eXp Realty has been getting a lot of buzzes lately. Folks call it either an innovative business model or the “eXp Realty MLM.” Well, which one is it?
In this post, I will answer everyone’s burning question: is eXp Realty a pyramid scheme?
Read on to find out if it’s safe to join this rising brokerage.
From roughly 2016, when eXp Realty began to gain traction, they’ve caused quite a stir among real estate agents.
Regardless of whether you like or oppose what eXp Realty stands for, it’s critical to understand its entire business strategy. You never know; you might end up liking it.
By the end of this article, you should know whether eXp Realty is legit or not.
Let’s uncover the truth about eXp Realty.
Defining A Pyramid Scheme
To determine whether eXp Realty is a pyramid scheme or not, I believe it is necessary first to define it.
A pyramid scheme is a classification of investment in which each paying participant recruits two additional members.
Rewards are granted to early participants using money donated by later participants.
Please note that pyramid schemes are banned pretty much well, everywhere.
In addition, pyramid schemes are entirely centered on recruiting. Rewards are given to individuals for recruiting others and are paid a commission for doing so.
There have been two sorts of pyramid schemes: “Product-based” and “Naked” pyramid schemes.
eXp Realty is definitely not this.
Related Reading: How can I sell my real estate brokerage? – Read This Post To Find Out.
The Naked Pyramid Scheme
No one sells anything in the “Naked” pyramid scheme. Commissions are obtained directly by recruiting others.
This is how it would look:
One individual recruits ten more people to join this “investment opportunity.” Each of them pays the recruiter $100.
The headhunter now tells them to go out and find ten more people to do the same thing.
If each recruit is successful, they will receive a zero monetary reward. The ten recruits received $1,000 after deducting their initial $100 “investment.”
It’s effortless to comprehend. But this is where the problem lies. Even if all ten of those people succeed, they will have attracted a total of 100 people to this plan.
Those 100 would have to raise a total of 1000, and so on. At some point, no one will be able to recoup their investment, and the entire pyramid will collapse.
Nope, eXp Realty isn’t this either.
The Product-based Pyramid Scheme
The “Product-based” pyramid scheme pretty much works in the same manner. But instead of a $500 starter kit or something similar, it introduces a “product” that serves as the investment.
After that, the recruiter receives a portion of the starter kit. As in the last scenario, the market will eventually become saturated with people attempting to sell the same thing.
Because of this saturation, folks at the bottom cannot recoup their initial investment, so the plan inevitably collapses.
And nope, no starter kits. Not eXp Realty.
The Difference Between Pyramid Schemes and Multi-level Marketing (MLM)
We all know that a pyramid scheme is unlawful, but what about another business model that gets a lot of flak? What is a multi-level marketing company, or “MLM”?
Multi-level marketing firms have been in existence for nearly a century. Mary Kay, Amway, Herbalife, Beachbody, Scentsy, and Rodan + Fields are just a few of the more prominent brands that almost everyone knows.
If many marketers haven’t solicited you to join one of these companies, you’re one of the lucky ones.
Multi-level marketing is a tactic used by direct sales organizations to encourage existing distributors to recruit new ones.
In exchange, existing distributors get a part of their recruits’ revenue.
The recruits are now considered the “downline” of the distributor. Purveyors also profit from direct product sales to clients.
The primary distinction here is the intention. MLM companies focus on selling items, while pyramid schemes focus on recruiting more salespeople.
Rewards are given to recruiters by multi-level marketing organizations if and when they sell a product or manage a team. Managers get a percentage of each recruit’s sales.
So, based on these criteria, I believe it is safe to conclude that eXp Realty is not a pyramid scheme. Is it a multi-level marketing firm, though? Let’s zero in on that.
Related Reading: What’s the Dave Ramsey Feud with eXp Realty all about? – Click Here To Learn More.
Is eXp Realty Considered A Multi-level Marketing Firm?
Honestly, the answer is yes and no. eXp Realty is, first and foremost, a real estate brokerage. It doesn’t even appear on Wikipedia’s comprehensive list of multi-level marketing firms (but they might if they keep growing so fast!)
However, eXp World Holdings has a genius business model that takes it worldwide.
eXp Realty has a form of MLM-style pay called “Revenue Sharing.”
That’s what gives the company the reputation of being an MLM company. Later on, we’ll go into revenue sharing in further detail.
In essence, an MLM company has three parts. The MLM business must first sell a product or service. Second, MLM distributors make money by selling the company’s product or service.
Third, distributors can earn money by recruiting other distributors to market the same product or service. Each MLM company’s compensation plan is unique.
Please remember this info about being a multi level marketing company when we discuss revenue sharing in the next section.
So What Is Revenue Sharing?
“Revenue Sharing” is a type of remuneration offered by eXp Realty to its agents and brokers.
Revenue sharing is the distribution of revenue or the total amount of money earned through the sale of goods among stakeholders or contributors.
It is not to be confused with profit shares.
With profit shares, the money left over after costs have been deducted is shared.
One should also not confuse it with stock shares, which may be bought and sold and whose value fluctuates.
Let’s examine the game development industry as an example. We use revenue shares if a studio lacks adequate funding or investment to pay upfront.
If a studio or corporation desires to share the risks and profits with its team members, the same goes.
Revenue shares allow investors to profit as soon as revenue is generated before any costs are removed.
Why Businesses Offer Revenue Sharing
Many companies in various industries provide some revenue or profit-sharing.
Companies that offer revenue share typically encourage rapid expansion while avoiding much of the expense.
The company does not have to spend nearly as much money on marketing with revenue sharing. That’s why it’s so enticing because employing workers is cheaper than it would be if it were a regular business.
Instead, they reward current employees or contractors for their contributions to their growth based on their performance.
Furthermore, most organizations discover that rewarding employee for talent recruitment and the company’s growth results in a more competent workforce.
eXp Realty’s Revenue Sharing Business Model
At eXp Realty, revenue sharing is no different. Compared to a traditional real estate brokerage, eXp Realty has a much lower overhead.
They accomplish this by phasing out corporate-paid brick-and-mortar offices in favor of a virtual workplace called eXp World.
eXp World houses all company support and training. There are no franchise fees because eXp Realty is a single real estate agency rather than a franchise model.
eXp Realty subsequently passes cost savings to its eXp Realty agents, who contribute to its growth.
This is how revenue sharing works at eXp Realty. When you recruit an agent to the firm, you are entitled to a percentage of their revenue.
Of course, this only applies as long as the company employs you and that agent.
You’ll also get a cut of the money if that agent recruits another agent for the organization. This extends the benefit across seven tiers.
So Is eXp Realty Legit?
eXp Realty is a subsidiary of eXp World Holdings (EXPI), a publicly-traded corporation on the Nasdaq stock exchange. The SEC has audited eXp and found it to be legal.
Glenn Sanford launched eXp Realty in 2009, and it now has over 80,000 real estate agents in all 50 states. And it’s going worldwide, baby!
Agent commission split at eXp Realty is 80/20, with a $16,000 maximum and an $85 monthly fee.
This fee provides a wide selection of tools and resources for real estate agents to use in their company.
eXp World, kvCORE, Workplace by Facebook, and Skyslope are among these technologies.
eXp Realty agents can participate in equity ownership opportunities through eXp Realty as it is a publicly-traded corporation.
Among these many opportunities, agents can receive stock every year when they sell their first home.
The company gives the same incentives to those who cap or attract an agent.
The ICON agent reward program then returns the $16,000 cap to high-producing real estate agents. These achievers will receive this fee in company shares once they hit a realistic threshold.
Finally, eXp Realty offers equity that is comparable to a 401k.
It allows agents to enroll in a program whereby 5% of their gross commission is automatically invested in eXp stock.
These stocks are sold at a 10% discount from their current market price.
Related Reading: Want to Learn More about How eXp Realty Works? – Click Here To Learn.
Are There Any Similar Business Models in The Real Estate Industry?
The business strategy of eXp Realty is unique, but it is not the only one in the real estate industry.
After starting his real estate career with Keller-Williams, Glenn founded eXp Realty in 2009.
“Profit-sharing” is a compensation arrangement that Keller Williams real estate firm offers.
Keller-Williams was founded in 1983 and began offering profit sharing to its agents six years later, in 1989.
Glenn adopted the concept of profit-sharing and expanded on it. He believes in cutting out the overhead, the franchise model, and intermediaries.
eXp Realty pays out seven tiers and is similar to “Revenue Sharing.”
This model aided the company’s rapid growth to the point where it is now, with over 80,000 eXp Realty agents.
Folks in the real estate industry stated the same things about Keller-Williams in the beginning as they do now about eXp Realty.
When you ask most real estate agents what they think about Keller-Williams, they certainly don’t think of it as a scam or an MLM company.
The Truth: Is eXp Realty an MLM, Pyramid Scheme, or neither?
After reading this post, I hope you will see how eXp Realty is not a pyramid scheme. It’s up to you whether or not you want to call it a multi-level marketing organization.
So what’s the truth about eXp Realty?
Most real estate agents don’t consider eXp Realty to be an MLM. Undoubtedly, there are similarities, but eXp is much more solid and transparent.
No other brokerage offers the ICON program, which allows you to earn your cap back in the form of company shares.
There’s also no way to get kvCORE, Skyslope, and a private network of like-minded real estate agents for only $85 a month.
These advantages alone trump the benefits of any other brokerage in the industry.
By transaction volume, eXp Realty was the largest independent real estate firm in North America in 2019.
As a result, I am convinced that eXp Realty is a real estate firm rather than an MLM. It is a real estate brokerage that provides unique opportunities for real estate entrepreneurs, such as stock and revenue share.
Yes, eXp Realty is a real estate brokerage and does a lot of real estate business across the country.
However, that does not negate the reality that its business model is unique and offers additional income options.
Related Reading: How to Make Money in Real Estate – Check Out The Ways Here.
eXp Realty isn’t a get-rich-quick gimmick. It is not a multi-level marketing or network marketing firm either.
eXp Realty is a real estate agency that has incorporated incentives into its business model. The company pays these incentives by a 20% commission split on real estate sales.
It’s an incredible value exchange that can only be achieved by removing the costs associated with physical establishments.
Agent Owned Cloud Brokerage is the tagline for eXp Realty.
This reveals a lot about the business and its model. When you work for this organization as a real estate agent, you have a lot of flexibility.
There’s no need to be wary of eXp, especially if you’re a real estate agent with many connections. Hopefully, you feel good with the truth about eXp Realty.