Although sales reached a record level in the third quarter, eXP World Holdingsthe growing brokerage parent company eXp Real Estate, is being tested. Profits are down and agent attrition is up as the brokerage woos higher producing agents, executives said Wednesday.
As mortgage rates rose and buyer demand waned in the third quarter of 2022, eXp World Holdings managed to generate record revenue of $1.2 billion in the third quarter, up 12% from the same quarter a year ago. Brokerage executives attributed part of the increase to the high number of closed deals and trading volume, which grew 6% and 8% year-over-year, respectively, to 138,354 sides and 50.4 billions of dollars.
Despite this strong performance, the company’s net income for the quarter fell to $4.4 million, from $23.8 million in the third quarter of 2021. And agent attrition is rising.
“The two main drivers of this are a lower operating margin based on higher capital expenditures and the second is lower tax benefits year over year, both in the third quarter and on an annual basis. “said Jeff Whiteside, chief financial officer and chief collaboration officer of the company. , told investors during eXp’s third-quarter earnings call on Wednesday morning.
The company’s founder, chairman and CEO, Glenn Sanford, added, “We were not immune to what happened. Higher interest rates are an important indicator of a buyer’s ability to buy at current prices, as around 70% of buyers use a mortgage to purchase property. So with that, there was a downturn in the market.
Due to the market downturn, Sanford said he began to see what he called “market attrition,” or agents canceling or not renewing their licenses.
According to data from eXp, brokerage agents who make two or fewer sales per year have an attrition rate of 77.1%, 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 increase its agent count in 2023.
“Our goal to create the most agent-centric real estate brokerage on the planet, and to really do that – it’s not just a phrase we use for marketing purposes – has driven agents to want to be with us. “Sanford said. “We’re starting to really see more productive agents, who are taking a serious look at eXp. But our current growth rate in terms of number of agents has moderated, but we continue to gain market share by attracting better performing agents. »
As of September 30, eXp had just under 85,000 agents, up 30% year-over-year. Despite the growth, Sanford acknowledged that the company will fall short of its goal, set late last year, of 100,000 by the end of 2022.
Although eXp executives are confident the company is well positioned for another year of higher mortgage rates and falling transactions, they have made some adjustments to ensure the company’s financial stability.
“Earlier this year, we knew interest rates were going up and we were going to have to stop hiring and then potentially change the way we work with our workforce to build in more variable elements,” Sanford said. “One of the things we’re looking at is how do we moderate our expense load to match our transaction load because that way, I think about it, is that once we get to that next level where the market bottoms out, we become a fairly profitable business again because we are able to redirect our resources so that we can be profitable in both good and bad markets. »
Executives also said the company continues to invest in Success Lending, its mortgage joint venture with Loan in kindas well as the growth of its affiliated services.
“We continue to build Success Lending as almost everyone who is established scales back their lending platform,” Sanford said. “We’re in a really interesting place to be able to actually attract productive loan officers to the platform. That doesn’t mean we’re profitable in that segment yet, but we’re optimistic because we’re forming these businesses in a bear market, so we’re actually in a better position to build the infrastructure so that when the market returns to normal , we will be able to grow at exactly the right time.