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Fathom Holdings has rolled out a new agent referral program to boost recruiting and announced plans to raise its transaction fees by 10 percent on Jan. 1 as it accelerates cost cutting measures to achieve profitability.
The Cary, North Carolina-based real estate brokerage and technology platform reported a $6 million third-quarter net loss Monday, with revenue up 10.2 percent from a year ago, to $111.3 million.
Fathom’s main business unit, Fathom Realty, boosted its agent count to 9,991 as of Sept. 30, up 33 percent from a year ago. Those agents were involved in 12,077 transactions, up 5 percent from a year ago.
Fathom Realty CEO Josh Harley said the company’s goal remains achieving profitability in the first half of 2023, which he defined as positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). He said the company is also shooting to generate positive cash flow by the third quarter of 2023.
Josh Harley
“We plan to accomplish this goal, in part, by accelerating our agent and transaction growth through our new referral program, and by further increasing our revenue for 2023 through higher agent transaction fees and caps,” Harley said. “We have already begun collaborating with the heads of each of our business units to cut costs by $1.5 million per quarter in a way that will not hinder or slow our growth.”
In announcing second quarter results in August, Harley said Fathom was aiming to cut costs at each of its business units by $750,000 a quarter.
Fathom’s new agent referral program, Free4Life provides less generous stock grants than the program it replaces, but waives or caps transaction fees for agents who refer other agents to join the company.
Referring agents will receive $250 in stock grants for each agent they refer, instead of $500 to $2,000 in stock grants under the previous program. Agents who refer eight agents to Fathom who close two sales per year will qualify to have their annual fees and transaction fees waived for life. Agents who refer four agents will have their transaction fees capped at $150 per sale for life.
Fathom also plans to raise transaction fees on Jan. 1, with agents paying $550 for each of their first 15 completed transactions, up from $500 on their first 12 transactions. After the first 15 transactions, agents will pay $150, up from $99.
For team plans, team members will pay the $550 transaction fee for the first five transactions, up from four. Under Fathom’s new Fee Lock Guarantee, prices will not increase for at least two years.
Harley has said in the past that challenging market conditions make it easier for Fathom to recruit agents, since Fathom takes a smaller cut of their commissions. Fathom, Harley maintains, can afford to offer agents more generous commission splits than many of its competitors because it earns higher profit margins in other business lines, such as mortgage, insurance, title insurance, lead generation and other ancillary services.
Fathom Holdings revenue by source
Source: Fathom Holdings third quarter 2022 earnings report.
While brokerage services provided by Fathom Realty accounted for 94 percent of its parent company’s third quarter revenue, Fathom’s goal is to create an end-to-end real estate services platform that integrates residential brokerage, mortgage, title, insurance and software-as-a-service offerings to brokerages and agents.
Fathom executives have said that if the company is able to grow to the point where it’s involved in 100,000 to 110,000 transactions per year, it will generate annual adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of more than $40 million.
In an October investor presentation, Fathom outlined the company’s expectations that it will earn higher profit margins on its mortgage, lead generation, title and homeowners insurance business lines.
Source: Fathom Holdings investor presentation.
On a hypothetical $300,000 home sale, Fathom said it only stands to generate $200 in operating profit from its role as a real estate brokerage. But it can generate $2,500 in operating profits if it provides the mortgage, and $1,500 through lead generation.
The company has said launching a national real estate portal will be a key component of Fathom’s lead generation strategy.
Fathom got into the mortgage business last year with the $26.75 million acquisition of E4:9 Holdings and its three operating subsidiaries: Encompass Lending Group, Dagley Insurance Agency and Real Results.
In February, Fathom’s Encompass Lending Group subsidiary expanded its mortgage business by acquiring Cornerstone First Financial, which is headquartered in Washington, D.C. and also licensed to do business in California, Colorado, Florida, Georgia, Maryland, Pennsylvania and Virginia.
Fathom also sees the potential to build on last year’s acquisitions of home search and customer relationship management (CRM) company Naberly Solutions, and market data and technology platform LiveBy.
The Naberly deal helped Fathom develop intelliAgent 2.0, the company’s technology platform for brokerage operations and agent transaction management.
In announcing Fathom’s acquisition of technology platform LiveBy last year, Harley said a national listing portal “will allow us to generate buyer and seller leads for our agents, which, in turn, will help them close more sales, generate significantly higher revenue per transaction for Fathom, and attract even more agents who are seeking a brokerage that can provide them with leads. We believe we can develop a successful real estate portal that can effectively compete with the largest sites by focusing on building a hyperlocal content-rich site that search engines will begin to recognize as the authority in local markets.”
Harley has said the national portal will be “independent of Fathom Realty,” allowing Fathom and non-Fathom agents to use the IntelliAgent platform and portal, and be assured their data isn’t being accessed by IntelliAgent.
At Fathom Holdings’ annual meeting Oct. 31, shareholders elected an eight-member board of directors to one-year terms, including Harley, CFO Marco Fregenal, Christopher Bennett, Scott Flanders, Ravila Gupta, David Hood, Glenn Sampson and Jennifer Venable.
Fathom Holdings will be attending the Stephens Annual Investment Conference on Wednesday, Nov. 16 in Nashville, with Harley and CFO Fregenal presenting a “fireside” chat and meeting one-on-one with investors.
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