Is eXp Realty a Pyramid Scheme, Really?

If you’ve ever made the innocent mistake of asking about eXp Realty in a Facebook group, you probably heard pretty quickly that eXp is a pyramid scheme, a scam, and an MLM. 

Why is it that people say this? Is eXp Realty a pyramid scheme? In this article, I’ll tell you how eXp Realty got this reputation, what it means, and whether or not it’s true. 

What is a Pyramid Scheme?

Let’s start with the basics. The FBI defines pyramid schemes as:

“marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships.”

Basically, a pyramid scheme works when franchise owners and investors act on the promise that they can recoup their investments only by getting others to make the same investment. There have been a few examples of this kind of case in recent years.

In 2014, the company TelexFree was charged with fraud for a pyramid scheme. The VOIP company hired “promoters” who were supposed to buy into the company and post ads for TelexFree online in return for pay. However, the ads did little for the company and TelexFree earned almost nothing by providing VOIP services. Instead, it used money from the promoters who bought in to pay promoters farther along in the scheme. Eventually, the company collapsed. 

In 2019, creators of the fraudulent cryptocurrency OneCoin were charged with a pyramid scheme. The OneCoin leaders had no cryptocurrency to exchange and kept no records of investors’ transactions. Instead, they paid small commissions to investors who could recruit further investors to join the OneCoin network. All investors lost their money to the founders of OneCoin. Thankfully, the government soon found and arrested them!

Why Is eXp Realty Called a Pyramid Scheme?

Now that you see how pyramid schemes work, it’s time to consider whether eXp Realty is a pyramid scheme and how it gained that reputation.

eXp Realty has two primary revenue streams (it has several more revenue streams, but these are the two primary ones) for joining agents:

1. Selling houses (what real estate agents do every day).
2. Recruiting new agents to join eXp (this comes in the form of revenue share).

Both of these revenue streams lead to agents earning stock in eXp Realty. There are a total of five ways to earn stock in the company: 

1. On your first sale.
2. When an agent you sponsor makes their first sale.
3. As soon as you cap.
4. When you reach ICON status (by fulfilling specific cultural and transactional goals).
5. As an agent, you can use 5% of your commission to purchase stock at a 10% discounted rate. 

The house-selling revenue stream is pretty simple: you get a competitive commission split for each sale and pay low fees to eXp Realty. The pyramid scheme stigma springs from the agent-recruiting revenue stream. At eXp, this is all part of the Revenue Share Program.

eXp Realty Revenue Share Program Explained

When you join eXp Realty, you have the opportunity to attract (or recruit) other agents to eXp Realty and become their sponsor (when they apply, they choose you as the person responsible for them choosing to join eXp). As a sponsor of other agents, you have the opportunity to share in their revenue. 

In a nutshell, each sponsoring agent gets a portion of the sponsored agent’s commission share that goes to eXp. In an 80/20 commission split, the sponsoring agent gets a portion of the 20% going to eXp. 

There are seven tiers of this revenue share program, based on how many agents the agents you sponsor will bring into the company when they start sponsoring themselves. 

The first tier is 3.5% of commission, which caps at $2,800 per year. You earn this from the first agent you sponsor. The second tier usually ranges from $160 to $3,040 in earnings for you each year. You’ll earn this share from an agent that your sponsored agent sponsors. 

The tiers go on in like manner until you reach seven total tiers. As you can see, it does have something of a pyramid structure (or multi-level marketing structure), which is why eXp Realty has gained this reputation. However, despite the conical shape, this is NOT a pyramid scheme. 

Why eXp Realty Is Not a Pyramid Scheme

eXp Realty sponsors (agents that sponsor other agents) do NOT make money from agents simply signing on to be a part of eXp Realty. eXp Realty actually does make money the way a brokerage is supposed to make money–by selling houses. In fact, eXp Realty sells the most real estate of any independent brokerage in the United States and operates in 16+ countries as of this writing. 

If agents aren’t selling real estate, no one benefits. The brokerage does not benefit and neither does the sponsoring agent, as there is no revenue to speak of. In fact, the brokerage loses money for non-producing agents that join the brokerage because of all of the time, energy and resources invested into someone that does not generate revenue for the brokerage. 

What eXp Realty is Doing Right

So, why is eXp Realty so reviled in some circles but growing so quickly in others? It’s because they’re doing something different than the other real estate brokerages out there. 

Consider a typical brick and mortar brokerage:

• A highly successful agent becomes a broker and starts a brokerage.
• The broker decides to open a second location and hires a managing broker who then earns a portion of the sales of agents at the second brokerage’s location. 
• The brokerages continue to flourish and the brokers decide to open more across the region.
• Eventually, the brokers may decide to start a franchise. That way, if agents want to join the franchise and bring the brand to their city, they can do so. Agents would then have to pay $20,000 to $50,000 to expand the brokerage’s brand where they want. They then have to pay a franchise fee from a portion of their revenue… forever. 
• Still in need of agents to sell real estate, the franchise may hire a recruiter for $100,000+ a year to help recruit more agents to the franchise. 

Can you see how the traditional way of doing real estate can become problematic? The broker needs to invest over $100,000 of their personal money just to try and make it on their own. They then need to be wildly successful in order to at least have a shot at making it long-term. The success rate with independent or franchise brokerages is VERY low.

eXp Versus the Traditional Brokerage

eXp Realty has completely upended this pattern. Agents joining eXp Realty can become part of a worldwide brokerage without paying ridiculous fees. They can build their own team (through sponsorship) and they don’t have to pay any percentage of their profits as a franchise fee. 

Because of this smooth and profitable process, eXp has been reviled by some. But for those who are ready to build a sustainable and profitable business, eXp Realty makes all of the sense in the world!

eXp Realty has caught fire, and it continues to grow with no end in sight. Connect with me to learn how you can join the Agent First Group and reap the benefits of running a brokerage without having to pay the exorbitant fees.