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Is eXp Realty a Pyramid Scheme? MLM? Scam? – Kyle Handy

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by Kyle Handy       Updated July 30, 2020

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eXp Realty - Pyramid Scheme or Not?

Are you looking into eXp Realty but unsure if you should make a move because you think it might be a pyramid scheme or multi-level marketing? Did a fellow real estate agent just join the company, and now you see all sorts of recruiting messages coming from him or her? 

Since around 2016, when eXp Realty started gaining momentum, they've created a stir amongst the real estate agent community. Regardless of whether you are for or against what eXp Realty represents, it's essential to know the full picture of the business model so you can decide whether to investigate further.

Hopefully, by the end of this post, you'll know if eXp Realty is a pyramid scheme or not, you'll also understand how eXp's business model works. 

What is a Pyramid Scheme?

To answer the question of whether or not eXp Realty is a pyramid scheme or not, I think it's necessary to define what a pyramid scheme is.  

Lexico defines it as "a form of investment (illegal in the US and elsewhere) in which each paying participant recruits two further participants, with returns being given to early participants using money contributed by later ones.

illegal pyramid scheme

Pyramid schemes are 100% recruiting based. The pyramid scheme rewards individuals for recruiting others and paying out a commission for doing so. There are two types of schemes that have taken place in the past— "Product-based" and "Naked" pyramid schemes.

"Naked" Pyramid Scheme

The "Naked" pyramid scheme is where no individual sells products, and commissions are earned directly by recruiting others. It would look like this:

One person recruits ten other people to participate in this "investment opportunity." The 10 each pay the recruiter $100. The recruiter now says to them to go out and get 10 to do the same thing. If each recruit is successful, they each earn 0. $1000 for the ten recruits minus their initial $100 "investment." 

Pretty easy to understand. But here's where the issue is. Even if all 10 of those people are successful, they would have brought 100 people into this scheme. Those 100 would need to get 1000, and so on. Eventually, there will be a level when no one can make back their investment, and the entire pyramid topples.

"Product-based" Pyramid Scheme

The "Product-based" pyramid scheme works the same way but introduces a "product" that acts as the investment—a $500 starter kit or something similar. The recruiter then gets a percentage of the starter kit. Eventually, like the example above, the market is saturated with people trying to sell this same product. This saturation leads to people at the bottom, unable to earn back their initial investment and the entire scheme collapsing.

Pyramid Scheme vs. Multi-level Marketing (MLM) Company

We all know that a pyramid scheme is illegal, but what about another type of business model that gets a ton of criticism? A multi-level marketing business or "MLM"?

Multi-level marketing companies have been around for nearly a century. Almost everyone is familiar with some of the larger brands, including Amway, Mary Kay, Herbalife, Scentsy, Rodan + Fields, and Beachbody, to name a few. You're among the few if you haven't been approached by multiple distributors to join one of these companies.

Investopedia defines multi-level marketing as "a strategy some direct sales companies use to encourage existing distributors to recruit new distributors who are paid a percentage of their recruits' sales. The recruits are the distributor's "downline." Distributors also make money through direct sales of products to customers. 

The main difference here is the intent. Pyramid schemes focus on recruiting other salespeople, MLM companies focus on selling products. Multi-level marketing companies concentrate on rewarding recruiters if and when they sell a product or manage a team. Managers get a percentage of each of their recruits' sales.

So by these benchmarks, I think it's safe to say, eXp Realty is not a pyramid scheme. But is it a multi-level marketing company? Well, get into that next.

Is eXp Realty a Multi-level Marketing Company?

The answer to this question is yes and no. eXp Realty is a real estate brokerage first and foremost. It doesn't even fall onto Wikipedia's extensive list of multi-level marketing companies. That said, eXp does have a form of MLM-type compensation in what is called "Revenue Sharing." This is the part that gives eXp Realty the reputation that it is an MLM company. We'll get more into what revenue sharing is later on. 

The bottom line, there are three components to an MLM company. First, the MLM company must sell a product or service. Second, distributors of an MLM company earn income through selling the product or service. Third, distributors also receive income from recruiting other distributors who also sell the product or service. Each MLM companies exact compensation plan differs.

Keep this in mind when we talk about revenue sharing in the next section.

What is Revenue Sharing?

eXp Realty offers a form of compensation to its agents and brokers called "Revenue Sharing".  

Definition of Revenue Sharing

Wikipedia defines revenue sharing as "the distribution of revenue, that is the total amount of income generated by the sale of goods and services among the stakeholders or contributors. It should not be confused with profit shares, in which scheme only the profit is shared, i.e., the revenue left over after costs have been removed, nor with stock shares, which may be bought and sold and whose value may fluctuate.

revenue sharing money

Revenue shares are often used in industries such as game development, wherein a studio lacks sufficient capital or investment to pay upfront, or in instances when a studio or company wishes to share the risks and rewards with its team members. Revenue shares allow the stakeholders to realize returns as soon as revenue is earned before any costs are deducted."

Why Do Companies Offer Revenue Sharing

Many businesses from different industries offer some form of revenue or profit share. Typically, companies that offer revenue share do so to incentivize quick growth without incurring much of the overhead seen otherwise. With revenue sharing, the company doesn't need to spend nearly as much money in marketing and hiring employees to help the company grow like a traditional one. Instead, they pay current employees or contractors based on performance for their contribution of the companies growth.

Additionally, most companies find that when they reward employees or contractors for helping to find talent and grow the company, they often end up with a better, more qualified workforce.

Revenue Sharing at eXp Realty

Revenue Sharing is no different at eXp Realty. eXp Realty has significantly reduced its amount of overhead compared to a traditional real estate brokerage. They do this by eliminating company paid brick and mortar offices and hosting all company support and training in their virtual office called eXp World. Additionally, because eXp Realty is one real estate brokerage and not a franchise model, there are no regions or franchises to sell and pay for. These cost savings then translate into revenue share for eXp Realty agents helping to grow the company.

Revenue share at eXp Realty works like this. When you recruit an agent to the company, you share in the revenue that an agent brings in indefinitely as long as you and that agent are with the company. Additionally, if that agent attracts another agent to the company, you share in that revenue as well. This benefit goes on for seven generations, or tiers. 

Check out my in-depth post on how eXp Realty Revenue Share works.

What is eXp Realty?

exp realty audience

eXp Realty is part of the publicly-traded company eXp World Holdings (EXPI) on the Nasdaq stock exchange. eXp is audited by the SEC and is 100% completely legal.

eXp Realty was founded in 2009 by Glenn Sanford and now is home to over 20,000 real estate agents in all 50 US states and nearly all the Canadian provinces.

Agents at eXp Realty are all on an 80/20 commission split with a $16,000 cap and pay an $85/month fee. This fee covers a vast amount of tools and resources for agents to use in their real estate business. These tools include kvCORE, Skyslope, eXp World, Workplace by Facebook, and many more. 

Because eXp Realty is a publicly-traded company, agents have the opportunity to participate in equity ownership opportunities. These opportunities include receiving stock whenever an agent sells their first home each year, caps, or attracts an agent to the company, and that agent sells their first home.

Next, the ICON agent award program awards high producing real estate agents their entire $16,000 cap back in the form of company stock, once the agent meets a very attainable benchmark.  

Finally, eXp Realty offers equity similar almost to a 401k in that they allow agents to participate in a program whereby the agent can have 5% of their gross commission automatically purchase eXp stock at a 20% discount from its current trade price.

Similar Business Models in the Real Estate Industry

eXp Realty's business model is unique, but not the only one out there in the real estate world. Remember earlier, when I mentioned our founder Glenn Sanford.

Glenn created eXp Realty in 2009 after beginning his real estate career at Keller-Williams. Keller-Williams, widely considered a fantastic real estate brokerage, also offers a compensation model similar to "Revenue Sharing" called "Profit-sharing," which pays out seven tiers. 

Glenn took the idea of profit-sharing and took it a step further. He said that if we cut out the overhead, removed the franchise model, and all the middle-men, eXp Realty would be able to pay agents off the top in revenue share vs. after all expenses of the market center in profit share. 

other-businesses

Keller-Williams formed in 1983, and 6 years later, in 1989 started to offer profit sharing to its agents. This profit-sharing quickly helped the company to grow to the level it's at today, with over 150,000 agents.  

Early on, however, many in the real estate industry said the same things about Keller-Williams as they do today about eXp Realty. But if you ask most agents their thought about Keller-Williams, not many would classify this brokerage as a pyramid scheme or even an MLM.

My Take: Is eXp Realty a Pyramid Scheme, MLM, or neither?

I hope that through this post, you will see how eXp Realty is most certainly not a pyramid scheme. Whether you wish to classify it as a multi-level marketing company is up to you.  

I, for one, don't classify eXp Realty as an MLM. Even if eXp Realty did not offer revenue share, the component that puts eXp into the discussion of MLM, I would still choose to hang my real estate license here for all the other benefits discussed above.

At no other brokerage would I, as a high-producing real estate agent, be able to earn my cap back every year in the form of company stock through the ICON program. Also, I could not gain access to kvCORE, Skyslope, and a huge private community of like-minded agents for just $85/month. These benefits alone far outweigh any other brokerage I've seen out there currently.

The Real Trends Five Hundred report for 2019 ranked eXp Realty the #1 top moving real estate brokerage by transaction count from 2017 to 2018. eXp Realty was just named the largest independent real estate brokerage in North America, by transaction count, for 2019.

people working

Because of this, I strongly feel eXp Realty is a real estate brokerage and not an MLM. It is a real estate brokerage that offers real estate entrepreneurs unique opportunities like stock and revenue share. But simply because the business model is unique and offers additional compensation opportunities doesn't water down the fact that eXp Realty is a real estate brokerage and one that is doing a lot of real estate business across the country!

Conclusion

In conclusion, eXp Realty is most certainly not a pyramid scheme. If you are researching eXp Realty and are turned off by something you may have heard or read, I encourage you to investigate further. Revenue share is a great opportunity, but it's only one part of the opportunity at eXp Realty.  

I would not let what others say about the model or company as a whole dictate what you ultimately decide to do with your real estate business. There is far too much at stake to not do your in-depth investigation into the company.

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  1. “Revenue share at eXp Realty works like this. If and when you recruit an agent to the company, you share in the revenue that agent brings in indefinitely as long as you and that agent are with the company.”

    Literally the exact definition of an MLM. Everything else sounds cool, except this.

    I found the company myself, not through an agent first. I was keen enough to do my own research and become sold on the company myself. Let’s say I then join the company, after being “sponsored” by you: (a) you did nothing to close me on the opportunity, (b) I’m competent enough to learn everything on my own—you do not train me at all, and (c) I only want access to the cloud platform and training resources (again, to teach myself).

    Why do you deserve indefinite revenue share from my hustle, especially if I outperform you?

    That is also the other definition of nonsense.

    1. Hey Dan,
      Thanks for the comment! I understand what you’re saying.
      Wikipedia actually defines MLM as “a marketing strategy for the pyramid-selling of products and/or services. The profit of an MLM company is derived from the selling of the MLM company’s products/services by recruited MLM participants which constitute the MLM company’s non-salaried (unpaid) sales workforce”. I’d actually disagree that my explanation of revenue share mirrors this. In fact, many companies, outside of real estate offer real estate and are not considered an MLM. It’s simply a company strategy/perk to help incentivize internal growth.
      Regarding your last remark regarding who you name as your sponsor. You’re free to name whoever YOU choose. You should choose someone who you feel will able to help you the most and who helped the most in your research. Nobody should “close” you on the opportunity so that is irrelevant for who. you name your sponsor.
      Just because your competent enough doesn’t mean you won’t need help at some point, especially at the beginning. It helps to have someone who can show proof the model works and is doing well with it when you are speaking with agents about the model. When you’re new, you don’t have all the proof yet, so you’ll lean more on your sponsor. I’m similar to you in the fact that once I get going I don’t require much help but it was certainly nice having a sponsor at the beginning that could help with presenting and sharing proof.
      Does a CEO or owner ALWAYS outperform everyone who works under them in a traditional company? Do they not still earn from the performance of employees/contractors working in their organization?
      I hope these responses don’t seem confrontational. Certainly not my intent. You seem like a go-getter and someone who I’d love to work with (if you’re not already working with someone else). Email me at kyle@thehandyteam.com and we can setup a call/zoom to discuss a bit further.
      Cheers!

  2. My wife is from Ukraine and just put forth a huge effort to get her license. She’s getting a bunch of letters from EXP agents. I would never allow her to fall into this trap. She wants to sell houses, not recruit real estate agents so she can make money from their sales. How can someone recruit real estate agents if they have not even sold a house yet themselves? Not interested. It’s just like those long distance telephone program scams years ago. They all went out of business and so will EXP in the end, but who ever it is that started this wont care, they got rich from all the “sign up” fees and membership fees. They walk away rich and it shuts down. They dont care. There’s no office or place to go to have a discussion with the boss or supervisor. You sit at home and can do nothing. Scam.

    1. Hey Keith, I appreciate your feedback and the comment. Let me ask you though. Who told your wife that she HAS to recruit agents at eXp Realty? On the contrary, 90% of agents at eXp ONLY sell real estate, have not recruited a single agent, and are very happy at eXp. Agent attraction is meanly an additional benefit on top of the slew of other reasons why an agent would want to join the company. Stock, training, live support, to name a few. It’s no different than an agent not using a tool that eXp provides. Not sure I agree with your comparison to whatever phone company you’re talking about.

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