Fathom Out to Raise More Than $7M by Hiking Agent Fees, Selling Shares

Key Takeaways:

– Fathom Realty plans to raise agent fees for the second year in a row starting Jan. 1, 2024, in order to boost the company’s bottom line by more than $3 million.
– The new fee structure will affect sales of higher value properties, with an increased annual fee for all Fathom agents.
– Fathom Holdings, the parent company of Fathom Realty, also anticipates raising up to $4.29 million from a public offering of shares.
– Fathom believes that the fee increase will have minimal impact on its agents while helping the company achieve its objectives.
– Fathom expects the new fee structure to boost its adjusted earnings before interest, taxes, deductions, and amortization (EBITDA) by $3.1 million.
– Fathom Realty has seen growth in its agent count, with a 13% increase from a year ago to 11,333 agents.
– Fathom plans to use the proceeds from the public offering to fund the growth of its business, including acquisitions, sales and marketing initiatives, and working capital.
– Fathom Realty operates in 37 states and provides end-to-end real estate services through its platform.

inman:

Fee increases the flat-fee brokerage implemented for 2023 haven’t stopped Fathom from growing, with Sept. 30 agent count up 13 percent from a year ago, to 11,333.

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Flat-fee real estate brokerage Fathom Realty hopes to boost the company’s bottom line by more than $3 million next year by raising agent fees for the second year in a row starting Jan. 1.

Fathom’s publicly-traded parent company, Fathom Holdings, says it also anticipates raising up to $4.29 million from a public offering of as many as 2.45 million shares, most of which were expected to change hands Tuesday.

The revised 2024 agent commission structure taking effect in the new year will mostly affect sales of higher value properties. But every Fathom agent will see their annual fee, which is assessed on their first deal of the year, increased by $100, to $700.

Fathom started off 2023 by raising its agent transaction fees by 10 percent, to $550 for the first 15 completed transactions. After the first 15 transactions, agents currently pay $150, up from $99 before the increase.

The new fee structure taking effect Jan. 1, 2024, adds a new “high-value property fee” on sales of properties valued at more than $600,000. The fee adds $200 for properties priced between $600,000 and $999,999 and an additional $250 for each $500,000 above $1 million.

Marco Fregenal

“We believe that this small increase to agent fees will have a minimal impact on our agents while helping Fathom achieve our objectives and provide our agents with an ever-improving agent offering,” Fathom CEO Marco Fregenal said in announcing the change.

Fathom expects the new fee structure will boost 2024 adjusted earnings before interest, taxes, deductions and amortization (EBITDA) by $3.1 million.

Parent company Fathom Holdings also hopes to raise more than $4 million through a public share offering, most of which was expected to close Tuesday.

Fathom is selling 2 million shares of common stock at a public offering price of $2 per share and has granted deal underwriter Roth Capital Partners LLC a 45-day option to buy another 450,000 shares at the same price. Shares in Fathom Holdings, which have changed hands for as little as $2.10 and as much as $8.20 over the last year, closed at $2.25 Tuesday, down 5 percent.

After deducting underwriting discounts and commissions and other expenses, Fathom expects to net $3.45 million from the sale, or $4.29 million if Roth Capital Partners exercises in full its option to purchase additional shares.

Fathom said in a preliminary prospectus that it intends to use the proceeds of the offering to “fund the growth of our business, including acquisitions, sales and marketing initiatives, working capital, and for general corporate purposes to include accelerating agent growth.”

Fathom Realty founder Josh Harley, who handed over the CEO reins to Fregenal last month, is selling an additional 1 million shares in a secondary offering Tuesday. The sale will leave Harley with 4.55 million shares, and reduce his total voting percentage in the company from 30.5 percent to 22.5 percent, Fathom disclosed to investors.

Fathom executives have said Harley stepped down as CEO for family reasons, and that the company has left the door open for him to return as board chair and CEO in the future. In the meantime, Harley — who founded Fathom as a cloud-based, flat fee brokerage in 2010 and took the company public in a 2020 initial public offering — will continue to serve as “the voice of Fathom to the industry” and help grow the company’s agent network as the company’s chief evangelist.

Fathom says its flat fee commission split model is attractive to agents in a market where elevated mortgage rates have dented sales. The agent fee increases the brokerage implemented for 2023 haven’t stopped Fathom from growing, with Sept. 30 agent count up 13 percent from a year ago, to 11,333.

Since then, Fathom has announced expansions of its agent network in Massachusetts (with the addition of Council Realty), California (Advance 1 McKeever Realty) and Louisiana (Team Adkins Real Estate).

Samantha Giuggio

“We remain committed to providing the highest level of support and resources for our agents, and as the real estate industry evolves, we will continue looking for new ways to help our agents achieve their best,” Fathom COO Samantha Giuggio said in a statement. The new 2024 agent commission structure, she said, “is designed to help us accomplish exactly that.”

In addition to providing software-as-a-service (SaaS) offerings for brokerages and agents, Fathom provides end-to-end real estate services through a platform that integrates residential brokerage, mortgage, title and insurance.

In August, Fathom announced that its subsidiary, Encompass Lending Group, had expanded its operations in Texas with the acquisition of Austin-based residential mortgage lender Elite Financing Group.

Cary, North Carolina-based Fathom Realty operates in 37 states, Encompass Lending Group is in 41 states, Verus Title in 28 states, and Dagley Insurance is in 47 states. All of those businesses also operate in Washington, D.C.

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Property Chomp's Take:

Fee increases implemented by Fathom Realty, a flat-fee real estate brokerage, have not hindered the company's growth. Despite the fee hikes, the company's agent count has increased by 13 percent from the previous year, reaching a total of 11,333 agents as of September 30. This growth is evidence that the traditional way of conducting business in the real estate industry is changing.

Fathom Realty plans to further boost its bottom line by raising agent fees for the second consecutive year starting January 1, 2024. The revised agent commission structure will primarily affect sales of higher value properties. Additionally, every Fathom agent will see an increase in their annual fee, with an additional $100 added, bringing the total to $700.

In 2023, Fathom Realty raised its agent transaction fees by 10 percent for the first 15 completed transactions, from $500 to $550. After the initial 15 transactions, agents now pay $150, up from $99 before the fee increase. The new fee structure effective from January 1, 2024, introduces a "high-value property fee" for properties valued at over $600,000. This fee adds $200 for properties priced between $600,000 and $999,999 and an additional $250 for each additional $500,000 above $1 million.

Fathom Realty's CEO, Marco Fregenal, believes that the fee increases will have minimal impact on agents while helping the company achieve its objectives and improve its offerings to agents. The company expects the new fee structure to increase adjusted earnings before interest, taxes, deductions, and amortization (EBITDA) by $3.1 million in 2024.

To further support its growth, Fathom Holdings, the parent company of Fathom Realty, plans to raise over $4 million through a public share offering. This funding will be used to fuel the company's expansion, including acquisitions, sales and marketing initiatives, and working capital.

Despite these changes, Fathom Realty remains committed to providing the highest level of support and resources to its agents. The company's Chief Operating Officer, Samantha Giuggio, stated that the new agent commission structure is designed to help agents achieve their best in an evolving real estate industry.

In addition to its flat-fee commission split model, Fathom Realty offers software-as-a-service (SaaS) solutions for brokerages and agents. The company provides end-to-end real estate services through a platform that integrates residential brokerage, mortgage, title, and insurance. Fathom Realty operates in 37 states, and its subsidiaries, including Encompass Lending Group, Verus Title, and Dagley Insurance, operate in multiple states as well.

The success of Fathom Realty despite the fee increases demonstrates that the real estate industry is shifting away from traditional models. As the market continues to evolve, companies must adapt their business strategies to meet the changing needs of agents and clients. By embracing innovative approaches and providing comprehensive support, companies like Fathom Realty can position themselves for future success.

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