The parent of flat fee real estate brokerage and technology platform Fathom Realty plans to raise transaction fees by 10% when the calendar turns to 2023.
Fathom Holdings this week told investors that while revenue grew 10.2% in the third quarter to $111.3 million, it lost $6 million. To get out of the red, the company, the parent of Fathom Realty, plans to raise fees on agents and cut expenses.
Year over year, Fathom’s agent network, now in 38 states and Washington, D.C., grew 33% to nearly 10,000 agents. It still wants to recruit more agents, but is tweaking its model to become profitable.
“Our commission structure puts more money in agents’ pockets by charging a small fraction of what traditional brokerages charge, making it a highly attractive value proposition,” CEO Josh Harley said in a statement accompanying the earnings results. “In fact, our enhanced agent referral program, which we began beta testing on September 1 of this year, resulted in the best referral month in our company’s history. At the same time, the leverage we’ve built into our model should allow us to enhance margins as we right size expenses and drive more agents and transactions through our network.”
Regarding its commission structure, effective Jan. 1, Fathom’s agents will pay $550 for each of their first 15 completed transactions, up from $500 on their first 12 transactions. For each transaction after the first 15, 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.
The company committed to not raising transaction fees for at least two years, but did discontinue its agent stock grant program, which provided $200 in stock grants for every five transactions completed.
The company’s current goal is to generate positive cash flow by the third quarter of 2023. Its plan is to accelerate its agent and transaction growth through its new agent referral program, dubbed Free4Life.
Fathom’s new agent referral program doesn’t contain the stock perks its predecessor did, but it does waive or cap 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, a reduction from the $500 to $2,000 in stock grants under the previous program. With the new program, agents who refer four agents will have their transaction fees capped at $150 per sale for life. Agents who refer eight agents to Fathom – so long as they close two sales per year – will qualify to have their annual fees and transaction fees waived for life.
Harley said Fathom plans to cut $1.5 million in expenses per quarter by the first quarter of 2023.
“While Fathom is not immune to current industry challenges, we continue to believe that we built a better mousetrap,” Harley said. “One with more resilience and staying power, and with the ability to grow in down markets.”
For the fourth quarter, Fathom Holdings, which also has mortgage and title arms, has forecast total revenue in the range of $85 million to $95 million, with a financial loss of between $8.6 million and $8.8 million.
Fathom was the sixth-largest independent brokerage in 2021, according to the RealTrends 500. It was #17 overall in volume, with $12.17 billion in sales.
Correction: The company plans to cut $1.5 million per quarter by the first quarter of 2023. A previous version incorrectly stated each division has cut $1.5 million.