Is There A Pyramid Scheme At eXp Realty? (The Reality of eXp Realty)

Is There A Pyramid Scheme At eXp Realty? (The Reality of eXp Realty)

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Are you considering joining eXp Realty but aren't sure if you should because you believe it's a pyramid scheme or multi-level marketing? Did a coworker join the company recently, and now you're getting a lot of recruitment communications from him or her?

Since roughly 2016, when eXp Realty began to gain traction, they've caused quite a stir among real estate agents. Regardless of whether you support or oppose eXp Realty, it's critical to understand the entire business model before deciding whether to dig more.

By the end of this article, you should know whether eXp Realty is a pyramid scam or not, as well as how the company's business plan works.

 

What Is The Definition Of A Pyramid Scheme?

To determine whether eXp Realty is a pyramid scheme or not, I believe it is necessary to first define a pyramid scheme.

"A form of investment (illegal in the United States and elsewhere) in which each paying participant recruits two additional players, with rewards granted to early participants using money donated by later participants," according to Lexico.

Pyramid schemes are entirely centered on recruiting. Individuals are rewarded for recruiting others and receiving a commission for doing so. In the past, there have been two sorts of pyramid schemes: "Product-based" and "Naked" pyramid schemes.

 

Pyramid Scheme "Naked"

No one sells anything in the "Naked" pyramid scam, and commissions are earned directly by recruiting others. This is how it would look:

This "investment opportunity" is started by one individual who recruits ten other persons. The ten pay the recruiter $100 apiece. The recruiter 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 total of $1,000, less their initial $100 "investment."

It's really simple to comprehend. But this is where the problem lies. Even if all ten of them succeed, they will have recruited 100 others into this fraud. Those 100 would have to acquire 1000, and so forth. At some point, no one will be able to recoup their investment, and the entire pyramid will collapse.

 

Pyramid Scheme With "Products"

The "Product-based" pyramid scam works in the same way, except instead of a $500 starter kit, it uses a "product" as the investment. After then, the recruiter receives a portion of the starter kit. As in the last case, the market will eventually become saturated with people attempting to sell the same thing. Because of this saturation, persons at the bottom are unable to recoup their initial investment, and the plan collapses.

 

Multi-Level Marketing (MLM) Company Vs. Pyramid Scheme

We all know that pyramid schemes are prohibited, but what about another type of business strategy that has received a lot of flak? MLM stands for multi-level marketing.

Multi-level marketing businesses have existed for over a century. Amway, Mary Kay, Herbalife, Scentsy, Rodan + Fields, and Beachbody, to mention a few, are all well-known brands. If you haven't been solicited by many distributors to join one of these companies, you're one of the lucky ones.

"A tactic some direct sales businesses employ to encourage existing distributors to recruit new distributors who are paid a portion of their recruits' sales," according to Investopedia. The recruits are the "downline" of the distributor. Distributors also profit from direct product sales to clients.

The primary distinction is the intention. MLM companies focus on selling items, while pyramid schemes focus on recruiting more salespeople. Recruiters are rewarded by multi-level marketing organizations if and when they sell a product or manage a team. Managers are paid 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, however, a multi-level marketing firm? So, let's get started on that.

 

Is eXp Realty An MLM?

Yes and no are the answers to this question. eXp Realty is first and foremost a real estate brokerage. It's not even on Wikipedia's comprehensive list of multi-level marketing firms. eXp does, however, provide a form of MLM-style remuneration dubbed "Revenue Sharing." This is the aspect that gives eXp Realty the reputation of being a multilevel marketing organization. Later on, we'll go into revenue sharing in further detail.

In the end, an MLM company is made up of 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.

Remember this when we discuss revenue sharing in the next section.

 

What Is Revenue Sharing, And How Does It Work?

 

"Revenue Sharing" 

Revenue Sharing is defined as:

"The distribution of revenue, that is, the entire amount of income created by the sale of products and services among the stakeholders or contributors," according to Wikipedia. It is not to be confused with profit shares, in which just the profit, i.e. the money left over after costs have been deducted, is divided, nor with stock shares, which may be bought and sold and whose value fluctuates.

In industries like game development, if a studio lacks adequate funding or investment to pay upfront, or where a studio or corporation desires to share the risks and profits with its team members, revenue shares are frequently used. Money shares allow investors to profit as soon as revenue is generated, before any costs are removed."

 

Why Do Businesses Provide Revenue Sharing?

Many companies in various industries provide some sort of revenue or profit sharing. Companies that offer revenue share typically do so to encourage rapid expansion without paying as much expense as they would otherwise. With revenue sharing, the company does not have to spend nearly as much money on marketing and employing workers to help it expand as it would if it were a regular business. Instead, they reward current employees or contractors for their contributions to the company's growth based on their performance.

Furthermore, most businesses discover that rewarding employees or contractors for helping to find talent and expand the business results in a better, more competent workforce.

 

At eXp Realty, We Share Revenue

At eXp Realty, revenue sharing is no different. When compared to a standard real estate brokerage, eXp Realty has much lower overhead. They accomplish this by eliminating corporate-paid physical and mortar offices in favor of a virtual workplace called eXp World, which houses all company support and training. There are no areas or franchises to sell or pay for because eXp Realty is a single real estate agency rather than a franchise model. These cost savings are subsequently passed on to eXp Realty agents, who contribute to the company's growth.

This is how revenue sharing works at eXp Realty. You share in the money that an agent brings in indefinitely as long as you and that agent are both with the company when you recruit an agent. You'll also get a cut of any revenue generated by that agent bringing in another agent. This benefit is extended across seven generations (tiers).

 

See my detailed explanation of how eXp Realty Revenue Share works.

 

What Is eXp Realty, Exactly?

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 totally legal.

Glenn Sanford launched eXp Realty in 2009, and it now employs over 20,000 real estate agents in all 50 US states and nearly all Canadian provinces.

Agent commission split at eXp Realty is 80/20, with a $16,000 maximum and a $85 monthly fee. This charge offers a wide range of tools and resources for real estate agents to use in their company. kvCORE, Skyslope, eXp World, Workplace by Facebook, and others are among these technologies.

Agents can participate in stock ownership opportunities through eXp Realty because it is a publicly traded corporation. Receiving shares each year when an agent sells their first home, caps, or attracts an agent to the company and that agent sells their first home are examples of these prospects.

The ICON agent reward program then returns the entire $16,000 cap to high-producing real estate agents in the form of company shares once they hit a very attainable criterion.

Finally, eXp Realty offers equity that is comparable to a 401k in that it allows agents to enroll in a program whereby 5% of their gross commission is automatically invested in eXp stock at a 20% discount from its current market price.

 

Real Estate Business Models That Are Similar

The business strategy of eXp Realty is unique, but it is not the only one in the real estate industry. Remember when I introduced Glenn Sanford, our founder?

After starting his real estate career with Keller-Williams, Glenn founded eXp Realty in 2009. Keller Williams, which is widely regarded as a terrific real estate firm, also offers a compensation arrangement called "Profit-sharing," which pays out seven tiers and is similar to "Revenue Sharing."

Glenn took the concept of profit-sharing and expanded it. He claimed that if we take out the overhead, the franchise model, and all the middlemen, eXp Realty would be able to offer agents revenue share upfront rather than profit share after all market center charges.

Keller-Williams was founded in 1983 and began offering profit sharing to its agents six years later, in 1989. This profit-sharing model enabled the company quickly grow to its current size of over 150,000 agents.

Many 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 agents what they think about Keller-Williams, they don't think of it as a pyramid system or even an MLM.

 

My Opinion: Is eXp Realty A Pyramid Scheme, A Multi-Level Marketing Company, Or Neither?

I hope that you will see how eXp Realty is not a pyramid scheme after reading this post. It's up to you if you want to call it a multi-level marketing organization.

I don't consider eXp Realty to be an MLM. Even if eXp Realty did not provide income share, which is the component that brings eXp into the MLM conversation, I would still choose to hang my real estate license here for all of the other reasons mentioned above.

No other brokerage would allow me to earn my cap back every year in the form of company stock through the ICON program as a high-producing real estate agent. For $85/month, I couldn't have access to kvCORE, Skyslope, and a large private network of like-minded agents. These advantages alone far transcend any other brokerage I've come across.

According to the 2019 Real Trends Five Hundred study, eXp Realty was the #1 most active real estate brokerage from 2017 to 2018. By transaction volume, eXp Realty has been crowned the largest independent real estate firm in North America for 2019.

As a result, I am convinced that eXp Realty is a real estate agency rather than an MLM. It's a real estate brokerage that provides real estate investors with unique opportunities such as shares and income sharing. However, the fact that eXp Realty is a real estate agency with a lot of business across the country does not negate the reality that the business model is unique and offers additional pay potential.

 

Conclusion

Finally, eXp Realty is unquestionably not a pyramid scheme. If something you've heard or read about eXp Realty has put you off, I strongly advise you to look into it further. Revenue share is a fantastic opportunity, but it's only one of what eXp Realty has to offer.

I wouldn't let what others have to say about the model or the organization as a whole influence what you do with your real estate business. There's much too much at risk not to conduct a thorough inquiry of the business.

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