LPT Realty’s Robert Palmer on M&A, private listings and how he’s driving growth

Change is constant and so is MGIC. For nearly 70 years, MGIC has been the original choice for mortgage insurance. With tools, resources and expertise to help you close more loans and manage risk. Market-tested, industry-trusted, authentically MGIC. Visit MGIC.com Welcome everyone. My guest today is Robert Palmer, founder of LPT Realty to talk about industry M&A private listings giving agents a choice in the brokerage model and the phenomenal growth his company has seen. Before we dive in, I want to think our sponsor, Total Expert, for making this episode possible. Robert, welcome to the podcast. Yeah, thanks for having me Sarah. Excited to be here. Excited to have you on. Of course, you're going to be one of our speakers at the gathering. Super excited about that session, but kind of wanted to give our listeners a sneak peek because the reason we asked you to be at the gathering, the reason you're here on this podcast is you guys are doing some really interesting things. And you're consciously building something different with LPT. And I really would love to dig into that. Like what makes LPT different? Yeah, yeah, I think I think we had the benefit of seeing the landscape, you know, the kind of the original or the first what I would call class of national singl entity brokerages or mostly over a decade old now. We were kind of the new kid on the block, but we had the benefit of time of seeing some of the mistakes they made seeing the landscape changed. By the time we were designing LPT, you know, things like the commission lawsuit were already underway. Hadn't been, you know, settled yet, but it was out there. We knew these things were happening. AI was starting to kind of come on the scene. And so I think for us, the ability to really build things from the ground up was beneficial with all that in mind. And then too, I think I think we have a little bit of a different take on what it takes to be successful in this industry. We have a concept called individual definition of success, which I think is really important when you look at an industry like real estate, where you have, you know, 1.5-ish million entrepreneurs out there, you know, running their own business, building their own brand. It's a different kind of industry. It's a different kind of enterprise. And so it's really important to me that no matter what an agent's individual definition of success is, whether that's a couple of closings a year or, you know, we have teams doing over 2000 closings a year, we really built the company to be able to meet them where they are and honor that individual definition of success. You know, along with that, you, one of the things that differentiates you guys is that you offer agents, they can choose what kind of brokerage model they want to work under, right? So there's a flat fee model or a more traditional commission split. So we'd love to talk to you about that a little bit. How did that come up? And how does that practically work? Because I would think that that makes things more complicated on your end. We definitely had to build some custom technology, you know, to be able to track it. We had to have our own internal system for all the accounting and commissions and, you know, DAs and everything, because there was no off the shelf out of the box solution that would allow us to offer that kind of flexibility. But I think as we were designing LPT, what really saw is that there's a large, a large swath of agents that the cap model has largely left behind. You know, the cap model's fantastic if you're doing enough closings to cap. But I think we see a lot of people now where maybe they have, you know, multiple income streams, they're managing rental properties. You know, maybe they have another career that they're working in as well. Maybe they're, you know, in the insurance business or something adjacent to real estate. And so while they're fantastic agents and they do a great job for their clients, they're not going to do enough transactions to cap. And so the cap model largely left them behind. And I think that's where you saw the rise of the transaction fee or the quote unquote, 100% brokerage, you know, in the last decade for that very type of agent. And so as we looked at the landscape and said, well, how do we want to build a brokerage that can, you know, that can help as many agents as possible, support as many agents as possible, while reinforcing that individual definition of success? Because I think for a lot of the cloud brokerages, the agent doing two, three, four transactions a year doesn't really fit because of that cap situation. And so you're seeing them leave. You know, if you look at the attrition at most of the large national brokerages that are on a cap model, they're losing those agents doing two, three, four transactions a year. And we think they're an important part of the industry. I know there's folks that disagree with me on that, but I think they're an important part of the industry. And we wanted to be there to support them. And so building the hybrid model and it really boils down to Sarah, if you want to make money off of other agents, right? If you want to build a business where you're leading a team or you're earning revenue share recruiting income, if you are interested in earning dollars off of other agents, then you need to be on our split plan with the cap. If you're only interested in earning dollars and earning money from your personal real estate production, that's really where that 100% model comes into play. And so it's very self selective. You know, it's not just like, oh, why would one person pay more, one person, you know, pay less? It really comes down to what is your definition of success? If it includes helping others mentoring, having a branch office, being a team leader, earning revenue share, all of those things require the split plan with the cap, where if it's just, you know what, I want to be a fantastic agent. I want to help, you know, three, four, five buyers and sellers a year that I'm going to go on that that 100% plan. And then the other really interesting piece is the team members. And so our team members are able to go on to that 100% plan, which has really helped our team leaders grow. You know, the ability to recruit into a model where the agent isn't losing 20% or 15% on top of what the the team leader is making and maybe on top of what a referral source is making has really helped our team leaders grow because their team members have better economics in those early deals each year. And then on top of that, we're more aligned as a brokerage because we have the same economics, whether they're a solo agent or a team member. And so what we see in a lot of models is the recruiters don't want their solo agents joining teams because they'll make less money. You know, the local franchise owner doesn't want solo agents joining teams because they'll make less money because those caps go down in a lot of models. And so the brokerage actually fights the team leader on growth because their interests aren't aligned. Well, in our model because anyone can pick between the two plans, we encourage a solo agent who maybe would do better on a team or could benefit from the leadership of a team to make that transition. And I think that alignment is why you're seeing the largest teams in the country come to LPT, why you're seeing the amount of growth inside of the teams at LPT is just absolutely astronomical. And it's because of that alignment. We want our teams to grow, we support our teams in that growth because of economic alignment. So how does that work for the team leaders if the people on their team are those solo people? They're not, you know, they're not making money off of what's their incentive to be a team leader? Yes, so it actually, it allows the team leader to make more money because their team split is still their team split. And so we think about team economics, the team leader and the team member are going to have a team split. And then the question becomes, well, how much is the brokerage taking? And so most of the large brokerages will take less on a team member and we're right in line with them on our economics. But the problem becomes the brokerage makes less when a solo agent joins a team. The team leader is still in the same spot. It's the alignment that's the difference. It's the fact that because we have the same economics as the brokerage, we're not limiting those team leaders. And by having no monthly fee, you know, by taking the money slower because of that 100% comp plan versus taking 20% on those early deals, there's a lot more alignment. It's always been interesting to me. If you're a team leader and you're recruiting an agent, you sit down and you say, you know what, I think it'd be a great fit for my team. I think we should work together. And we're going to make a lot of money together. But first, I need your credit card because I have to charge you a joining fee and I have to charge you a monthly fee. And you know, you're going to pay me this monthly fee three or four times before you see your first check. And it just, it almost seems silly and it can destroy that alignment early on. And so part of our decision to not have a joining fee, to not have a monthly fee is so that team leaders can recruit those agents in a more aligned way. So it's interesting. You know, you brought up that like some people in industry would push back on those, they don't want those people to do three, four, five loans a year. Tell me from your perspective, why you value them, why you think they're good for consumers or for the industry or for your business. I think there's a lot of consumers who value comfort and familiarity in this process. You know, I think if you look at quote unquote disruptors who have tried to come into our industry and commoditize it, they failed. Why would a consumer, you know, rather do a transaction with someone they've known for 20 years, who maybe only does three or four, five transactions a year, versus maybe someone doing 20 transactions a year that's a stranger to them. And I think we see a lot of consumers make that choice. It's a big decision. I think trust is a massive layer. And I think the idea that just because someone's only closing a few deals a year means they're less qualified. I don't see that at all. You know, we're going to probably process 100,000 transactions this year. We ended last year at 61,000 and I can tell you there are absolutely amazing entrepreneurs who executed the highest level. They negotiate amazingly for their clients. They are there. They're hand holding and they're only doing three or four, five transactions a year. And so I don't think volume is the right metric for quality of service. And I think ultimately the consumer choice is what's most important. And a lot of consumers really value that familiarity and they value that longstanding trusted relationship outside of real estate, which is why we see those agents continue to succeed at those levels. Really interesting. That is definitely a different, you know, take than some people do. But I like the focus on the consumers. And it's about, you know, what do they want? And I feel like the more we do that, right? The more we serve them, it seems like that's where you're going to be winning. Absolutely. Hi, I'm Clayton Collins, a CEO at Housing Wire. And I'm joining you today to talk about the gathering. So the gathering is where the industry's most impactful leaders show up when it matters. It's where the leaders from Rocket, Mr. Cooper and Redfin first shared the stage post acquisition where the CEO of Keller Williams first talked openly after stepping into his new role as CEO and where this year leaders of Penny Mac and Cross Country are talking openly about what's next, including M&A and organic growth levers. This is the most powerful room in housing and you are invited. So if you're able to join us in Austin, April 27th through 30th, go to [email protected] and use the code podcast for 20% off. So we had the two biggest real estate companies in America, March last year. So did that offer a stress test of your model and your you've had very rapid growth? Like how did you look at that? Yeah, I mean, the growth has continued. We continue to work our game plan. I think it's an interesting merger and really when I think about it, you have a very large single entity brokerage encompass that's licensed in all 50 states and operates directly with their agents and then you had anywhere, which is a massive franchise operation and organization. While they do have the corporate own stores, which still rank very highly for production, you've got this massive franchise layer. And so I think it's interesting. I think it's an interesting dynamic to now think that you have, you know, compass corporate competing with Sotheby's franchise owners and, you know, the Sotheby's franchise owner pays a franchise fee up to Sotheby's own by compass corporate and then they're competing on the streets. There's a lot to try to integrate those very complex models, as far as our game plan and our growth, you know, really didn't see much of an impact. You know, I think we continue to compete with the local franchises in the same way we did before. We continue to compete with compass in the same way we did before. And I'm a little skeptical of if that type of scale spread across that many different organizations really brings much benefit in the long run. You know, does it bring benefits to consumers? Does it bring benefits to the brokerage? I can tell you that the local franchise owner, you know, who owns a Century 21 or an ERA, they're not necessarily motivated by the same things that are motivating compass corporate up in Manhattan. And so I think you just, you have a lot of different businesses, a lot of individual entrepreneurs. And so where maybe in other industries, that type of consolidation would have a bigger impact, here we're still a lot of independent contractors. We're still a lot of folks and agents who run their own business and have their own vision of what marketing and success look like. And so the fact that their franchise payments now go to the same person that owns this other large entity, we didn't really see that be much of an impact. Interesting. Yeah. I mean, we're definitely when it happens, kind of like, okay, let's look at what this looks like a year later, two years later, right? Because I think it's going to take a while to see what that impact is. And we know that some people have been really happy about it. And there are probably some people who haven't. So we're still looking, you know, speaking of M&A deals, of course, we had a huge deal with rocket, redfin, Mr. Cooper. And now the compass alliance. So they're calling it alliance. I'm not sure what that means, but not that they own them. But what do you think about that whole, like, potentially end to end transaction, you know, model? Yeah, I think it's fascinating. You know, we obviously follow the transactions very closely. I come from the mortgage space. You know, I still have a very large mortgage company that's involved in refinance and mortgage servicing. And so I've competed with, you know, rocket and quick end for many years. I think it's fascinating. I think everyone's trying to figure out what does this next level of scale look like? The really interesting thing is when the compass anywhere merger first happened, you know, Robert Reffkin talked a lot about the benefits of having both companies have a joint venture with guaranteed rate. And how that was going to create synergies with the G-Rate venture, you know, joint ventures. And they were going to be able to use those funds to help pay down the debt. And then just a few months later, complete pivot. And now rocket is the preferred, you know, digital mortgage lender of the compass anywhere group. And so I think it just shows that there's a lot of unknowns. Everyone's trying to figure it out. I think on the mortgage side, the Mr. Cooper rocket acquisition made a lot of sense to me. To have that massive servicing portfolio, we know that rocket is a fantastic executor when it comes to mortgage refinance and those originations out of the portfolio. So that went to me. I think made a lot of sense. I think redfin made a lot of sense. And when you look at the redfin model, you know, the agents there are mostly on salaries and a lot of them are W2. They don't necessarily have that same entrepreneurial spirit. And so it is much easier to capture their mortgage business. And so I think from from rocket's perspective, you see redfin who had struggled to turn a profit, struggled to really, you know, actuate their original mission of disintermediating the agent, but it's an absolutely fantastic lead source for a mortgage company because you have all of that, you know, redfin portal traffic. You have the agents who are on salaries and bonuses, which is then easier to capture the mortgage business. So I think all of that really lined up pretty well. Again, it doesn't align with my view of the industry. It doesn't align with my view of putting the agent first and letting them have that individual definition of success, but from a financial sense, it makes a lot of sense for rocket in those companies. The compass rocket alliance, I think, makes a little less sense, you know, when you look at the markets that rocket traditionally, you know, dominates in the price points versus a compass price point in those larger markets, it really is going to rely on getting attached down into the franchises. And most of those franchise owners have their own mortgage relationships. And so whether, you know, Robert Reffkin decided to put quick and into the compass app or not, you know, the local ERA owner or Century 21 owner or even saw the bees owner of those franchises who has a local mortgage company or a local bank who's supporting them, you know, you're now competing for that. You're now stepping on each other's toes and stepping on each other's alliances. And I think we're going to see struggles across that organization to figure out integration alignment and attach love that you said quick and, you know, hearkens back to pre rocket days, right? Yeah. So one of the reasons that we've been watching LPT Realty is because of your fast growth, but also because you do come from the mortgage space. So you'd built this, you had this whole career and mortgage and tech and all that. So it's always interesting to me to see someone coming from one side going to the other. We see it both ways. Yeah. We'd love to know like, how does that influence how you're building this realty company coming from the mortgage space? Yes. Look, I think as a 20 year mortgage guy who had to come on the stage and say, Hey, I'm going to build one of the largest real estate brokerages in the country. And I'm not going to offer my mortgage company at all. You know, there's, there's no cross selling. You won't find an LPT agent who's done a mortgage with RP funding. We don't, we don't cross those streams. And I think it's because of the real deep understanding I have of the consumer experience, the agent experience. And we really want our local entrepreneurs to find that best local loan officer. You know, I joke, the loan officer I was, you know, 18 years ago, I remember I once drove, you know, an hour to get a water sample so we could get a well test, you know, on time for an FHA closing. And you're not going to get that from a call center. You're not going to get that from a mortgage joint venture with the brokerage. And so we encourage our team leaders. We encourage our agents. So find that great local loan officer, go find that great local mortgage partner. And that means we stay out of it. And I'm the only CEO talking that way. If you listen to any other earnings calls, the, you know, the whole model is we're going to lose money on the brokerage side and we're going to make it up on the ancillaries. And I just, I think it's a fool's errand. I think we've seen so many folks fail at that in the past. I do think the rocket redfin has the absolute best chance to succeed there. I think Zillow and ZHL has a chance to succeed because there's a different level of relationship with the lead. But for entrepreneurs who are out there generating their own business and driving their own results, I don't think the brokerage has any business trying to get, get in the way of their local mortgage relationships. And so we're staying out of it. And, and I know it's again, another contrarian position, not something we're focused on. And I think it's been part of our growth. I think the industry is refreshed by the idea that we're not here trying to disrupt those longstanding beneficial mortgage relationships. And we're letting our local entrepreneurs control those decisions and ultimately help their consumers find the right, look great local mortgage partner. Well, and, you know, some of that growth has been through your own acquisitions, right? And we're talking about all these other, but you've been acquiring some of that is tech companies recently. Yeah, so interesting. We have an actually, we've never actually acquired for growth. So all of our growth has been 100% organic, but we have acquired adjacent businesses that we then help think support our agents and help drive additional, you know, revenue streams for the business, you know? So we, we acquired the reside platform earlier this year, which has through the last couple of years under the amazing leadership of John Chaplac and Sneat Argo Wall, Preston and Geiten, they've helped over 100 teams scale and grow, you know, through coaching and mentorship and recruiting assistance and new agent training systems set up really fantastic platform. We think there's a lot of potential there in the future. And then humanize led by Christianis recently a housing wire, a rising star, which we were very proud of him for that. Probably the absolute best recruiting platform for teams in this industry. And so as we look at this belief that teams are going to grow, teams are going to continue to play a bigger and bigger role in our industry. I think that you're going to see most of the franchise layer, those small local franchises will be displaced by teams over the next 10 to 15 years. And it will be teams supporting agents in the way that local franchises support agents today. I think we're going to see more and more of that. And so we want to be in the way of progress. We're all in on investing in technology that we think we think helps our teams fulfill their vision because then that vision ultimately helps our independent agents survive, you know, and thrive and grow and reach their definition of success. I think there is a hybrid coming where teams start to look a little less like teams and look even more like those legacy brokerages. And, you know, there are quote unquote independent agents who are parts of teams and again, all the vernacular and language isn't isn't kind of vetted out yet. But that's where we see things going because when you have entrepreneurs like these amazing team leaders who are not bound by franchise geography, they're not bound by franchise restrictions. It is a merit-based system. They earn it every day. We believe they can bring a better value prop to any agent, whether that agent, you know, views themselves as a solo agent or a team member, then a local franchise office can. The teams can provide that brick and mortar layer in this new cloud infrastructure era. And then we're all in on helping them fulfill that vision and that mission. Okay. Well, big, big talk, lots of headlines lately around the whole listings, private listings, some things we call portal wars, right? You know, and the alliances that we see around private listings or non-private listings or Zillow doing, where do you guys come down on that? I mean, I shared this with our agent site, do a Monday morning Zoom with the entire brokerage. We actually just celebrated our 181st consecutive Zoom. I have not missed one in 181 weeks since we started doing that. And so we talked a lot about this. And I think it's interesting, you know, Compass came out first and said, "Hey, Mr. Mrs. Seller, when you list with us, you know, we're going to get your home in front of, I think it's 40 million, you know, viewers on redfin before anyone else can." And that sounded good for a minute until the bigger portals came in. And now you have, you know, Zillow's angle through Zillow preview, you can get in front of almost 300 million users. And then you have Realtor.com and Homes.com and their audiences. And I think ultimately we want to do what's best for our consumers. And so is it better to put them on the number four portal or the number two portal or the number one portal? Those are the decisions we're looking to make right now. We've got a big proponent of agent choice. We would never force our agents to, you know, pre-market homes early. We would never force our consumers to be a part of something they don't want to be a part of. But we also want to make, you know, the best opportunities available. And so, you know, you have Compass now aligned with the number four portal. I thought it was interesting that EXP made the decision to align with the number two and three portals depending on how you look at the rank instead of with Zillow.com. as the number one portal. You know, there's a lot of a lot of teams at eddxp who rely on zillow leads from flex and flex seller leads and it'll be interesting to me to see like is that going to continue when those listings are going to land on a competing portal. You know, what point do this consolidation and these alliances really start to take hold? You know, you can you can list with Keller Williams and be on the number one portal. You can list with the xp and be on the two and three portal. You can list with compass and be on the number four portal. We're still trying to decide where we want to come in on this. We're having lots of conversations with all of those folks. Want to be a little more thoughtful about the decision we make and make sure we are putting our agents and consumers in the best position. But it's a whole new landscape. It's something that didn't really exist and it's something consumers have to now weigh because when you are deciding what agent you want to list your home with, which portal they've decided to align with, if you're going to go down that preview or that pre-marketing journey is going to make a difference. I think there's a lot of potential for confusion from a consumer point of view. Just us trying to keep up with like what does this mean for this company and this portal and this so if you're a consumer, I think there's a lot maybe more explaining you have to do from the agent side. Whatever you're choosing to do here on how that landscape has changed and how people are going to find your listing. Yep, absolutely. And I think that's really what it comes down to right there. It's about exposure. The seller needs exposure and I understand the argument for private listing coming out of Manhattan. I joke about this a lot. When you look at the world through that lens and you're selling one of a kind, 10, 20, 30 million dollar penthouses in Manhattan, I can understand where private listing and discretion and everything come into play. But if you're selling a half a million dollar new construction home, this is its first resale in Orlando, Florida. I don't see a lot of need for price discovery and private listings. And so I almost think our industry is battling from two different points of view. And I think each one is probably right, but they're right in their own way. And now they're trying to be forced across the entire nation and look, real states of local business, you know, local decisions, local expertise. I think it's why we still have as many MLS as we do. It's why you still do see a lot of local independence. It's why the franchise model was so powerful for so long. Local decision making is important. We believe the agent can do that in a lot of ways on their own. But some of this policy when it comes to private listings and preview listings and all these things is really coming down with a different world view. I think that exists in most of the markets that we serve. And that's something we really try to balance. We don't want to make a decision. Like even this choice ultimately of, you know, who do we align with when it comes to, you know, preview or pre-market listing, we don't want to make a choice that doesn't serve our agents at the absolute local granular level. We don't want to make a decision that looks great in Manhattan and looks terrible in Dallas, you know, or looks great in LA and looks horrible in Tampa. And it's really something that that we have a responsibility to weigh and be judicious about as a national brokerage. And I think that's one of the things we're all still figuring out. And this is probably the best example of it is this diversity of opinion around private listings and private networks. And to me, it's very much a geographic question above all else. I also think it takes into, you know, you mentioned the entrepreneurs that are real estate agents. And I think you have to come back always to like real estate agents are very independent people. They do not like to be told what to do or question to a program. I mean, like, right. So in some ways, you just go, you know, it'll be interesting to see how some of these things work themselves out with a group of such independent people. Yeah, I think the interesting thing with this is like, you know, so the kind of, I guess, independent approach right now is, hey, we're going to line with the number two and number three portal. And then agents can have a choice between those two, which to me is more only the illusion of choice because what you don't have a choice of anymore is the number one portal. You know, and this is where I'm torn because, you know, if we go to entrepreneurs and say, hey, you can choose between two and three, but you cannot choose number one or you can choose number one or you can choose nothing at all. There's still choice in there, but it's which is the better choice, which is the truly freeing choice. And again, that's where we're being very judicious about how we look at this, but it is probably the most complex dynamic that we've faced in our short four-year history as a company. And it's one that we don't want to get wrong for our agents. I appreciate that thoughtful approach. Last question is, where are you in the process of your IPO? As I've said before, fully committed to the idea that a cloud brokerage where agents are earning stock and earning RSUs has to be committed to that process. As far as where we are in it, we continue to believe that that is the outcome. And as we can say more, we will. Understood. Robert, thank you so much for being on. Everybody is listening. He's going to be talking about the growth playbook. How to scale from the fastest growing independent brokerage with LBT Realty. That's why we're having you on and that's why we continue to watch you and your business and what you're doing. So thank you for sharing this with our listeners. Thanks, Sarah. Thanks for listening to Housing Wire Daily. If you haven't already, we'd love for you to take a minute to rate the show and leave a comment. And make sure to tune in tomorrow for more news and insight. (upbeat music)