KGCI: Real Estate on Air - Leo Pareja

Episode Date: April 17, 2024

Hello, guys, it's Michael Valdez with Real Estate Mastery podcast. Today's guest, oh my God, this one's going to be such a great conversation. I speak to this gentleman, probably about 10 times a day. My great brother, Leo Padeja, our chief strategy officer over at EXB, Leo, come on in, brother. How are you doing? How are you doing? It's probably our, what, our eighth or ninth call today. Something like that. Well, listen, I love, love this. This is probably going to be one of the easiest conversations because we speak so often. And for the audience members that don't know, I've known Leo, oh gosh, over 10 years now.

And really one of the most well-respected leaders in our real estate industry. But Leo, for those that have been living under Iraq for the last two decades, tell us how you got started in real estate. I'll give the 60-second version. There's longer versions on the internet. You can you a little bit longer. 19 years old. I went on to sell 4,000 homes. I was the number one KWA in the world in 2010.

I love systems and processes. I'm a nerd when it comes to the business of real estate, the leverage of people time and money, how to build systems, how to do more with less. During the financial crisis, I saw an opportunity and I went on to build a hard money lending business that grew to,

about a $2 billion origination system. I needed technology to service that business and went down the path of building technology for the first time, probably 10 years ago, and I built an LOS system, you know, learned the good, bad, and the ugly and lost a lot of money with engineers until I figured out how to build software. But that took me on the path to build my last company called Remind, which ended up in about 85% of agents by agent count with the large. just amylesas in the country, exited both the companies, moved to South Florida to mostly spearfish

when Glenn Sanford called me and convinced me to come join you guys. So I've been here about two years, and it's been a fun ride. It's made me really happy to have my friend here day to day running this thing, and it's been a lot of fun. And you know, you've got so many different lenses of experience, which makes you such a unicorn in our industry. You were the number one agent in the world. And then you moved over to the tech side. And there's very few agents that have both of those in high order. You know, probably Glenn is one of the other few ones that really was a great agent

and then understood the tech side so well. And then the fact that you just love data, because that's really where your whole heart is. And you make decisions that are database. you take a motion out of it. Right. So all of the decisions are based on what makes sense. So right now, we're in an environment where it's a lot of things are not making sense to people. There's a lot of noise out there.

Right. So just in the current environment that we're in, what would you say an agent should be focused on right now? That's a great question. And I feel that since the news broke on March 15th, it's all I talk about. So, you know, I went on a live on March 18th, right that Monday. And it turned out to be over 50,000 people watching at the same time, which I'm smart enough to know that it wasn't because I was talking. It's because I think the industry is starving for information. And luckily, we have the largest platform.

So I think that was the math problem that gave us that audience. And I actually just looked at it because I was talking to somebody else. and it's probably been replayed another 35,000 times. So in 14 days, we've had nearly 100,000 views. And I think there's a lot of, I was just talking to a smaller, a team with a smaller broker who's actually outside of the $2 billion mark. And so they are liable. And they don't have the resources.

And so I think there's a lot of folks right now kind of having a gut check of, is my brokerage financially going to survive this? Right? And the way I've been saying it is we're a best in-class modern technology, nuclear warheaded, powered, you know, assault vehicle here. And we're prepared for whatever comes our way. We will both, you know, strategically and legally deal with our liability. But at the same time, I think it's all about speed and not being paralyzed by the noise, right? I've spoken to the Wall Street Journal, Dow Jones, all this week. And there is between the consumers and the agents, there's a lot of fear and unknown. And what our job as leaders right now, Michael, is to just be the calming voice. And as you say, I'm very pragmatic and I'm very data-driven. Look, I have my own opinions on how I feel how this played out, but it's somewhat irrelevant, right?

If these are the new rules of engagement, and I say if, because we're still waiting for the judge and the DOJ, to give their opinions. But as long as what is implemented based on what happened, we are prepared to operationalize and support the new way of doing business, whether that is... Let me break you down there a second, because you gave a lot of information, and I want to break down some of this.

So right now, we've got a lot of different things going on. We've got the Buyers Commission lawsuit. We've got what was happening with NAR, and now we had the NAR settlement. And, you know, what you're saying is a lot of people are just getting confused with what is the noise. And there's a lot of it out there. There's a lot of noise and there's a lot of fear-based behavioral decisions that are being taken right now. And agents don't know where to turn.

And when you start looking at this, let's break down a little bit of what you just said. The idea of a brokerage that might be liable for some commission lawsuit that's a greater class action suit, and they may not be able to be in business, which is a great reality, what do you think an agent sitting there needs to look at for their own livelihood? Let's start there because you gave about five things in that statement. I want to start bringing things down. So on March 15th, we read that NAR settled the antitrust seller litigation, the vast majority of them. And it included, that's a great question, a point that I should have covered there, Michael, is it included all NAR dues paying members with the exception of the home services family of companies because they're still litigated. So just so we're clear, and this should be a calming sentence for every agent, even whether you're with us or with anybody else. Yeah.

That doesn't matter. You as individuals were released from the liability that NAR negotiated. Now, there was a threshold for the companies of $2 billion in volume sales in the year of 2022. So there is 94 companies that are either regional or national that were not included in that. So if it's a smaller independent, they were included. But 94 regional national players are still very, it's a big number, right? So those companies are still including us left to litigate and deal with it on their own, which again, we've had a strong argument and position about what we're going to do and we're going to deal with it. And I'm very confident that whatever happens, it'll be behind us and we'll continue to operate. Let me have you pause there too, just because this is so important that as people are following your very analytical brain, I know it too well now.

So I can keep up. But as we're going through this, agents are now no longer liable as individual agents on this lawsuit. The brokerages that they are with, if they had $2 billion of sales or more in the calendar year of 2022, they are still liable as a brokerage, anything below that, which would be the small mom and pops, are really then now released from that. currently as well, right? All right, go from there. And so that there has been lots of confusion and questions from the agents at those brokerages, right? I just hung up with one where they've gone to their leadership.

And, you know, in moments like this, again, I said it earlier, but I said again, you have to leave the emotions aside, right? Because even when I went on the live, there was a lot of comments. and very real and genuine, and I don't want to discredit anyone's feelings because I have my own opinions of how this was handled, right? And so, but at the end of the day is, this is now the reality we're dealing with. And so is your company prepared and what is their position and how are they going to operationalize? This lady was just telling me that their broker went on a three-hour rant on a Zoom. And it was very different than kind of my tactical approach with Holly of

hey, this is what this means. You need these addendos. You need these. Start using this language, that kind of stuff. Versus it was more of a big feeling fest and lots of big words with it. But instead, I think right now agents are looking for leadership that's calm and it's understanding the details. And we're only 14 days in in the realities.

There's still a ton. No one knows, let alone, you know, any individual. And so I think. Let's break this down. So now we're saying, okay, these now the 94 brokerages that are left, there's a huge, huge scope of those 94 brokerages, which take up the majority of our industry. But for example, there's very large companies like ourselves, and there are some smaller ones that are just past that cliff mark of the two billion in sales.

It might be on the lower end of that list of 94. So it still encompasses tens of thousands of agents that are, if not hundreds of thousands of agents, that are still part of this 94 brokerage environment. Let me ask you this. Go ahead. Well, I just want to clarify. So the agents that belong to those brokerages could be covered if they're members of NAR as individuals. But the question that I'm starting to get is, is my brokerage going to be in business six to 12 months from now if they have a way to like.

Yeah, that's right. If they're not off the hook, are they going to fight it? Are they going to settle? Do they have the resources to deal with it, right? And so, you know, I'm encouraging every agent right now to reach out, whether it's within your company or another company, and just take some of your peers or your competitors out for coffee and just talk through what you think is happening,

how you interpret, like, the rule changes. And again, we're all going to have to come together. as an industry and because we're all in this together. We cooperate as competitors that are unique in the housing space. But I would be encouraging people to just reach out to some of our friends who just may not have leadership that is, you know, as nerdy as ours. I'm willing to meet all the details and ask a lot of questions. But like right now I'm encouraging everyone to have as much empathy.

You know, if you know a realtor, give him a hug. make sure that you ask questions, check in on them, because there's a lot of folks. I feel like I feel that a lot of emails and texts where folks are genuinely worried, right? Like, I'm a single parent. This is how I feed my family. Like, this is not cool. Right. So again, I can say I'm not emotional, but like I do have strong emotions about this.

And because I have those strong emotions, I'm channeling them and make sure I give you guys all the tools as fast as possible to be able to pivot and still support the families you help find their next home. You know, and that's a good point. I mean, I can be a testament. I've actually seen you cry. You're a very emotional person. It's, but you bring up a good point. It is the fact that, you know, we actually care about this because we used to be agents. And we know what an agent goes through every single day. They're in the front line. They're the ones that are responsible for putting those families in those homes. And yes, they are scared. They don't know what the future holds. They're looking exactly what you just said for direction

and for people to be on calls, to be on podcast, to give information, to give content, to be able to say, we're going to get through this together. Even if it's unknown, we still have the resources that we could actually weather this. Now, when you started talking about a lot of the other brokerages, in your opinion, what should brokerages be doing now for their agents? Yeah, I think brokerages should be making sure to provide all the tactical tools necessary. So that's a bunch of things in my opinion. One is we operationalized and delivered FAQs to our entire agent population as soon as possible

with what are the talk tracks? Like what are the headlines that, the mainstream media is getting vastly incorrect. And, you know, give your buyers and sellers, because even though the rules don't go into effect until mid-July, there are buyers and sellers expecting to have that conversation right now, right? You know, can you take a listing with absolutely no buyer compensation today? Yes, we have the paperwork for it. We'll support it. We've had lots of folks ask, can I take a flat fee? Can I take an hourly fee? Can I take, like there is going to be an experimentation and proliferation of different models.

And it's our job as the brokerage, which I view as a platform to support real estate entrepreneurs to do whatever, you know, legal and ethical things they choose to represent parties. And then the one sentence that I'm communicating and I just told it to the Washington, Wall Street Journal and Dow Jones, which I've had calls with this week, is I'm telling agents to treat their buyers like they treat sellers, right? because a lot of agents keep asking me, it's like, how's the world different now? And I said, you don't have to imagine it differently because you've already operated in this lens as a listing agent. That's right.

And what I mean by that, most listing presentations in the low inventory market that we experience in most markets right now have been a competitive situation, right? Like the sellers interviewing two or three professionals. And you show up with a presentation, you don't wing it. you show up with that presentation that dictates the level of service for the fee, right? You could have a low fee limited service proposal or you could have a high value, you know, high in video, lots of value for a high fee. Right. So as the selling side, we've already experienced this for decades.

And then the next step that happens is there is a exclusive listing agreement. that gets executed before you can put in the MLS. So what I'm saying to agents so they can quickly kind of like get their head around it is the process will be the same for buyers now. You know, you should be driving all appointments towards a presentation. You should have a bulletproof rock solid buyer presentation, which we're operationalizing for the folks that don't have one with specific value propositions, you know, end dates, termination dates, a fee for what will be received.

and you're driving towards this very more structured process because, you know, for good or bad, buyer agency in most states was mostly implied, right? Some states have very specific regulations as to it had to be in writing, but there's two different types of contracts that we executed on, on buyer side. One was buyer agency, which was mostly a disclosure of which party represented which party. But then there was a buyer representation agreement, which is actually an employment agreement. and that's what the big NAR change is, that that has to be part of every biorepresentation now. And so it's a muscle that a lot of agents haven't developed yet,

and it's our job here to help develop it as fast as possible. You know, there are some great points there that you just brought out. First of all, there's a lot of miscommunication that the mainstream media is doing, and it's confusing because they don't understand our industry. So when you start looking at, you know, like news outlets like CNN, saying that your prices have just gone down because buyer commissions are going away. They just don't understand what it is and it adds to the confusion. And so you just brought up one very strong thing.

It's like you just have to keep adding value to this equation. You have to understand your value as an agent and as a real estate professional in helping a consumer go into their home. So speaking of value, Leo, as our chief strategy officer. What have you been focused on to bring value to our agents in light of all of this? So in light of this, it's been mostly tactical and operational. So FAQs, so you could educate your buyer and seller with all of the miscommunications that some of the other publications have stated, right?

So making sure that you can dispel any myths and you have all the actual data in talking points. So it doesn't become an opinion argument because, again, data sets you free. There's no need to argue big feelings with your customers either, right? So make sure you're armed with all the correct information. And the next thing we're going to be operationalizing is all the different versions of representation that will be coming to fruition. So we have everything.

We had as of last quarter a seller addenda that really disclose a buyer comp is not required. And it's in bold and they sign off on it. So we've been making sure that throughout this entire process, we are adjusting and shifting as different kind of rulings on the field are coming out, whether it's the Anywhere settlement or the Remax settlement, we've been watching everything very carefully, so we're up to date. But then also, there was two programs that I've been, were kind of my obsession when I first got here. One was Revenos,

where we built and operationalized our own corporate referrals. And year to date in 2023, we've handed out 12,432 referrals. We're going to double what we did last year. So again, in an environment where there may be less commissions as some of the projections are coming, again, very big if, like we will see what happens. I truly think that the value of the professional will still be there. And so I'm not nearly as a doom and gloom as some of the other analysts, but that's just my personal opinion. But in an environment where that could be the case, you know, the fact that we at the

corporate side help and generate referrals. These are, you know, affinity, relocation, institutional, right? Big, big owners of real estate are using our agent network to dispose of properties. I think that's huge value. And, you know, I would pose a question to everybody out there. What has your broker down for you lately in that regard? And then the program we rolled out in early December, which again, seems very right place, right time is EXP exclusives.

So we're the single largest monolithic brokerage in the United States. No one has more agents than us. And per the Real Trends report that came out on last Friday, we outsell by unit count, everyone by a significant margin, like 40% more than 2 and 3 and 100% more than number 4 and 6x, 10x down the list. So what that tells us is if we need to meet our agents where they're at. And so the thought behind EXB exclusives for me in this low inventory environment was to empower our agents. agents who serve sellers who may have different needs, who may want to sell off market. So for example, a landlord that has a rental that has 12, you know, six, eight, nine, 10, 12 months left on the lease.

And they cannot put it in the MLS because per MLS rules, the property has to be shown with X amount of notice and, you know, not have the flexibility that's required. That becomes a very powerful thing. And in, in the 90, 120 days of being operational, we've had over 12,000. and agents, download the app and use it. So if you're an EXP agent, make sure you to go ZenList on the app store, whether it's Apple or Android, download the app. There's an option if you're an EXP agent, so you can log in with your Octa credentials

and unlock inventory in your market that is not available to the rest of the world because this is an ex-P exclusive. So those are probably the two most pertinent ones that come to mind, Michael, because, you know, again, we're our job as the brokerage. And again, I think we all probably define it differently, but being the analytical person I am, I kind of break it down into its components. And we are a platform to do business with. And agents are entrepreneurs. I have no confusion or a misguided self-confidence here in the sense of agents are the brand. They are the ones people want to do business with. Our job is to

support that business. And so that's why I think of us as a platform. We're, an agent could be a, you know, a solo practitioner that does a couple of deals a year, or you could be our number one agent every call that sells a billion dollars in 20 markets with a phenomenal team. And we support the size dream you want to build. And if you chose to build on the attraction side, because you used to be a franchisee and that your passion is growing people and pouring into them, we have the single handedly best economic model for that, stop. We just had a press release a couple weeks ago where we paid out a total of $230 million between stock and cash compensation, which far exceeds any other company that does have any

profit share or rep share or any in between. And so, you know, we're the original and where we got lucky is we're at scale. And so these moments that are disruptive and you have to pivot quickly, we're scaled in all 50 states. We have the broker support, right? Some startups brag about how little staff they have because they're a tech company. And I guess in this moment in history, I'd rather be the one with the season professionals on the broker's side who can take your phone call, who can walk you through the new languages, who can give you their opinion. And, you know, agent to company ratio, we're the heaviest in the support side than the other. companies out there. So I think in these moments, you want to go with the tested, proven company,

not the ones who may be the next great thing because, you know, ground level opportunity means you have, you're not tested. That's right. And it goes back to that leadership in, in really volatile waters. You want to know that whoever the captain of that ship is can get you there safely. And, you know, you said something that I thought was so beautiful. You are allowed to build the size dream you want to build here. And that is, I've never heard it quite said that way. That was such a beautiful way to put it. So take out your crystal ball. Because if you would have tried to sort of predict this two years ago, everybody would have been wrong. But let's go three, four, five years in the future. With the market, whatever this new normal will be,

what would it look like for you five years from now? What do you think? So the five year out is easy. Yeah. What it is will be, right? I think it's the next two years that are interesting in the sense where, you know, if you look at any substantial shift in technology, in industry, there's always a short period of massive creativity. And, you know, the railroads is a perfect example.

We had hundreds of railroad companies laying down track. And in a short period, single year period, it consolidated down to two or three. And we're seeing the same in AI. We saw the same in crypto. we saw the same in internet companies, and now we've kind of consolidated into the fang. And so I expect the same. I expect probably a short period of chaos, experimentation, creativity,

whatever word resonates with your big feelings right now is what I think we're going to experience. I think the brokerages who adapt and support that. And, you know, is it legal and ethical and enforceable in your state? We're going to support it. and very clear, like it has to follow into those three categories. But I, we're going to have to allow people to, you know, I'm a huge fan of this country and capitalism because, you know, it kind of sets you free and water always finds the lowest points with gravity.

And I think that's what are going to happen, right? Whatever models serve the customer's needs most efficiently, we're going to support the agents, the entrepreneurs who are choosing to do that. And I think, you know, after the period of experimentation, there's probably going to be some best practices, maybe two or three or four or five different versions of that. And I think it's going to dictate. And I think it'll come and go and shift based on inventory levels, affordability, price point, service level, limited to white glove. And so I don't know that we go back to one way of doing it. I think there's two or three or four or five, like I just said, that when.

but we'll be prepared to support those different models. I think you're pretty spot on there because it is the idea that we're all trying to figure it out now, right? And when the dust settles, it's going to be who has the bandwidth to be agile enough to go into whatever model is the model that that survives. And that goes back to the scalability and the size of what we have to offer as well as free cash flow, no debt, things that make us very powerful and agile in an uncertain market. So I think you're spot on there. So a question for you, you've given some great advice. I've heard you give great advice.

What's the best advice Leo has gotten in his career? Whatever moment, and the reason I'm thinking about this question right now is because so many people have big feelings that are legitimate, right? I don't want anything that I said to kind of put down or, or dismiss the big feelings. We're all experiencing. But I will invite you to experience because I have, you know, you know my lovely young children.

You know, I have a seven, nine-year-old who I will see my son or daughter lose their mind over something insignificant from my perspective. And, you know, it just reminds me in life that, you know, Lego pieces are important. But in that moment, you know, it seems like the. of the world and whether it's an hour later or a day later a year later it's it's it's no longer painful and it's almost sometimes comedy in your in your in your memory and so you know the the children one is the obvious one but i can i can ask everybody listening to put themselves like i remember the

first you know the first time i didn't check a washer and dryer uh on a purchase agreement when the buyer you know was offered in the in the listing remarks and i ended up paying for that out of my commission right like that was meaningful because I was young and I didn't have that much money and that was meaningful that was thousands of dollars to you know the first deal that went bad for me when I was doing hard money lending and I lost hundreds of thousands of dollars and then millions of dollars right so what what I will tell people is you know and again your your journey your your your your loss and pain is yours and meaningful in that moment but I don't care who you are and what journey you are typically when you think back, you know, if you're still alive, you're still breathing and you have the privilege of spending one more day on Earth with us.

It wasn't that big of a deal. Like 99% of the things that happen to you are somewhat irrelevant downstream, right? A couple years, a couple hours, a couple days later. So when folks are kind of not sure how to feel right now, I just, you know, think of the worst thing that happening. college, it's probably not a big deal right now. So that's probably the best advice I've ever gotten. When did you become Yoda? This is actually really good. I like this. Give us your favorite book you're reading right now. Well, I read a while ago, but I've been thinking about it a lot because of how much is on my plate and the velocity that you and I have to operate with is called getting things done by

David Allen. And again, it's super dry and super boring, but it, it unpacks how the brain works and why we wake up in the middle of the night, stressed out. And if you don't have a system and a process to take that out of short-term memory and put it into long-term memory storage, which right now I'm having to remember those tactics because I am waking up at two in the morning with an endless to-do list to make sure we're operationally ready for what's coming. I love that. All right. Final question. I love asking all my guests this question. In your book of life, what is this chapter called and why? Hypergrowth.

I am so fired up. I think we're going to have a COVID-sized opportunity because I think there is a lot of folks who are going to need a new place to do business at. I don't think a lot of people are prepared to operationalize and lead from the front like we are. And so I'm sight. I love this. Leo Padeja, Chief Strategy Officer at EXP, my brother.

Thank you so much, brother. This is so much fun. I'm sure we've got two or three calls left in the day together, but this is a fun break in the day. Thank you for all the information. Thank you all of you for joining. This is Real Estate Mastery Podcast. Catch you next time.

Thank you.