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Shares of Fathom Real Estate’s parent company have more than doubled in value in less than three months as the company continues to add agents and pursue plans to expand operations to all 50 states and Canada.
Shares in Fathom Holdings Inc., which were changing hands for as little as $1.33 on June 21, have gained 125 percent since then, closing at $2.99 Friday.
In reporting a $1.3 million second quarter loss on Aug. 12, Fathom said it grew its agent count by 12 percent from a year ago, to 12,224. Although elevated mortgage rates and home prices were a drag on transaction volume, Fathom introduced new agent commission plans aimed at boosting profits while aiding agent recruitment and retention.
Fathom shares up 125% from June
Source: Yahoo Finance.
Shares in Fathom gained 13 percent last week alone after CEO Marco Fregenal detailed the company’s long-term growth strategy and held one-to-one meetings with investors Wednesday at the Gateway Conference in San Francisco.
At the conference, Fregenal said he’s confident that Fathom Realty’s flat-fee model will help it continue to attract agents, and that he expects U.S. residential real estate transactions to grow from roughly 4.2 million this year to 5.5 million in 2025.
While many real estate brokerages are bracing for new commission rules to dent their revenue, Fregenal doesn’t think commissions paid to buyer’s agents will come down much in the long run.
Any declines are likely to be short-lived, because “it’s now no longer a transparent system. In a sense, if you’re selling your house, you no longer know what other people are offering, right? So I think the lack of transparency eventually may drive prices.”
Fathom raised its agent transaction fees by 10 percent in 2023, to $550 for the first 15 completed transactions. After the first 15 transactions, agents were paying $150, up from $99 before the increase. Fathom raised agent fees again this year, boosting the annual agent fee by $100, to $700, and adding a new high-value property fee on sales of properties valued at more than $600,000.
In August, Fathom announced two new agent commission plans aimed at boosting profits while aiding agent recruitment and retention. The new plans give agents the option of choosing a flat-fee or commission-split model.
One plan, Fathom Max, offers a “highly competitive” transaction fee of $465 with a $9,000 annual cap, the company said. The other plan, Fathom Share, features what the company claims is an industry-low 12 percent commission split with a $12,000 annual cap, “providing twice the revenue share opportunity over the Max plan.”
“We believe that if commissions go down, our value [to agents] becomes even greater, right?” Fregenal said. “Because agents will pay less money to join our company. So if that happens, we’ll benefit from that. And if it doesn’t happen, that’s perfectly fine as well.”
Fregenal said two things separate Fathom from many of its competitors in real estate brokerage.
To further its goal of building an end-to-end real estate services platform integrating residential brokerage, mortgage, title and insurance, in 2021 Fathom acquired E4:9 Holdings and subsidiaries Encompass Lending Group, Real Results and Dagley Insurance for $28.88 million.
Although Fathom announced in May that it was selling Dagley Insurance back to its founder, Fregenal said the higher profit margins in the company’s mortgage and title insurance operations will continue to provide a boost to its bottom line.
“We just brought in John Gwin to run our mortgage and title businesses,” Fregenal said of the 20-year industry veteran who was named as Fathom’s chief operating officer in May. Gwin has 20 years of experience in legal, compliance, and sales in the mortgage, real estate, securities and insurance industries.
“It’s an incredibly profitable business for us, and so it will continue to make a significant impact,” Fregenal said of mortgage and title.
Second, Fregenal said, Fathom’s efforts to build its entire technology platform in-house give it an advantage over competitors who rely on third-party providers.
“The best way to describe it is it will be an ERP system for a brokerage,” Fregenal said of enterprise resource planning software many businesses use to manage all aspects of their day-to-day operations. “It runs and it manages the entire life cycle, all the way from an agent joining the company to closing a transaction and integration with title and mortgage. So one of the great benefits of that is it allows us to compete at a much lower cost.”
Fathom’s expansion plans
Source: Fathom Holdings investor presentation, Sept. 4, 2024.
Fregenal said the company’s real estate brokerage, Fathom Realty, plans to be operating in all 50 states by mid-2025.
“Probably the biggest states that we’re not in are New York and Pennsylvania, but Pennsylvania actually is open already,” he said. “New York will probably be open within the next 60 days. And then after that, we’ll cover the rest of the country. We’ll probably expand into Canada sometime next year as well.”
It’s a similar story for Fathom’s mortgage business, Encompass Lending Group, which Fregenal said “will cover the whole country, with probably the exception of New York,” by the end of next year.
“If you’re from New York, I apologize, but mortgage in New York is a nightmare” from a regulatory standpoint, Fregenal said.
Fathom’s title insurance business, Verus Title, is also jumping through regulatory hurdles in “three or four states, but must likely we’ll cover 45 or 46 states” next year.
After going public in 2020, Fathom acquired North Carolina-based Verus Title for $1.7 million, — $700,000 in cash, and $1 million in Fathom stock, the company later disclosed.
In April, Fathom launched a new joint venture, Verus Title Elite Texas LLC, with individual teams and top-producing Fathom agents throughout Texas. Fathom said it plans to have joint ventures in most of the states where its Verus Title subsidiary operates by the end of next year.
Two months later, Verus Title announced it had boosted its coverage area in three states with Fathom’s acquisition of Utah-based LW Traveling Title.
Annual meeting
At the company’s annual meeting on Aug. 19, Fathom Holdings shareholders approved a proposal to increase the number of shares reserved for employee stock incentives by 1.6 million shares, boosting the number of shares set aside for incentives by 28 percent, 7.36 million.
Founder Josh Harley, who stepped down in November as CEO and a board member, remains the largest individual shareholder in the company, Fathom said in providing advance notice of the annual meeting. As of June 21, Harley owned 4.5 million shares, constituting 21.5 percent of outstanding common stock.
Harley’s father-in-law and former board member Glenn Sampson owned 7.4 percent of the company, or 1.6 million shares, followed by Fregenal, whose 1.3 million shares amounted to a 6.4 percent ownership stake in the company.
Other shareholders owning 5 percent or more of the company are AWM Investment Company Inc. (8 percent) and Cannell Capital LLC (7.9 percent).
Sampson, who was named to Fathom’s board in 2019, was one of Fathom’s earliest investors. Having turned 83, Sampson decided not to run for re-election to the board in August. The board elected to downsize from seven to six members, with the remaining directors reelected to one-year terms.
Fathom Holdings board of directors
Marco Fregenal
Marco Fregenal
Fregenal, who before replacing Harley as CEO last year had served as Fathom’s CFO and COO, was named to Fathom’s Board in 2019 and is credited with diversifying the company’s market presence, developing its technology, and completing multiple acquisitions.
Scott Flanders
Scott Flanders
A CPA and former CEO of companies including eHealth Inc., Freedom Communications and Columbia House Company, Flanders has served on Fathom’s board since August 2022. He also serves on the board of directors of Deepwell Inc., 890 5th Avenue Partners and 200 Park Avenue Partners.
Ravila Gupta
Ravila Gupta
As the CEO of Bagchi Group Inc., Gupta leads the company’s efforts to provide business strategy, financial services, and board and executive coaching support to clients. Named to Fathom’s board in March 2021, she also serves on the board of Marsh Cabinets, a privately held cabinetry company, and holds an advisory board role at Primo Partners LLC, a real estate and Ben & Jerry’s franchise development company.
David C. Hood
David Hood
An audit partner at Ernst & Young from 2005 until his retirement in 2015, Hood has served on Fathom’s board since May 2019. As an executive at contract research services provider IQVIA Holdings Inc. from 1993 to 2000, he helped take the company public. A CPA, Hood has experience in taking organizations public, raising capital and mergers and acquisitions.
Stephen Murray
Steve Murray
A co-founder, partner and senior advisor at REAL Trends Consulting Inc. and senior advisor to HW Media, Murray joined Fathom’s board in July 2023. Murray’s “extensive experience in the residential and brokerage industry” qualifies him to serve on the board, Fathom said.
Jennifer B. Venable
Jennifer Venable
As vice president and general counsel at Capitol Broadcasting Company for 11 years, Venable has experience with complex legal issues, corporate governance, international business and project management. Before being named to Fathom’s board in February 2019, Venable was general counsel at Alfresco Software Inc. and also served as commercial counsel and senior partner manager of Red Hat Inc.
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