“While many other brokerages in our industry are struggling, we are pleased with the impressive growth we are witnessing,” Michelle Ressler, the CFO of Real, told investors and analysts on the firm’s first-quarter earnings call Thursday morning.
During the first quarter of the year, Real recorded revenue of $107.8 million, up 75% year over year. However, the firm still recorded a net loss of $7.4 million compared to a net loss of $4.3 million in Q1 2022.
Even with this net loss, executives are confident that Real will exceed expectations and become adjusted EBITDA positive in Q2 2023. In Q1 2023, Real recorded an adjusted EBITDA loss of $792,000.
“We expect a strong pick up in our financial results going forward, and as such, we are revising our previously communicated target of reaching adjusted EBITDA profitability in the second half of this year,” Ressler said. “We now have confidence that we will reach this milestone in the current quarter. This conviction factors on the impact from our new fee structure accelerating agent growth, seasonal tailwinds picking up and the operational efficiency that is built into our platform.”
On Real’s fourth quarter 2022 earnings call, executives announced changes to the brokerage’s fee structure, including a new $30 fee per transaction for broker review, as well as a $100 increase in the brokerage joining fee and a $250 increase in the annual brokerage fee. These fee changes went into place on February 1 for new agents and on April 1 for existing agents.
Despite these fee increases, Real added 1,800 new agents during the quarter, causing its agent count to surpass 10,000 for the first time, a 120% year-over-year increase. This increased agent count helped the brokerage record a 75% annual increase in transaction sides for the quarter at 10,963 sides, an average of 2.7 transactions per productive agent.
“These results come during a difficult period for agents across the country, as evidenced by shrinking agent bases at many other brokerages,” Tamir Poleg, the CEO of Real, said. “What is clear to us is that our agent attraction model is working. Our technology and our value proposition are resonating with agents that want to be successful.”
Executives, however, did note that agent churn was up to 8.3% compared to 4.4% the prior quarter, with departing agents citing changes to the fee structure as their reason for leaving.
As Real looks to continue its growth, executives are honing in on the firm’s technology and agent platform as a way to continue attracting agents.
“We understand that the future of real estate lies in taking this very complex process of buying a home and wrapping it into a single, well-crafted, easy-to-understand product,” Poleg said. “As part of bringing this vision to life, we will be launching an initial limited beta version of our consumer facing app. In a few weeks, focusing on streamlining the mortgage application process, we will also be launching Fast 14, the program that provides home buyers with guarantee that they will be clear to close on their mortgage within 14 days of submitting their mortgage application.”
The firm is also looking to expand its core services, which include Real Title and LemonBrew Lending.
According to executives, neither service currently provides meaningful contributions to Real’s revenue. Poleg did, however, note that Real has seen some success with its Real Title joint venture, with over 300 agents signed on, and an attach rate of roughly 70% among those agents’ transactions.
“We are now expanding those JVs to seven additional states,” Poleg said. “So we expect Real Title to continue to grow revenue and eventually have a meaningful impact on our margins and financials.”