Holy Grail 05: The Carpenter’s Cup

You're looking for the least shiny object on the table. That's the Holy Grail. It's the boring Carpenters wooden cut. Well, this is going to be a cool intro. Okay. We are recording, but you're going to leave all of this in? No. Hey, everyone. This is Mike Dalpretty, and you're listening to Context, part of my search for the Holy Grail series. I'm here with Luke Babbage. Hi, Luke. I'm Luke. Luke is the CEO of Clever Real Estate, which is a great company, and we'll get into that more. But you said you wanted to start with something. What did you want to start with? Well, so Mike, we've been talking about the Holy Grail, about Clever, about Real Estate for many years, since I think I first bombarded your class back in the days of Purple Bricks. We at least had some flavor of this conversation going, "What did you do with my class on Purple Bricks?" And inbounded you, because I read something that you wrote and said, "Can I crash your class?" And you let me do it back when we were seven people inside of an office. Oh, wow. So as I've been listening to your podcast and following along before we talked about doing this, I wanted to start with why is Real Estate the way that it is? Hmm. Have you figured this out? I at least have some thoughts. I mean, I think you can't be in the industry and not have some thoughts about it. Okay. Let's say the way it is, do you want to expand on what that means? So why are the fees the way that they are? Why is there this kind of structural quest for the Holy Grail? Why is this even a pursuit that all these businesses are going after? What's kind of driving the industry dynamics? Yeah. I guess to me, so much of Real Estate, we live on the customer acquisition side. So Clever is solving what we saw as the biggest inefficiency in Real Estate. You know, let me maybe say why it is the way it is in an even simpler way. This is going to get to what we see as the biggest inefficiency. There are too many leads and there's too many realtors. Hmm. You could sum up kind of the oddity of Real Estate in those two statements. The too many realtors is interesting because I've been in conversations where eventually we get there. You know, it's this like second, third, maybe even fourth order problem. The barrier to entry to become a realtor is small. I mean, just yesterday at the hub, somebody was saying, you know, a barber requires more hours of training than a realtor does to be able to do that. And I share the example from Belgium of, you know, the requirements to become an agent in Belgium. Like, years of school, you need a dissertation and an apprenticeship and annual continuing education requirements. So it's this thing that, yeah, I think a lot of people kind of automatically assume, oh, it's just the way it is, but rarely stop to look at it. And if you look at the industry, even though so many of the structural problems are tied back to too many leads and too many dang realtors, there are so many people with financial incentives to make more leads and more realtors. So I get why there's, you know, quote unquote, too many realtors. Yeah. Why are there too many leads? Because there's only so many movers in the United States in a given year. But why do we keep conjuring new leads? Right. Why are we generating more leads? I'm stating those as the problems, but then you go, well, why is it the way it is? Why isn't like this? Why are other industries not like this? And since we live on the customer acquisition side at Clever, where what we're doing is trying to make fewer leads and fewer realtors, right? More realtors serving more customers, or sorry, realtors who are more efficient serving more customers with less time chasing low converting leads is kind of a clever ecosystem. Well, and that, in and of itself, is like another holy grail, right? I mean, you started out with purple bricks, red fin, I mean, compass back in the day. There's been a number of companies that have said the exact same thing. Like, oh, this is super inefficient. What if we just had less realtors doing more deals? Yeah. That would be great. Yeah. And there's a, you know, special graveyard down the road filled with those companies business models. We'll talk about it. I think so much of the way that real estate is comes back to the fact that there's no recurring customer relationship. If you look at any other industry, you kind of pay this upfront customer acquisition cost, and then you build a relationship with the customer. And Starbucks wants to get you making a weekly or a daily coffee ritual. And then they're nudging you to just try and keep you engaged in that. But most of their revenue comes from people who are regular repeat customers. And almost every industry has that dynamic financial advisors who win a relationship and then just defend it and try to keep you happy. Your grocer, I don't switch grocery stores very often, technology subscriptions. And yet, in real estate, because this transaction takes place for most people every seven to ten years, within that seven to ten years, you still have a business to run. You still have bills to pay, and you could be out of the business or running a fundamentally different business a decade later. So you'd never get that ability to break through the upfront customer acquisition cost problem and rationalize your acquisition expense to where you can then kind of run these long-term, stable, profitable businesses with some predictability. So what's your so what out of that? Are you just describing how it works? Basically describing how it works, but I think it will tie back into holy grail and these oddities of why the industry is the way it is. The industry keeps paying realtors 3%, even though you've seen margin compression in so many other industries, because that is the cost of new customer acquisition, and you never break the new customer acquisition loop. Every customer is a new customer. And actually, I mean, that's interesting, because tying back to my last chat with Rocket, a lot of that was centered around trying to break that. Repeat, absolutely. So the servicers, who we align with, as you know, Clevver runs were the number one realty network for servicers. We were very interested in this kind of niche of the mortgage servicer being able to engage the homeowner through their life cycle. And interesting statistic, a homeowner who did their last mortgage with their servicer. So with Rocket or with Mr. Cooper back in the day, is twice as likely to buy their next home with the servicer. So there is a compounding repeat relationship there. Where's what's the source of that data? That is from working with a lot of mortgage service. Okay. So that's your data. Yes. That's not an industry stat. No, no, that's fine. Sample size, thousands, tens of thousands, hundreds of thousands, hundreds of thousands. Okay. All right. So that seems really important. So let's say that again. So just so we're all on the same page. You know, for a long time, mortgage servicing was a drive down the cost game. People were trying to lower the cost to service alone. And at some point, market leaders like a Mr. Cooper, like a freedom started to go, hang on, this is not a cost game. This is a lifetime value game, right? I should actually be upping my cost, but maximizing the revenue from a customer relationship. And so they started introducing other offerings. They started focusing on recapture, meaning I'm servicing your mortgage, but we'll kind of get you to originate your next mortgage with me, right? And keeping folks in their ecosystem. And a lot of these folks were buying the servicing, right? They didn't originate the loan. So there would be some local broker out there originating the loan, selling it to Mr. Cooper to freedom mortgage, but then freedom would go well, great. I now have this relationship with the consumer for the next five to 10 years. I'm going to build that relationship. And they're going to give me an at bat the next time they need to refinance or purchase. What you just said is something I keep coming back to in conversations around this, the at bat. Not a big sports metaphor guy, so, but, you know, either an at bat or a shot on goal is exactly that. But just to zip back to what you said, I mean, you stat, well, yeah, twice is likely, twice is likely. So this is again, and what is that one to 2% or is that 25 to 50%. Let me think what I'm allowed to share here without adding anybody. So purchase recapture rates are extremely low for mortgage servicers. But in the time we worked with Mr. Cooper up to their acquisition by rocket, we were one part of a very effective strategy that helped them, depending on the baseline, you measure from six or 12x, they're probably just recapture right now. The final rate is still low compared to refinance. They figured out how to recapture your refinance business because they're sitting there. They have all the data on your loan, and they can see exactly within the money. Yeah. Well, rock it was saying, I mean, refinance easy. Just have a big red button. Yes. Save X number of dollars. Click here. You don't have to buy a house. Purchase is hard. Yeah. Purchase is hard. But on the purchase side, you are, if you got your last loan with rocket, and you're in there servicing portfolio, you're now twice is likely to get your next purchase mortgage with them as well. So the really interesting thing to me is if you compound that over 20 years, which is what they're betting on with the Mr. Cooper acquisition. How much can you, with 10 million customers? Right. Yeah. There's a lot there. So you worked with Mr. Cooper before they were acquired. Yes. And now you don't. Right. So Varune, if you're listening, Luke is very sad about that, and he would love another at that. Yeah. Wow. Very well done. Okay. Interesting. Well, you know something that I've said when I've dove into this is is an object in motion will stay in motion, unless acted upon by an outside force, right? I mean, that's kind of what it is. People keep talking about capturing. Like, oh, I'm gonna lure this customer to my ecosystem. And yes, you have to do that. And there is customer acquisition. But the inverses is equally as powerful and maybe more so that once a consumer, a home buyer, is in an ecosystem, they're just gonna stay there, unless there's a reason not to. Do you agree with that? - Stan Middleman from Freedom has a really great way of describing this where he says, if you're doing a good job for your customers, they usually don't wake up in the morning and go, who's competing with this person, right? I mean, this is, again, the beauty of an ongoing customer relationship. But that's been really hard to do. So the short answer, I agree with the premise that people complicate these things way too much. There's a human being there. And if you've done a bad job servicing their loan and you ask them to originate a mortgage, they're gonna be like, if you can't even make it easy for me to service the loan, right? Why on earth would I trust you to help me buy the house? - And then the opposite is true. - Yeah, and I think the opposite is interesting. So you don't have to be a giant billion dollar company to kind of subscribe to this theory. I mean, think about it, if somebody wants to buy a house, they work with a realtor that that's the ecosystem. They're gonna stay in that ecosystem unless the realtor or the realtor's mortgage loan officer friend gives them a reason to leave. Now, you look pregnant with thought. I am, because as I've been listening to your podcast, there's a kind of a sort of different angle on the Holy Grail I've been trying to, that you've been making me think about. I'm trying to think how we can get there. We've talked about the servicer side. We've talked about the problem in realty. I guess, let me just make a couple other observations. Mortgage originators have seen compression in their take of the transaction while realtors haven't. And I think you can tie that back to the fact that loan originators do have recurring repeat transaction basis. They've become a B2B agent, right? They get their business from the realtor or from a servicing book. You're in one universe or the other, right? And I'm saying servicing book is a stand-in for direct-to-consumer channels. So they've seen this kind of rate compression and you've seen organizations that can actually create structure around the loan officer. Start to capture some of the margin. They're actually able to generate more profits by creating scale and structure. Maybe the company carries a little more sway in the customer relationship on this ongoing basis. And through that leverage, they're able to capture some of the profit of the transaction. They're creating some value. The brokerages, meanwhile, have just been seeing their piece of the pie, shrink and shrink, but the agents have more and more on their shoulders, right? Again, no one's come after the realtor commission rates. The average has gone up since the NAR settlement, right? And, but all of the brokerages are cotton. It's kind of steady, raised to the bottom where the old franchise fees and the 50/50 splits are disappearing and the brokerage. - I mean, I'm pregnant with thought. - Okay. - Like, fast forward to why. Why do you think that is? - Well, so first of all, the brokerages are struggling 'cause once they drove customer acquisition, right? You had the co-op anchor office. - Yeah. - The consumer would make a decision about contacting a realtor by what brand do I think of when I think realty? And where do I remember in office and go, walk in? And I've got to be. - Is that, I mean, sorry, I'm all over the place, but is customer acquisition? Why brokerage company dollar is going down? - I believe so. - Again, this is just one guy on your couch. - Yeah, no, I think. - But I've never heard that hypothesis before. That's interesting. - The brand used to drive consumer buying behavior. - Sure. - And it doesn't anymore. I don't even know where the real estate offices in St. Louis where I live are. And you saw this that the brokerage is that basically disposed of the operating cost of the signage and the offices and lowered their op-ex. And just said, hey, realtor, we're not driving any business where you anyway is the brokerage. - Well, just be your boring back office for a little cheaper. - Well, it's kind of like, yeah, so what's, I mean, this gets to the question that so many people ask, what's the point of a brokerage these days? You know, what are they actually offering? And then you look at models like side where you say, oh, yeah, we're not even going to pretend we're getting into this game. We're going to be at the back office to it. There's a value there, like the same value that you use from using QuickBooks or something. And you'll pay a certain amount of money on that. Flipping to the loan side is that different? Again, in terms of customer acquisition, is that like part two of your hypothesis? - That the mortgage side, you see more recurring customer relationships and therefore you've seen more margin compression and more ability for companies too. - Yeah, the mortgage company, I don't know what the right terminology would be, is more in control of customer acquisition. So they're able to kind of maintain margin relative to the individual loan officer. - Yeah, I think there's some truth to that. - I mean, we could probably do a podcast just on that. I mean, to Troy, I walked through the floor of Rocket and I mean, all those people were making calls from the Rocket CRM. They weren't out, none of those loan officers were genuine. - Yeah, they're not generating their own business. - Right. - They're just kind of calling whoever comes through, whether it's a new customer, repeat customer, et cetera. - Yeah, and again, I mean, the only reason I'm hesitating is because it's a big industry. So there's a lot of niches and there's plenty of counter-examples to everything we're saying. But I'm trying to focus on what I think are some of the big defining trends. And then you look at how the brokerages are number one, caught in this kind of race to the bottom where their take rate on the transactions being compressed down. They're looking for ways to differentiate. Everyone's caught in a competition for more realtors. You wanna get more realtors, the realtor represents some incremental dollar to you. And again, because of this customer acquisition problem where you never know when someone is in the market to move, we see so many realtors because it is the most efficient way. In fact, to discover who the heck is moving and to get a warm conversation with that person. - What, just having an army of realtors I would have in coffee with because of the uncle effect and the cousin effect and my mother-in-law is finally selling and I just need to be the person standing there with a license discovering the intent signal. And this is in fact a market efficient way to deal with the triangulation problem of finding people in the market to move. - I, you know, what's popped into my mind again, something we said yesterday at the hub. And this isn't new research, but I think, you know, the half-life for people in this industry to retain knowledge is so short. I wanna say it again. - Yeah. - You know, as the market is compressed over the past two, three, four, five years, we have not seen a decrease in part-time agents. - Right. - Folks doing one to three deals a year, which is I think the opposite of what a lot of people would think. - Would have thought, right? And the reason is the barrier to entry to become an agent is so low. And if you're a part-time agent and it's not your full income supporting you and your family or whatever, like it's fine. You do one deal a year for your brother, cousin, and you get another, you know, five, 10, 15 grand and you can take your family on a vacation. Like why would that stop? - Yeah. - The audience, the universe of agents that is going down are the more serious folks, the folks doing kind of 10-plus deals a year, just 'cause there's, you know, the pie is smaller. - Right. - So mathematically that is-- - Less for the machine. - Yeah. - But it's long tail that is still not getting captured by-- - Yeah. - And the operations. - And the only, and yeah, and the only way that would change, and I'm not saying it should change or not, but the only way that would change is if, you know, we kind of collectively raised the bar to become a realtor, to become a real estate agent. - Well, I've got a few thoughts on that, but I guess I do want to call out that, while the realtors are holding on to their commission rates and the volume of realtors, we haven't seen a major contraction in supply, the way you did on the mortgage side, right? There's such a sharp correction as the refinance market happened. They had more people leave the industry, and we're seeing that now, realtors leave the industry. But people tend to hold on to capacity through these market cycles more than is financially responsible to do. But then the brokerages are getting driven to the bottom. The brokerage dollar has just kept steadily going down and down and down, and the value of that back office keeps getting pressure 'cause they're not doing the only thing that people in the industry care about, which is driving an incremental dollar of revenue. So, okay, so we've got this kind of this dynamic that then is supporting the more realtors side of the problem. And I guess the reason I call it a problem is just that the person who's getting served by their cousin realtor, who does one transaction a year, is not getting a very experienced professional, right? You're paying a lot relative to the amount of expertise you're getting. You are, and you're paying the same amount that you would somebody who's been doing this 30 years. And not only 30 years, but maybe 20 transactions a year, how much have they seen, how much do they know, right? How much more ability do they have to actually help you navigate a problem when-- - I mean, it's something hits the fan. - It's like paying a brain surgeon the exact same, and brain surgeon A, this is their first day on the job, and brain surgeon B is operated 2,000 times. - Right. - Over 20 years. - Right, why would they get paid the same? - Yeah. - Let me ask you a question. Where do you get your hair cut? (laughs) - Does it look like I cut it myself? (laughs) - We're on a podcast, so no one needs to know. - I go to a great place in Boulder called Jay Black, Barbershop. And do you go for the barber? - Yeah, okay. - So you go. to relationship with this barber. - Yeah. - And they rent a desk? - No, no, it's like it's their spot. - Oh, it's this individuals salon. - There's a brother sister combo there, and I mean, you know, it's like, I walk in, I don't need to explain what I want. It's the same. - They know. - Yeah, it's like the, I was telling you yesterday that I'll say you bowl place, right? - They know you. - Yeah, they know me and, or you know, it could be anything, a cafe, whatever. They kind of see you, they know your order, and there's something comforting there, where you don't necessarily want, you know, there's certain things where you want consistency, and there's certain things where you want to try something new. - Yeah. - And I think for most people getting a haircut, you kind of want consistency. - You want reliability, right? - Yeah, you want to walk in. - Just don't screw it up. - Yeah. - Don't let me walk out with the mohawk. Yeah, I mean, the reason I ask, is that the difference is again, you got a recurring customer relationship. If you don't screw up my hair, I'm likely to keep coming back. But you do see these two different models. You probably have great clips and boulders, or some version of the digital salon, where they're offering the consumer, hey, we can make this work on your time, not your stylist's time, walk in, and then the company's able to command a lot more dollar, because they're making it easier for the stylist to focus on cutting hair, right? Whereas then the stylist has the choice of, I can go out on my own, take a lot more risk, but I can make a lot more dollar on each haircut, if I can solve customer acquisition. - Yeah. - And that's kind of the same choice that realtors and loan officers face, but with this added pressure, that if you do a great job selling Mike's house, he's still ain't gonna be back for another seven years, and I'll likely have an average. - Yeah. - Which, again, is kind of the structural drumbeat of the whole industry, and this never ending cack pressure that everybody lives under. So, I guess we get to, from my point of view, Mike, I'm curious if you agree with this. We were talking about this last night at the hub, at your hub. I can do a plug for you now for folks listening to this. If you haven't gone to Mike DelPretty's hub, great opportunity to hang out with smart people, having nerdy conversations about real estate and technology. So last night we were talking about the fact that most business models are not making any money in real estate in this cycle, with a few notable exceptions. And I would say the profit and enterprise value being built in real estate right now is almost entirely coming from what we at Clever called ABCs, agent behavior change. If you can get realtors to do something consistently with any scale, there is enterprise value to be built and profit to be captured. - All right, so I'm sure some folks are scratching their heads. What's an example of ABC that you're doing at Clever? And then give me another example of in the industry. Where that's equating to enterprise value creation. - So at Clever our kind of entire premise is ABCs that we can do agent behavior change at scale with the right combination of relationships and technology. Whereas you see this being done in very localized ways effectively just with the relationships and technology. And Clever got started with a discount commission offering. So we were lowering commission rates using that as a hook to consumers. And then we'd get sellers raising their hands saying yes, you can actually deliver my choice of two to three top agents working for a one, half the typical listing fee. I'm interested in, show me what you got. Now any business in real estate faces the problem of you can promise whatever you want in your pixels. But if you can't get the people down on the ground to deliver on it, you're gonna have a very low converting experience. - Yeah. - Which comes back to our problem of too many leads. Lots of people making promises on the internet, not a lot of people aligning the humans on the ground to go deliver on the promise. So we started with that discount commission value prop and we went out and crawling through class with fruit thousands of agents to actually honor it to agree to honor what we're promising and to agree to really honor it. Not like you get in the living room and go, "Wow, I mean, I hate this stupid discounted commission thing." - Yeah. - Wholehearted. And they walk in and they go, "I do this 'cause I wanna win. I wanna dominate my market." And Clever helps me. Clever's my secret weapon to be number one in my market, right? So we want them saying things like that to the consumer. And for a long time, we thought the value in the business was in the discounted commission. You can pre-negotiate it all these rates with realtors. About midway into building the business, we realized actually the useful thing we had built was an apparatus to train and get consistency out of thousands of agents at a nationwide scale. So then we built a platform for mortgage lenders and mortgage servicers work with US bank, freedom mortgage, Mr. Cooper who I mentioned, Navy Federal Credit Union. So these folks have a problem. They want to originate the mortgage. They often are reaching the customer very early in their buying journey because of their brand reach. People think can I buy a house and they go to these brands and institutions, but then the realtor gets involved. And if the realtor gets involved and they don't know your brand, they're gonna be in the car saying, "Well, no, go talk to my buddy, you buys me donuts every week." And they've got no ability to retain this customer relationship that they have. So we were able to train and mobilize thousands of agents to speak knowledgeably about their brand, to feel like a continuation of their experience. And they would love to be able to recommend a great agent to their customer and have it feel like part of their experience. The problem is if they do that on their own, you know, recommending a realtor is not that far from recommending a roofer. It's the same fear of like they might have done a good job once, but they're gonna, you know, ghost you and drop shingles on your cat or something. You know, you have this unreliability problem. - Yeah. - So we then were able to train thousands of realtor's to follow these standard operating procedures that help set our partners up for success that make their brand look good. And through that, we had a partner run an AB test and see that we doubled their pre-qual to funded loan conversion when they get a clever agent in the loop. So back to the idea that the only thing people care about in this industry is an incremental dollar of revenue. That is where the profit and the enterprise value are built and through mobilizing agent behavior change for that use case, we were able to deliver that. So how did you affect agent behavior change? Can you give like an example or a learning 'cause everyone wants to do this? And you're saying it like, oh, it's very easy. I just wanted to put on my shoes and I put my shoes on. - Right. - But I mean, getting an agent to change behavior is-- - Right. - I mean, it's own holy grail, like that's really, really hard. - It is. I agree. Every business needs a hard problem you're working on. Yeah, when I was 24 and we started this, I didn't expect that I would have spent so much of my life getting realtors to do things. - So what's something you know now that you wish you knew you were 24 are starting this when it comes to ABC? - Don't over complicate it. People want simple, effective things and doing simple things with consistency is where the battle is one. Let me try and give you a really simple but concrete example here. We were every single partner we've won. All those brands I mentioned, Lenders and Mortgage Services had an existing Realty Network. So Clever was coming into a blood-red space with a lot of well-established legacy competitors. It's not like we invented this model. So we had to do it better than people who had been doing it for 20 or 30 years to win market share. And we start looking in and going, okay, these people are promising this kind of quality, controlled, guilty experience. Where can we make it better? And one of many easy places where you're gonna slap your head and be like, really, that's that simple? But they're all like this. It was the loan officer would send their client out to a realty program and then not here for anything from the realtor. So we train the realtors to start calling the loan officer and through our technology that they use to interact with our platform, we're then kind of adding and iterating on an accountability loop. Did you do it? And getting better at measuring it and tracking it and putting it in front of them and reminding them this is an expectation. And one of the first things loan officers would talk about when they switched from a competitor was, whoa, a realtor called me. - Ah, yeah. - So this sounds so brain-damagingly simple, but that's what I mean by agent behavior change is not about teaching realtors how to fly fighter planes. You're trying to get thousands of local contractors with limited time and attention who are trying to be out in the field, making money and serving their clients to do things consistently and it's hard. - Okay, so we'll dig in. How do you get an agent to call a loan officer? - So here's maybe a simple example. I don't think many of our competitors, when they are messaging about their technology, are referencing the same companies we do. So when I'm messaging our product team, I'm usually sharing examples of what do a lingo and whoop and Apple Watch are doing, right? Like what are companies that are good at getting human beings to do simple things that are good for them consistently? That's not how most people in the industry think, but there are these proven models from other industries. I'm wearing a whoop right now, this is my little fitness tracker. And every day it tells me how I slept and it tells me if I got my heart rate up, it tells me how many steps I did. And then at the end of the week, it tells me my age, did my health age, my sort of fitness age get better or worse? So if you go log into a clever agent portal, they're getting these nudges and scores or reminding them how often have they been consistent at adopting the portal. have day, is their score trending up or down and why? What are the couple of things they can do to move the needle this week? - Yeah. - So making it hard to screw up easy to do the right things. Let me give you another example. A lot of folks in the industry are focused on taking friction out. Let's make it easier to be a rilter and to get set up and hang your shingle with my brokerage. Let's get it easier to fill out the lead form. At every step, Clever is trying to add friction in because the problem is not enough leads and not enough rilters. It's too many leads and too many rilters. So we make it hard to become a Clever lead. You have to go, you have to really want it. You got to jump through hoops. We make customers watch three minute videos before they can talk to our agents. - Really? - Yeah. In certain channels you can sign up through. So, and then for the rilter, to claim a lead, we make them read before you can claim a lead. Oh my God. - What do they have to read? - They have to read expectations. Call the loan officer. Here's what you need to know about the brand. So, you think about this kind of ecosystem. I'm giving you these really trivial examples. But again, I think it's because something you and I have always been aligned on is that people in this industry massively overcomplicate the problems. Again, you're not trying to get a thousand rilters to fly fighter planes. You're trying to get a thousand rilters to call the loan officer and know that the customer's coming from Navy Federal and speak intelligently about three value props of Navy Federal on the call. And making that omnipresent in their experience where they're being continuously reinforced of what they need to do. And then where it's fun and it's measurable and they can see that they're moving the needles for their businesses, they do the right things. So, you're closing the behavior change loop with these executives. - That's great. I mean, people oftentimes talk about, you know, when you're building a product, you know, for consumers, the competition isn't other products in the real estate space. It's other products, period. - Yeah. - You know, Netflix, Microsoft, whatever you're using. This is the first time where I've heard that same philosophy applied to the technology that an agent uses. - Right. - It's not, oh, we want our agent CRM to be better than this other agent CRM. We actually want our, you know, agent CRM and that's the wrong word for it. It's just their technology dashboard. They're way into this system. We want it to be better than, or we want it to be just as good as everything out there that people might use in their life, whether it's a TV and oven, watch, anything like that. - Yeah. - Fantastic. To maybe tie a few of these pieces that we have together, there are other people who share Clevver's philosophy who are doing agent behavior change, the ABCs well. I don't think they have a nice catchphrase for it as we do. But if I look at where enterprise values being built, you have Compass actually getting over 100,000 agents to pitch a pre-listing program with some amount of consistency. And the market is rewarding them going, oh my God, you've got 100,000 human beings to pitch the same thing. You have team leads who are successfully operationalizing a team of agents in a market to do basic things like call a lead in a timely way, provide status updates, follow up with leads they've received. Give a well-structured pitch when they walk into the living room. - This is a great hypothesis. So I mean, Zillow, agent behavior change with the Flex and Premiere programs, right? - Absolutely. - We want to work with teams, we want them to kind of go through and do things in a certain way. And then when they pitch Zillow hormones. - Exactly. Well, agent behavior change, right? We're getting them to pitch a mortgage product or do this or do other things. - Okay, great, what was the other company? I mean, you could extend this back to EXP, right? We're going to come out there and we're going to say, oh, there's this new level of recruiting agents where you can get stock and you get up a downline and turning agents into recruiters. - Into recruiters, that's a really good point. - Yeah. - Yeah. I had thought about how they kind of were fastest to market with having the insight that brokerages are no longer driving acquisition and incremental revenue. So let's just slaughter their margins and give it back to the agents. The agents are the only ones driving incremental revenue. So let's reward the agents, right? Let's take the broker's cut and pay it to the people actually delivering the value in the new world. - Yeah. - But you have a great point. There was an agent behavior change dynamic that made that work. They turned agents into recruiters at scale and did it very successfully. So I think that's a great point. - All right, so let's pivot this into the Holy Grail. So you kind of choose your own adventure. I don't know what you want to talk about next, but well, actually, no, I'll choose, I'll choose your own adventure. - Can I give you one thing before you choose the adventure? There's one to make one last point, which is because of the customer acquisition dynamic we talked about. I think the other big structural thing that defines real estate is that real estate professionals work with each other much more often than they work with a given consumer. If I'm working with, you know, Realtor Aaron in my hometown and then I have customer Mike, I am much more beholden in my business to Realtor Aaron in many practical ways than I am to customer Mike. - Yeah. - I'm gonna do business. I might do sit across the table from Aaron 10 times over the next 10 years, but I'm only gonna sit across the table from Mike once. - Yeah, that's a great insight. - And that is another structural thing that really defines I think a lot of the behaviors that people think of as being really weird about real estate that again stems back to the no repeat customer problem. That just, to me, is the root of it all. - Yeah. - I wanted to get that out before we get into Holy Grail 'cause I think it'll be really important to how, you know, we at Clever think about Holy Grail. - Okay, so choose the adventure. - Well, I think you just said it. How do you at Clever think about the Holy Grail? - Amazing, wow. We should just finish each other saying I'm a few of the podcast all day. So, I mean, you've asked a lot of folks on this podcast nice challenging questions about, like does anyone care about a bundle? And as I was, you know, listening to your podcast at the gym, I'm sitting there muttering under my breath, going, the vertical integration is not for the consumers, for the professional. - Mm-hmm. - You know, if you think about the, these real estate professionals and doing business with different title companies every time, every transaction, doing business with different mortgage lenders every time, every transaction is a huge risk and a huge source of inefficiency. - You're saying for the agent? - Yes, and for one another, right? Lenders, nobody has a unified data model for the events that matter in a real estate transaction. Everybody has a different set of milestones. They have a different process. The title companies have different conventions for how they like to rebalance with the loan officer at the final mile. And so if you're a loan officer working with a new title company for the first time, you're doing this awkward dance, trying to figure one another out, knowing that, you know, you're not gonna do business with each other that often. How much time am I gonna invest in figuring out your process or trying to get you to follow mine? And neither side has that much leverage over the other. And it's a huge source of risk and frustration for professionals. It makes them look bad. It means they blame each other and the consumers sitting there going, "Socks, I know you all suck as far as I'm concerned." And when you think about, you know, vertical integration and trying to get some measure of consistency in your process, I think first and foremost, it's much more for the professionals and the transaction for the consumer. It's not like you put in your marketing copy. I've got title mortgage and realty under one roof. So you should work with me because there's like, "I'm just trying to sell my house, how does that help me?" So what are you saying, that consistency? - Yeah, reliability. - Reliability, yeah. Reliability. And that's something that I've chat about in the past. I think it was with Carey on this podcast where we kind of, at the end of the day, we got to this point where, yeah, it's, you know, the Holy Grail, again, one hypothesis. It's not for the consumer. It's for the professional, which is what you're saying. And the needle mover for them is not, you know, saving money, making more money. It's consistency or certainty. And just nudging that up a little bit. And then you do make more money, right? If your average fall through rate, I don't know, declines from 9% to 7%, you know, over a period of time that's actual real money in your pocket. And, you know, traditionally, the person who acquires the customer controls the consumer journey, controls the consumer experience. So out in the traditional market, that's the realtor. The realtor is usually driving the customer acquisition. And then they are directing, hey, this is the person I like to work with on the mortgage side. This is the person I work with on the title side. Consumers go along with it because they're trusting. I'm going through your experience. Hold on, say that again, just the first part. The person who acquires the customer controls the experience. Yeah, yeah, I don't know that I agree with that. Well, let's go. Well, I mean, portals, yeah. And this comes back to ABC, right? Yes. Portals generate customer leads all the time. They give them to the realtor. I think by default, the realtor controls the customer experience. No matter where the lead is generated from. And then any the ABCs come in there. Let me draw a distinction. So the portal leads will convert at, you know, three percent. Right, one to three and a hundred. Sure, right. So that's not a customer, right? Sure, a tire caterer. I'm barely giving you something better than a spreadsheet. Yeah. So by the time the realtor has found that one in a hundred, They've acquired the customer, right? Now, clever's ecosystem is a little different. The best agents on our platform at scale, right? Doing maybe one to two dozen transactions with us are closing 30 to 40% of the opportunities we've sent them. So that's a customer. I still think by default, it's not who generates the customer the controls the experience. It's the realtor, the controls the experience. And that's why the only reason enterprise value is being created is from changing agent behavior. I think we're saying the same thing. Like to change agent behavior, I do think that the person who has acquired the customer generally has a lot of agency to craft the experience. I think realtors traditionally acquired the customer. Therefore they are, they're maybe used to playing that role. But let me put it like this. Clever, launched integrated title and escrow in our first date. And within 12 months, we were achieving better title attachments than Redfinn had over five years in their mature markets with W2 salary agents. On your side or Redfinn, we were achieving better attachments than their W2 salary agents with a network, right? These are agents from all different brokerages. They're just using our tech. Yeah. And so clearly having an agent getting a W2 isn't what drives agent behavior change or isn't what lets you kind of pursue the Holy Grail. I think it was much more of the fact that we're bringing in a customer, we're serving it up to the agent. And they're used to us saying, you know, this is kind of the consumer experience that we want to drive. We want you to present our title offering. We can't say you have to use our title offering, but we're going to educate the consumer on the benefits of our title upstream. And we need you to be knowledgeable about those and be ready to pitch them to the consumer and answer questions about them, present it as an option. And because Clever's kind of the top of the funnel for the agents, that's not a huge ask. I think about what you said though. Is it the realtor? So I guess I'm going back and forth. I could go on either way on this because your point is also well said that Clever's able to shape the consumer experience 'cause we're good at driving agent behavior change. We're good at getting agents to adopt processes and scale. I'm picturing a smartwatch notification. Like don't forget to attach title today. Yeah. Well, maybe let's distill it down into this. You know, it's not black or white. It's not the person who acquires the customer exclusively and it's not the agent, right? But whoever's acquiring the customer and then the agent, they both have power. And it kind of depends on what ecosystem they're in and what ecosystem we're talking about, right? If it's a local brokerage down the road or rocket, those are two very different things. Yeah, two very different ecosystem. So it's going to depend. But, you know, let's be careful about just saying, oh, it's always this or it's always that. Yeah, that's what we said, right? We're talking about kind of what are these different pressures and dynamics that give someone leverage to shape a consumer. All right, so back to the Holy Grail. You started looking for it because you wanted to kind of empower professionals to have a better experience. Well, so I think at all times there are two things that are true. One is that you want to maximize lifetime value. You want more revenue. And the second is that you want more predictability. And predictability comes back to being able to, as best you can, control the quality of your experience. If you're running a restaurant and I'm going to give you a different chef every day, you're not going to be able to run a very good or efficient restaurant that people want to come back to. And people deal with that problem in real estate in a very practical way every day. This is the reason that agents who make rain who bring in their own customers, pick a couple professionals that they like working with, dial in their process and make sure those people can work seamlessly with them. Now, as a company, you want that too, right? Clever is really just trying to do with technology. The things that amazing agents and team leads do every day in their local market. And we want to be able to do it scalably. Nationwide, there are things they can do better than us that we can never match. That amazing local rainmaker agent you can bring the relationships, right? We're never going to be able to clone that perfectly at scale, but we have some advantages they don't. We've got scalable advertising, we've got technology, and above all, we have the ability to test, right? When I think about kind of Clever's unfair advantage, it's that we can be AB testing at a nationwide scale every part of our journey. If I change the nudges to the agent over half the country, what happens? How do the humans start behaving differently? I change the advertising and the education for the consumer. What happens? Did I net more transactions on fewer leads? By the way, a lot of our AB tests get concluded not from driving more leads, but by reducing leads without hurting transactions. We just concluded one where we cut 30% of the leads out of our pipeline without hurting the number of listings. Wow, interesting. Yeah. Back to this premise, these local agents are already doing these things, right? If you get enough volume, you become a rainmaker, and you start to pick your allies. You can help you deliver a consistent experience. Now, with Clever, it's the same thing. So you want some measure of predictability. If you can get even 50% of your pipeline to be inside of a process where you get more visibility, more predictability, more control, you're doing a heck of a lot better operationally. You can actually start to improve and dial in the flow of your business and not have these kind of negative escalations that can eat up a huge amount of time and energy for real estate professionals. So do you believe the Holy Grail exists? Define the Holy Grail for me, and then I'll try and answer that one. I mean, as it's been defined so far, it's kind of combining various elements of real estate, including search, brokerage, mortgage, and title, one stop shop. So we have a growing percentage of double-playing, triple-play deals, meaning you've got two of the legs of the stool or three of the legs of the stool on the transaction. Oh, that's interesting. I mean, back to the baseball metaphor, right? Single double-triple home run. Right, get 'em all. Yeah. Okay, sorry. Say that again. So there's a growing percentage of triple-play in our ecosystem. And in the markets where-- In yours, clevers ecosystem. In clevers ecosystem. And the fastest-growing markets we have are the ones where we have more adoption of our ancillary services, because we can then reinvest that much more into customer acquisition. What, why in certain markets than others? What's the commonality there? I mean, the premise is really simple here. So let's say that I could flip a switch and tomorrow, I could get a 100% title attach in Boulder. My lifetime value of a customer would have gone up dramatically. I can now reinvest that into customer acquisition and grow my market share. But what's your highest title attach and what's your lowest title attach by market? Well, the highest would be over 100 and the lowest would be 0. Over 100? As in agents like the experience so much that they're bringing their self-generated clients to our title. But in reality, what is your-- I mean, do you have 100 and a 0 market? Like at the scale of a major metro? Sure. And you don't have to-- If you don't want to say the numbers, you don't have to, if you can say the spread that'd be fine. But do you have two market examples in your mind where the title attaches materially different? Yes, absolutely. Why? Because you're dealing with human beings, right? I don't know how else to say it, but title attach kind of steadily goes up. But again, there's a mixture of technology, education, and then winning hearts and minds. We have a field sales team that goes out and has conversations with our realtors, educates them on the benefits of our title platform. And then you select a human in the loop, right? It's not like there's just AI closing all our title files. AI is making a human more efficient so they can spend more time picking up the phone when a realtor calls them to ask about a file. And the quality of that individual matters a lot to the realtor. So it's not like we're just saying, hey, stick with title. We religiously measure the survey scores from the agents, and those are strong predictors in a market of attach. For, again, title attach. If you're thinking about graphing it out, is it one linear path for all of your markets? And it's like a time series where everything starts at launch day and then one month, three months, six months, 12 months, where everyone's on the same path. Yes, and yes, in the big picture, and then again, throw in the noise of what happened to sales capacity. Did we make a hiring mistake somewhere? Is there a quirk to this local market that makes it more challenging? All right, so you haven't seen like a fundamental market difference in, you know, St. Louis versus Boulder versus Fresno, California. The overarching strategy works as we've grown from one to four to 10 states. Yeah, right, and how many states are you on, ton? 10, yeah, okay. 12 by the end of the year. All right, okay. You know, I guess something we should say, Mike, because Clever's kind of flown under the radar. In 2021, 2022, I think a lot of companies got their name out there by raising these huge mega rounds, and we just never did. Right. But, you know, Clever is closing north of 1,000 transactions a month and growing at the fastest rate we ever have. So the company grew through the market downturn. Revenue every year. And now revenue. growth has accelerated three years in a row, in a down market, right? So revenue's not just growing, it's accelerated. The revenue growth has accelerated. The revenue growth this year is almost double the growth rate three years ago. So I say that only to say, it's working. People might be like, who the heck is this clever company? And how much stock should we put in their particular experience? And we're profitable. Right, we're profitable. So we're choosing how quickly to grow, what based on maintaining a positive bottom line margin, and then reinvesting when we're making more profit than we plan to in accelerating growth. So what crazy, made up financial metric, are you profitable by? I cash flow. Oh, that's weird. I know, right? I loved your meme of the disappearing spinach. (laughs) Adjust it even though it's full. Down to, you know, free cash. You know, so clever, clever's free cash flow positive. Am I an investor in your business? You are. I forgot. Okay, great, good. (laughs) Wow, Mike, I didn't know you had it like that. Like God, I can't even keep track of which buildings I've invested. I thought I was, but that's, I mean, that's one of the, and again, I don't want this to turn into commercial, but that's one of the things I like about you and clever is the business is fundamentally pretty boring, right? Hey, I'm offended. Well, we're changing agent behavior. Someone described my business to me yesterday, or in a sorry, so two days ago, is, ah, so you're a tech-driven cat-herter. (laughs) It's like, wow, that pierces my soul. Yeah, but in this industry, you know, fundamentally boring, you're profitable. You haven't raised a lot of money. You have flown under the radar. Like I love all of those things, you know, and you're of a material size, right? This isn't just a little dinky company, you know, we're doing more as I can tell, we're either the fifth or sixth biggest referral platform in the US, and with our pace of growth, we'll overtake another couple competitors over the next two years. Yeah, and we've had these conversations offline, I'm not gonna record it, but some of the stuff you shared with me in terms of metrics and profitability and all these levels and looking at other, what other more noisy peers or people in the company have done, I mean, it's all good. It's all impressive stuff, all right. Infomercial, infomercial over. Yeah. So, I mean, back to the, back to the Holy Grail, I'm just, so we talked about title. Yeah. So what are you trying to attach together? You're trying to attach, let's say brokerage. We think of the big three, right? You could spend a lot of time just working in the big three. I think people like to get cute and jump to, you know, homeowners insurance and inspections and all this other stuff. Yeah. But if you're controlling, and again, control is a loose word. The consumer controls at the end of the day, but consumers don't know, they don't have strong opinions. And so really, the ecosystem or the professional, whoever it is, is heavily influencing these decisions on the big three, which are realty, title and mortgage. So what are you doing in mortgage? So in mortgage, I mean, I mentioned, we have all these, these lenders. Oh, so you're starting from mortgage, right? So very often we're helping with retention. Not all, and not all the time. I mean, you're living your customers from these mortgage customers. But you're also like, if I go online, and I type in like, what discount broker, boulder, or we'd very likely pop up. Yeah, or if you're talking to chat GPT, and you say, how can I sell my house fast? We've spent eight years flooding the internet with content about our products and services, you know, which has now gotten trained into all the LLMs. And they're citing five different web properties that Clever runs that I'll talk about our services and our data and what we do. And it's going to say, oh, Clever offers. They can help you compare multiple cash offers and one can be in the place. So your customer inflow is coming from-- Direct to consumer as well as these channel partners. Okay, mortgage. All right, so please keep going on the mortgage side. Yeah, so whether it's a direct to consumer buyer where we might be trying to place the mortgage or whether it's coming from a partner where we want to help them protect a customer relationship within all the bounds of respa, right? We can't, you know, say, hey, consumer, I'm going to handcuff you to this loan officer, but we can create a good experience that feels like a continuation of their brand. And we can hold the realtor accountable to collaborating effectively with their loan officer and setting them up for success. And again, to me, a lot of this is who dictates the process, right, whose process are we following? Are we following the title company's process, the realtor's process, the lender's process? So we can help the lender have thousands of realtor's all over the country follow their process, work with their LLMs in the ways that their business is structured to work. Is this good for the consumer? I think so. Why? So I think about a world where there are fewer leads and fewer realtors. And again, really excited about it. The average realtor in the US is two transactions a year. The average agent in cleverest platform does 21. So 10 times is productive. The only other kind of brokerage on that productivity is Redfin. I think about the level of service that those customers are getting from that realtor. And I feel really good about it. They're getting a professional who's seen hundreds of transactions who, when something goes wrong, really knows how to get in and help you solve it. Right, right, right. I mean, if you're brain surgery again, you want somebody who's seen it all. You want someone who's done it. And the best part is that we're helping the realtor. When I go out and I'm traveling and I meet with our realtors, pretty uniformly. They tell me for whatever reason they got into the business 'cause they liked helping people buy and sell houses. I didn't have any single realtor to tell me, I love calling cold leads from Zilla who don't want to talk to me. That's why I got into this business. I'm just addicted to cold calling, low converting leads. So we help them spend more time with their customers, spend more time doing the thing they got into the business to do. To this day, if we get a one through a three star review, I call the customer. And this was something that as the business started growing and really doing more transaction volume people internally, we're like, you can't keep doing that. It's not going to scale. Yeah. It turns out it does scale if you keep doing it 'cause you figure out how to not screw up for your customers. But again, coming back to like, why is the integration so important? If you're going to do that, you really don't want some title company dropping the ball and blowing up your transaction and making your realtor look bad. So, I really believe because I've talked to the customers and the situations where things have gone wrong that we're getting it right, a heck of a lot of the time and that this ability to test and iterate and keep the realtor accountable and deliver these professionals who are more experienced but also getting more attention to their clients is a huge win for everybody. And maybe the last thing I'll say is that, I believe what we can do is break the finite game problem that we talked about in the very beginning of this conversation. So, if you're, you might come to me and I'm an agent and in the back of my head, I know I'm probably only going to do one transaction. And I'm going to dress that up and be like, well, no, in 10 years, I'm still going to be in the business and you know, Mike will do another deal with me or I'm going to get his Airbnb as well or I'll get his neighbor, but it's not quite the same as your hairdresser. It's like Mike is going to come see me in a month and there is an incentive to treat customers as a finite game, a one off. Clever really fundamentally turns every customer into a hundred for the realtor. If you screw up for this one customer, you jeopardize your next 20 transactions. And I think that's a really powerful incentive reframe. - Yeah. - For the realtor, they no longer have to sit there hungry and worried and going, you know, where's my next deal going to come from? They just need to focus on serving this customer brilliantly well and all that other stuff, the anxiety, the risk of fear, the uncertainty is going to take care of itself. So that's, you know, at least the aspiration. I think we're getting that right a percentage of the time. And then the mission is to get it right a higher and higher percentage of the time as you grow. - I mean, that's a really good point, Luke. But when you take a step back, it's not just Clever, you know, doing this holy grail stuff. I think there's a big shift. So kind of a two-parter one, do you agree? Do you think there's a lot more companies spending a lot more money chasing the holy grail right now than there has been before? And do you think it's going to materially move the needle? Like you were talking about doubles and triples at your business. If we looked at all of industry transactions, do you think we're going to see more doubles and triples? - So are there more companies pursuing this? I think yes and no. I think nothing is new in real estate, right? And if you look at the folks who are making money in real estate, they're these talented entrepreneurial team leads all over the country. And they do agent behavior change. They actually train their teams. And therefore, they're able to capture some margin. Maybe by training their teams, they're able to deliver a consistency that someone cares about, whether that's Zillow Flex or whoever else, they can deliver reliable conversions and lead follow-up and good customer service. And therefore, they can drive customer acquisition. And then they also, to your point about the triple play, they've been doing JVs with title and mortgage long before the technical problems. - I know all the stuff has been happening, but like right now, I mean, Zillow's doing this on a scale that we haven't seen before. Rocket is doing this on a scale that we really haven't seen before. Is there a bit of a sea change? I think there is. I think in particular, and they're going to force everyone else to follow soon. Yeah, home services of America just announced that we're going to do loan servicing, they're launching that, right? I mean, if you're, it's like what I've talked about before. I mean, this is a zero-sum game, right? So if you're not, if you don't have a dance partner, if you don't have an ecosystem, right, you're probably going to lose really, really slowly and perceptibly over time. I agree. I think in particular, there's a race to win on lifetime value. If you can pay more for a customer relationship, you can spend more to serve your customer as well to acquire more customer relationships. And so the ante is being raised in the industry, where as people get better and better at increasing lifetime value by attaching these different components to the one you paid to acquire the customer, you've got that sunk cost. Now you need to maximize the revenue. And I do believe there's a little bit of an arms race effect where people are now trying to figure out just how far you can push the boundaries of lifetime value of a real estate relationship. I also think that the team leads, as awesome as they are in their individual markets, have structural reasons, they can't scale. And what, hold on, I'm asking you these questions about Rocket and Zillow and all this big stuff, and you keep pivoting back to team leads. Like, why do you keep talking about team leads? Because they're in the ecosystem, if you look at Rocket and Zillow, it's the team leads, right? Zillow's product is working with teams who then organize 40 agents under them. The team lead is clipping the broker's take on top of Zillow's flex fee, right? So the agent is taking what's left over after Zillow's customer acquisition cost and the team leads agent behavior change cost. Is the team lead the key player in a huge way? But again, if you look at Clever, we have a different archetype, right? We don't work with the mega teams. That's not our target agent. What's your archetype? The target is someone who has a team, but it's generally a really small team. It's two or five agents who are all productive and the team lead is very productive, right? I told you our average is 21 transactions. So Zillow, a more typical archetype would be a team lead who's not even producing anymore, who's got 40 agents under them is dealing with much higher turn, but also again, has a much very different lead conversion problem. They need a lot of dialing capacity. They need a lot of availability to receive all of these leads flowing in, and they need a big enough pool of buyers that they're generating to be interesting to Zillow. So can you argue against yourself in terms of this flow of, oh, holy grail, it's going to keep going. We're going to see more doubles and triples in this place. We've got big companies, multi-billion dollar companies doing it. It's an arm race. Everyone's going to do it. If I say, okay, cool. Now argue against yourself and use some actual evidence. What would that look like? Okay. And so the argument here is we're not going to see consolidation. We're not going to see the arms race on lifetime value. Yeah. This is just another flash in the pan like it was 10 years ago where everybody was was thinking about pulling it all together. Okay. Well, I think what you're getting at is, hey, haven't we heard this story before and didn't these companies raise and burn billions of dollars and lose? Right. What I remember is that when clever was raising $13 million total and we were up against competitors raising 500 million. That was a little intimidating. But most of those companies were telling a story that was very different from ours. They were telling a story about, we're going to displace the realtor. We're going to replace the realtor with tech. Our tech is going to drive a touch. Right. Consumers are going to click through our user experience and choose their title. And that is dead. I guess what feels different to me this go around is that the tech giants got humbled and now are playing through the realtor. Now, we've been playing that game for eight years, right? This is not a radical shift for clever. We've only gotten deeper and deeper on the basic agent behavior change. Yeah. But I do think there's been a broader acceptance, right? Think about Zillow losing hundreds of millions of dollars on, we're going to buy the house without the realtor. We're going to do it all to we're going to find the most talented team leads around the country to train agents because it's so freaking hard. Mm-hmm. To Zillow's credit, they didn't say they were going to do that without the realtor. They actually said, we're the one. We'll work with the realtor in the process. Yeah. That's fair. Because I think, I mean, maybe they recognized it, right? That means they've been doing what they're doing for a while and they understand, unlike, say, some of the other ibuyers like open door, they understand we need to keep working with the realtor. And I think what you're hearing from me might be what I hear from realtors, how it was perceived at the time, which was Zillow's always trying to find a way to stump on us. They were not perceived super lovingly at the time. Yeah. With that move, which again, to your point, might not have been fair. So I asked you to argue against yourself, but I think you anti-argued against yourself. I know. So let me, let me evolve it this way. I mean, what needs to be true for, for this to, to, to play out. Yeah. Yeah. And I guess for this, we're saying kind of, hey, I think there will be more consolidation. People actually figure out how to take more market share and as in more breath, more volume of realtor transactions and get more depth. They'll capture more doubles and triples, right? That's kind of, yeah. And then the counterfactual would be actually is going to be more fragmentation. There's going to be more, so here, I think here's the fragmentation argument. The big brokerages have lost their ability to drive customer acquisition and their revenue take is getting chase to the bottom, right? They're going, how can I use AI to make the back office cost nothing so that I can charge you 10 bucks and still make a profit, right? Interestingly, the nation's largest brokerage compass is trying to reverse that customer acquisition, right? You're listing your lead and getting the listing agents on there because that's where the margin and enterprise value is, right? Like if you can actually mobilize market share and agent behavior change to do something others can and have a reason to be in the compass ecosystem, right? And I think, I think, again, I think they're doing it really well. When I read their marketing to agents and they're saying, you're going to have opportunities to win more listing appointments because you've got access to this ecosystem of buyers that other people don't and you're going to be able to offer differentiated value to your buyers by saying, hey, I get these pre looks before everyone else. I'll get you the jump on properties. Finally, someone is using scale plus agent behavior change to have a value prop that you can actually explain to a 10-year-old and they're like, okay, that's a good point. It would make sense to a 10-year-old. Yeah, right. Keep it simple. It makes sense. Yeah, this is in rocket science. Yes. It's so simple. Is this a game that only the big can win? Let me think about that. I don't think of clever as very big, but we're growing at a very good, very big compared to our publicly traded competitors. But we're growing very quickly. And then there's team leads who are going to be very successful. There'll be some great American wealth stories out there from these entrepreneurs who figured out how to drive agent behavior change and consistent processes. I just wonder if there's these inherent scale benefits. Right. You know, rockets got 10 million customers in Mr. Cooper. Yeah. So it's not like I do 10 deals a year and those people transact and I average 10 every 10 years. Yeah. So I'm kind of sitting around making a couple calls and then just farm. Yeah, but like 10 million, you can keep people busy all the time and the inflow is going to be constant. Yeah. So is it a game where scale offers advantages? Well, yeah, extreme advantages. Yeah. We'll have to see. I mean, back to you asked me to make the counterargument. Here would be my counterargument story is again, the brokerages are kind of throwing in the towel saying we don't have a story to drive customer acquisition. We are a commoditized back office who's going to face margin compression to a vanishing point of zero. Yeah. But they're kind of handing it to the realtor saying, Hey, you guys keep more of the money. Like go acquire the customer and you can keep it all. And the maybe the counterargument would be, Hey, these tools are getting more democratized. AI is making it easier to kind of do level some of the playing field advantages of tech, right? Zillow and rocket have spent and compass have spent hundreds of millions of dollars on tech that now can be replicated at a tiny fraction of the cost. And so the counterargument story might be, Hey, the rebels are about to get armed, right? The rebel alliance is going to have the best weaponry they've ever had. There's many stories of distributed insurgents owning their market. And so that would be my counterargument is that the realtors are going to be out innovating in the field. And these little teams are going to be able to fight back against the scale power of Zillow and the sort of constant churn of the mega team. Now that's good. And maybe building on that and thinking back to agent behavior change. Nothing has has changed the powerful central position of an agent. Sure. It sounds like a highly hedged sure. Well, I do think you're seeing you saw in many industries, I like to look at, you know, the travel industry and insurance, right? I'm always looking for comp star industry, right? That's, I mean, those are bad comps. Well, because they're low, they're high frequency low value transactions. Or even loan originations with rocket like why does a rocket model work? And you kind of see this pattern of at some some point, a company able to structure a process and own more of the customer relationship than the salesperson, right? At the end of the day, the only way a company keeps any margin is if to some degree they own the customer relationship. relationship, not just the salesperson, they both have some ownership, right? And so I do think you're seeing that, like clever customers leave reviews for clever, not just for the realtor. We are part of their journey, it's a clever experience, and that's by design. So we're seeing that more, it's the zillow experience, it's the rocket experience. You're seeing some of that. So that's my hedge. Now I do still think the realtor is central, the realtor is in the living room, the realtor. It's a technology around the realtor to help make it easier for them to succeed. We want a world where we can deliver exceptional experiences without depending on cosmic miracle realtors. Cosmic miracle realtors? Sure, right? You got your person closing 150 deals a year and wowing every client. It's not a great business strategy to be like, I'm going to just find all of those people. It's not enough to go around. Can we make the humans we've got really wonderful, really exceptional, with supporting them with technology? So yeah, I think the realtor is central in that sense, but I do think you're seeing the company own more of the process of conversion and more of the customer relationship, right? There's a real connection and trust established through the company and the brand, and that's where the margin comes from. Now I gave you the Arm the Rebels story. I kind of believe it, but I kind of don't. I think at the end of the day, there is a big scale advantage and compass is pressing that scale advantage. And I think it'll work for them. I think there is a big scale advantage for rocket, especially through the servicing book and having that ability to establish yourself as a default starting point. And then I think there is a, I guess if you sort of look at the landscape of who's going to win and lose, I do believe that over time, not in this cycle, but over time those 1Z2Z realtors are going to be the ones who lose their market share. And the reason I believe that is because we can deliver a better experience with a more experienced realtor, with some real tangible value props, whether we're saving you on commission or helping you compare five competing cash offers for your home privately before you list. They've got real tools at their disposal. And they're going to spend more time working with you than a realtor has to spend all their time prospecting or worse working their day job because they do one transaction a year. So counterpoint, I disagree with that. I think the 1Z2Z realtors are getting deals based on relationship, often like a family relationship. Yeah. I don't, I don't see how any of what we've talked about is going to change that. I do. Okay. Tell against them who doesn't have a cousin with a realtor. I think every one of our customers has a cousin with a realtor. Why are they going with clever? I mean, is the Thanksgiving dinner thing, you know, it's like, oh, I'm buying a house. You didn't call Uncle Joe. I'm not saying it goes to zero. I'm just saying we're talking about long term trends and shifts of market share. So I, I mean, who knows who's going to be right, right? So I think that segment is probably pretty safe and you have evidence to counter me. So that's fine. I'd say it's the, it's the next level up, you know, it's these realtors that are, are the small teams that are doing, you know, five, ten transactions and they're going to lose imperceptibly slowly instead of eight. It's going to be seven, right? And sort of 12. It's going to be, it's going to be 11 because they're stuck in that middle ground. Well, let me, let me hit your point about the family relationships right on the nose. What I mean by that is just you've had this trust problem in real estate as well as the finding the customer who's thinking about moving problems. So again, like the living room table is a really market efficient mechanism. It's crazy as it looks to people not in real estate to discover seller intent. And then consumers care above all in the real estate trends action about trust and having someone who they feel is going to act against interest. Right. Right. And they don't think it's going to be Uncle Joe. I think they do think it's going to be Uncle Joe. But let's, let's just look at again, long term slow moving trends where a point of market share is worth a billion dollars of mark enterprise value. So a single percentage point move is actually big shift trust. I think that there are brands establishing trust in other ways. This has happened in every other industry where they build up the reviews. They build up the testimonials. They build a process that people believe in. They educate customers on why their business model works. And at one point, the trust was Sotheby's. Sotheby's only as good realtors or remax. They only have good realtors. Right. Then that meant something in a drove customer acquisition. And that's why those brands commanded margin for a long time. But trust can be established in other ways. And we see that in the digital age is these proven playbooks for establishing trust. So then the second thing is the identifying intent and how expensive that is because intent is so fragmented and unpredictable. And rocket every time you're making your monthly payment can put these flags up there and say, thinking about selling, thinking about buying, how about now they can nudge you. Consumers open emails from their servicers at 50 to 60%. Even if it's an ad, it's still their servicer. So identifying intent, there's structural ways that you can start to do that. So I'm not saying Uncle Joe disappears. I'm just saying that on the margin, a couple of those deals start disappearing here and there. Yeah. And I wonder, because where the rubber hits the road is the person thinking, I'm not going to use Uncle Joe, I'm going to go this way. Yeah. Right. And I'm curious if the bundle discounts are enough to move that needle. I don't think they are save $20,000. I'm not going to use Uncle Joe. Actually, hey, Joe, can you, can you save me 20K? Right. Oh, no, no. But yeah, it's like, oh, sorry, buddy. I mean, look, we see some of that and again, we sell again. Why did you think it will work? Because I think that the discounts are more about the intent and not the trust side and you need to beat Uncle Joe on the trust. Uncle discount is to get a handraiser, right? I can save you 10 grand. I'm finding the intent. It's like, oh, I'm interested in that. Tell me more. How does it work? Is it trust in the individual person you're working with or is it more of confidence that this transaction will go through smoothly? Are you in my corner? I hear all the horror stories. I hear about people with bad experiences with their realtor, right? There's a huge spread in the quality of an agent and the biggest financial transaction of your life. So people are like, are you going to have my interest at heart? Yeah. I know these agents are making a lot of money. Are they really going to fight for me? Yeah. And the way I think about trust again is let's create an infinite game. I want every customer to represent 100 to the agent. So we solve the incentive problems because there are a lot of incentive problems. The realtor makes their commission tomorrow if they can talk you into selling your home for less than it's worth. Right? That's like the bottom line of the industry. Yeah. And so consumers are right to have a lot of fear and to really want someone who they're confident is incentive aligned. Right? I'm going to see Uncle Joe at Thanksgiving dinner a year after I saw my house. Is he going to be able to look me in the eyes and say, you got the best price. Yeah. Right? Like he's really motivated to not screw it up for me. Yep. And so then you see brands who have to build trust that can compete with that. And again, I'm trying to explain things in the way of like, it should make sense to a 10 year older. It's not real. Yeah. And that's real. You're going to see Uncle Joe a year from now. And therefore you know he's going to not want to be ducking his head at Thanksgiving feeling ashamed because he screwed up your sale. Yeah. And that really counts for a lot. But if you see an agent with 105 star reviews, they've got the team. They have the track record. They've got the tech behind them. Feels pretty good. It feels pretty good. And you can tell Uncle Joe, you know, hey, they've done 30, 40 sales. They've done things just like this. I just don't want to take the risk. You know where I've seen that pop up recently is the Google listing ads test. Right? Yeah. And you get the, you know, the listings and Google, but then there's the agents. Yeah. And the agents have the stars and the reviews and you can feel it in your brain. You're like, oh, these aren't just people who are paying the most money. Right. You know, like, yeah, you can game reviews, but only to a certain degree. Reviews are also the infinite game, right? I might only be one transaction for you, but it often only takes a one one star review to screw up an agent's career. Yep. And so I am an infinite game for you, not a finite game. If I can leave you a bad review and a company that has 50 reviews is thinking about that. Yeah. I have leverage over you. Right. If something's going wrong and I threaten to leave a bad review, you're going to care. Yep. You're going to fight for me. So I think the reason customers care about reviews is that there's a real tangible power. Yeah. You have as a consumer over a company who's showing that they fight hard to maintain good reviews. Yeah. Yeah. Yeah. Again, I think about clever. We call every customer. I call every customer. Leaves a three star reviewer lower. Look online and they see that we've got a 4.9 rating with 5,000 reviews. They're not wrong in thinking this is a company that if something goes wrong is going to bust their tails to make it right for me. I have power over this company. I love that. I love that philosophy. All right. This has been a great conversation. I think we'll wrap it there. I really appreciate you sharing your insights and thoughts and your search for the Holy Grail. This is a lot of fun. We'll keep you posted on if we ever find the Holy Grail. You know, I was thinking about the Indiana Jones metaphor of the cup. Yeah. It's the Carpenter's Cup. At the end. Right. There's all the fancy cups that killed it once. Yeah. And actually, I was like, "Jesus was a Carpenter." You're looking for the least shiny object on the table. It's the borough. and Carpenters wouldn't cut. - Yeah. - That was my takeaway listing to your podcast. - That's awesome. I love it. I love that that's the takeaway. (upbeat music)