you can charge your agents lower fees while maintaining healthy margins. By charging agents a small flat fee without sacrificing technology, training, or support, they have more money to feed their families while investing additional capital into their marketing to gain a more significant market share. Additionally, when other agents pull back on their marketing spend in a down market, our agents can spend more. In fact, the average agent who joins Fathom increases their sales by 49% during their time with us. This makes Fathom highly attractive to agents, which means we continue to grow our agent base and transactions while other companies potentially decline.

Q: You said that your technology plays an important role in how you keep your overhead low. How does your technology allow you to do that?

A: We built our technology platform with an initial focus on streamlining and automating brokerage operations rather than starting with home search, where virtually every brokerage starts. We could not charge the small transaction fees if we were paying for multiple third-party tech platforms. Our technology allows us to streamline our operations, eliminate the need for offices, and minimize the need for employees to run the business. Since we own the technology, as we get bigger, our tech expenditures on a per-agent basis decrease over time. It ultimately allows us to charge small transaction fees and no monthly fees and achieve adjusted EBITDA profitability in our brokerage operation far faster than any of our public peers.

Q: In many of the largest brokerages, core services such as mortgage are vital to combatting margin compression. How are you innovating to achieve higher attach rates and offer more services to consumers?

A: We own a mortgage company, title company, insurance company, and two technology companies. In fact, we have over 750 brokerages licensing our technology and data, touching over 100,000 agents. I can tell you from experience there is no magic bullet to improve attach rate, and no one has found the secret sauce. It’s a struggle for all of us. However, one thing we did at Fathom was make every agent in our company a shareholder. 

By giving our agents stock on every referral, we wanted to change their mindset from agent to owner and align our goals. We want them to want to see each of our brands become successful. Even then, agents are independent contractors. We can’t force our agents to use our core services. Instead, we look for ways to use technology to improve the agent and client experience. They will want to partner with our mortgage, title, and insurance companies to ensure they have the smoothest experience possible.

Q: Have you seen a shift in how other brokerages think about running their business?

A: I see many brokerages reducing the size of their office spaces or closing them down altogether as agents have become more accustomed to working from home. I think cutting unnecessary costs is wise, especially in this market.

Q: What are the key strategies brokerage leaders must employ in their businesses to thrive in any market?

A: Regardless of your brokerage model, remove bloat from your business. We all have it, whether we want to admit it or not. Running lean will protect you during a downturn while allowing you to gain a greater market share when other competitors are struggling.