Sam Sawyer, Founder and CEO of Pinnacle Realty Advisors, discussed Pinnacle’s mission, the opportunity to disrupt the traditional Real Estate business model and its fund raising strategy and expansion plan.
Interview Transcript generated by AI
| Peter Ho: |
| Today we have Sam Sawyer, founder and CEO of Pinnacle Realty Advisors on the program. Sam is an experience professional and a serial entrepreneur. To-date, Pinnacle Really Advisers has raised over 5 million dollar to introduce brokerage as a service to disrupt the traditional real estate model. Sam, welcome to the program. |
| Sam Sawyer: |
| Thanks for having me. I’m excited to be here and talk about all these things with you. |
| Peter Ho: |
| Can you tell us a bit about Pinnacle Realty Advisors? |
| Sam Sawyer: |
| Yeah. Pinnacle Realty Advisors is a real estate brokerage platform. We call it brokerage as a service kind of a play on software as a service. But essentially we’re a real estate brokerage at the end of the day. But the entire company is online and we have a subscription based revenue model. So we don’t have any commission split like the traditional business model. In addition to kind of the innovative revenue model for the agents, we also provide a lot of a la cart on demand services to help them run their business with everything from marketing services to helping them design websites to helping them find vendors for their clients. It’s really just kind of bringing a transparent and new age business model to the industry, but keeping a lot of the old things that work about the industry and then kind of reinventing the wheel on some things that haven’t changed for you know, 30 or 40 years |
| Peter Ho: |
| Excellent. The company is based in Texas, Sam? |
| Sam Sawyer: |
| Yeah, so we’re based in Texas. I live in Austin. We’re entirely remote. We have 20 employees on the staff side with everyone from Bozeman, Montana to Miami, Florida, and then we even have a team in Lithuania overseas in Europe. So it’s all over the place. But we started in Texas, and now we’re in 5 States. |
| Peter Ho: |
| Excellent. So if I understand it correctly, the company basically provide the backbone of the back office services to real estate agents. Is that correct? |
| Sam Sawyer: |
| Yeah. So we’re legally still a brokerage. So we sponsor agents. We hold their license similar to you know, Keller Williams, or Compass, or Berkshire Hathaway, or all of the legacy, big brokerage firms in America. So we’re not just a software layer. We’re still a brokerage layer. And then just outside of that, we’re kind of rethinking the service side. So instead of doing things for agents like a lot of the firms do, we’re providing options and kind of this transparently priced method, where, if they need help with building a website, we’ll do these things for them, and we just kind of price it out almost like a menu at a restaurant. Super transparent, and everything’s priced out with very high level of service. And then, on the brokerage side of things, the agents just pay a fixed monthly fee, so they know exactly what they owe us. There is no grey area on the commission splits, and the brokerage taking. In a lot of cases, brokerages take 30% of what an agent makes on every transaction. And so we’re just rebuilding the business model from the ground up. But we’re agent first. The agents are our customers. We’re just trying to make a way better platform for agents to run their business in this new age world. |
| Peter Ho: |
| Make perfect sense. Sam, help me out here. The real estate market is huge. I mean it has to be one of the biggest market in the whole economy, right? So how big is the real estate market, or how many agents on brokerage are out there? |
| Sam Sawyer: |
| Yeah. So the way that we think about it is in terms of residential real estate agents. There’s about 1.5 million or so right now, but we think about the whole industry. We also welcome commercial real estate brokers also which that’s a little harder to track. There’s not a lot of data around that. But I think around 2 million agents or brokers in America. There’s over a 100,000 real estate brokerages. The real estate industry, or the home sales industry, counting everything from mortgage to title, to brokerage, and all the adjacent services is north of a 100 billion dollar total addressable market. So yeah, it’s a massive, massive industry, and I think there’s a lot of things we can offer as we keep growing. But right now we’re just kind of focused on acquiring agents providing a really good service, and then […] other services and support items in other parts of the industry. As we keep growing across the country. |
| Peter Ho: |
| With inflation going up, the fed has been raising interest rate in in the short term. Obviously that might have some impact to the residential real estate market. Does it impact what you guys are doing? |
| Sam Sawyer: |
| Really, the markets slowing down has weirdly been kind of a positive thing for our brokerage. Agents aren’t selling as many homes right now, and so 99% of the agents in America that are at a commission split brokerage firm don’t make any money until they get a deal done. And so the agents that are not selling as many homes, you know they’re starting to really be way more cost conscious. And one of our biggest features right now is this fixed price offering. This transparently priced subscription model for the agent. January was actually our biggest month since we started the company in terms of agent growth. We added almost 100 agents to the company just in January. February was almost about the same and the slowdown in the market has been good from an agent acquisition standpoint just because a lot of the legacy brokerage firms have been doing these huge layoffs. So agents are kind of wondering why am I giving 30% of my commission to this company? And then the service is declining. It’s kind of like this domino effect with some of the legacy business models. So I think this year will be a big year for our company to grow transaction. Volumes are down. Agents are starting to look around for other brokerage options, probably more than they have in like a decade is what it feels like to me. |
| Peter Ho: |
| That’s interesting, because, as you point out, they have been layoff in, obviously with the tech companies, the Microsoft of the world, the Google of the world, but it also impacts the the brokerage firms in the residential market. But some of them actually help you/the company |
| Sam Sawyer: |
| It helps. Yeah, it’s weird. Everyone’s always hesitant to ask me how our company is doing, and it’s weird to say that we’re growing more right now than we have ever. But I also think, like 6 months ago, real estate agents were so busy that they didn’t even have time to consider making a switch. And so now transaction volumes are slow. They’re not making as much money. They’re interested in kind of alternative brokerage models. We’ve gotten big enough to a point where we have a lot of brand credibility. We’re over 600 agents now in 5 States. We’re launching 4 States. We’re launching Florida soon. Just the bigger we get, the easier it is for us to acquire agents. So it’s kind of a lot of good things happening for us at the same time. And then we’re hoping that we can kind of take advantage of this year to grow a lot while other people are slowing down. |
| Peter Ho: |
| That’s interesting. So you mentioned the stats earlier. About 1.5 million agents, 100,000 brokeage. It’s a large market, fairly fragmented market. Obviously a lot of listeners know or heard about the Berkshire Hathaway, Compass and the big names, but it sounded like the market is quite fragmented if you have 100,000 firms out there. |
| Sam Sawyer: |
| Yeah, yeah, there’s a lot. In a lot of cities, there’s 5 person brokerage firms. So there’s a lot of varying sizes on the super local firms. And those are the companies that have the hardest time competing and keeping up with technology and things like that. The big brokerage firms, the nationwide firm have been acquiring a lot of firms over the last couple of years. I think you’ll see a lot of consolidation this year in the brokerage space, and I even think, like some of the big publicly traded firms could merge together this year just because their businesses are doing so bad in this environment. I think this year there’ll be more M&A activity in the residential real estate space, and you’ve seen since 2008/2009. It’s exciting for us because kind of the old school thought and ways are finally changing. I’m only 36 but I’ve been in this industry almost half my life, and started when I was 19, and it seems like more is changed in the last 6 months than there has in the last 16 years. So it’s exciting for us. |
| Peter Ho: |
| Yeah, it sounds like a really good opportunity. Obviously, it’s a big transaction for most people, right? This probably has to be one of the largest, if not the largest, investment for most people or family. and it sounds like the technology behind the brokerage firm has not evolved that much over the years. The commission structure is roughly the same as maybe 10 or 20 years ago. Maybe one thing, you can help us understand about how the traditional commission fee works in this industry. |
| Sam Sawyer: |
| Yeah. With a traditional commission split brokerage firm when an agent joins, depending on their experience and sales volume, and all these things, they agree to pay a percentage of every single transaction that they close to the brokerage. The most standard commission split in this industry as the agent keeps 70%, the brokerage takes 30%. There’s obviously variations on that at different firms, but 70/30 is a pretty standard commission split. And when an agent sells a home, at closing, the agent takes their 70%, the brokerage takes 30. That’s kind of how the models worked since the 1970s. That’s like 90% of the brokerages, you know, that are still the big ones. You’re starting to see some firms add on even more expenses. The margins are getting worse for the brokerage. So they’re starting to layer on transaction fees or insurance fees or technology fees. A lot of agents get just get frustrated that not only are they paying the commission split, but they’re also having to pay these other fees because the margins are getting worse for the brokerage, and so it’s this like cycle downward. The service gets worse. The agents wonder why they’re paying. A lot of agents go outside the brokerage to find things that they need to run their business so. It’s a lot of things that are all happening at once. The Internet’s obviously made it way easier for consumers to know what’s on the market, and the agents role has changed a lot. And so that’s kind of the traditional way. And then there’s new models popping up. But that’s how the industries operated for a long time. |
| Peter Ho: |
| Right? Before the Internet, people find real estate listing from the newspaper, from prints, etc. Obviously, that has moved online, if not 100%, or at least substantially. You can go to Zillow or go to Trulia, StreetEasy to find your perfect dream home with a keystroke. You can find it in New York, in Texas, and anywhere you want to go. However, the commission model is essentially the same today versus 20 years ago. Is that fair? |
| Sam Sawyer: |
| Yeah, it really is. I mean, it’s crazy to say that out loud. But yeah, that’s exactly the same. In the last decade, you’ve seen a lot of firms pop up that have tried to get rid of real estate agents, you know, with these direct to consumer models, or for sale by owner models. And there’s a graveyard of those startups that failed. And so there hasn’t been a lot of attention on what the brokerage to agent part of the industry, and that’s how I explain it when I’m talking to venture capital firms. Other people have tried to go from agents being involved in 90% of home transactions to zero, and I just don’t think that consumers are at a point yet where they’re ready for that. People still like to have help. I think the way that you provide services can evolve a lot. But I think real estate agents will be around a lot longer than people think because, like you said, it’s something that some people only do once to 3 times in their life. It’s different than travel agents or stockbrokers. Everyone says travel agents went away. Stockbrokers are automated. That’s a little bit different to me than buying a house. |
| Peter Ho: |
| I totally agree. It’s pretty stressful. I’ve done it several times so far, and I can tell you my experience is definitely stressful. I’m not sure if I’m ready to interact with someone like a robot online just yet. Maybe one day it will happen, and I will come back to that question a little bit later. I am curious why company like Zillow are not doing what you guys are thinking? Because they are basically a listing company. I know they have been expanding into different kind of services. Wouldn’t that make sense from their standpoint to get into what you guys are thinking? |
| Sam Sawyer: |
| Yeah. I think you know Zillow at the end of the day is an advertising business model. Advertising and lead generation is how they make the majority of their revenue. Their mortgage segment has grown a lot, but Zillow tries to be friendly to all real estate brokerages, because usually what happens is consumers search on Zillow. They want to find more information about a house. Zillow will sell that lead to the agent that pays for that zipcode. Zillow’s premier agent program is their largest revenue driving piece of the business outside of the mortgage platform. I still think one day they could launch their own brokerage firm but they would cannibalize their current revenue stream and I don’t think that they’re willing to take that risk yet. They tried to get into iBuying that failed pretty quickly. Look, Zillow is one of my favorite companies in the industry, and I think Rich Barton, the CEO, is one of the smartest guys in this industry, and they’ll figure it out. But right now. I think it’s too much risk to launch their own brokerage platform. |
| Peter Ho: |
| I agree with you. Coming from a different industry, I work with a company called Monster.com for many years. We faced a similar dilemma. Monster in many ways was similar to Zillow. It’s an advertising business. It did very well for many years, particularly when the ad moved from newspaper to online, but they try and hop from advertising to transaction machine which is not easy. I think Zillow is undergoing similar kind of dilemma, because they have a lot of revenue coming through. It’s publicly traded. It’s a little tricky to make that pivot. |
| Sam Sawyer: |
| Yeah. Yeah, I agree. But I tell people all the time that one day they will have a brokerage firm of some sorts. I just don’t know what it’ll look like, so we’ll find out. |
| Peter Ho: |
| So for an agent who joins pinnacle, do they use the pinnacle brand, or do they keep their own brand? How does it typically work? |
| Sam Sawyer: |
| Yeah. So that’s something that we think is kind of unique for our brokerage as a service platform. We have multiple pricing plans similar to how you buy a software product, or a car, or things in your life. You could pick and choose different features that make sense for you. We have sponsorship plans where agents can join under the pinnacle brand, and they would use the logo. And then we also have a white label product that we’ve launched just recently where that’s typically for more established agents who want to go out on their own brand, but they don’t want to mess with all the back office stuff. The white label products could have Sam and Peter realty on all the signs. But behind the scene, we’re taking care of all the paperwork, payment processing, compliance, all of this stuff that most people hate to do. We see ourselves as one of the first brokerage platforms that can add new agents all the way up to teams. We just onboarded a team of 24 agents from another brokerage firm that the leader wanted to build their own brokerage but they didn’t want to start from scratch. We’re this in between option where they can launch their own brand. But we still do all the heavy lifting behind the scenes. A lot of companies get labeled as a certain type of brand, like a luxury brokerage firm, or a suburb type brokerage firm, or a firm for new agents. We’re trying to just really be this platform, or like product mentality. I always say we’re productizing a service and just really trying to provide super clearly laid out plans, products, pricing all those things, and let agents pick and choose what they want and need to run their business. |
| Peter Ho: |
| This sounds very smart. Maybe this is a good segue to talk about your recent fundraising. I know you recently raised a round of capital. So can you tell us how long it takes, and what are the key drivers of being successful? |
| Sam Sawyer: |
| Yeah. So we recently closed a seed round this fall from Launchpad Capital in Silicon Valley (the lead investor) I’ve been a part of other venture backed businesses. I think I understood that more than a first time founder. I would say when we started fundraising, the VC market was really great, and when we finished fundraising, I don’t really know if anyone else that was getting rounds raised when we closed our round. We had really good traction growth. I think in a venture backed company, it all comes down to product-market-fit, founder, (leadership team), timing and market size. Those are kind of the things that VC firms look for. And a lot of people don’t realize not every startup idea is a venture scalable idea. I think some people shouldn’t fundraise. I don’t think it’s cool to fundraise. I think fundraising is necessary for certain businesses like ours. It allows you to grow faster. You have to have a clearly laid out plan like what you’re going to use the money for. You don’t want to just fundraise to fundraise. You really need to have a clear plan on like what metrics you want to reach with that capital. We’ve raised 5 million dollars since we started. We’ve been around about 2 years. I think later this year we’ll consider raising more money as we keep growing. There’s some internal metrics we’re trying to hit. I think we really want to scale into like a nationwide company pretty quickly. |
| Peter Ho: |
| Real estate is a very localized business. Do you have to customize your offering differently in different states or do you feel a lot of the offering applies in most states? |
| Sam Sawyer: |
| Yeah, that’s kind of what’s cool about what we’re doing. There’s some nuances state by state, but really the service and the way that we’re providing the services with everything being online, we’re able to offer the same kind of things in each state. Fees and things vary a little bit by state, so we might have to adjust some of our pricing plans as we go, but we’re trying to make it to where everything’s pretty uniform, state by state. And the unique thing about how we think about the service side is, the agents can choose what they want. How we’re able to scale so quickly and provide different offerings in different states and just price it out and let them pick how they want to use what we’re offering. |
| Peter Ho: |
| Interesting. Sam, you actually have done an acquisition recently, right? Can you tell us about it? What’s the thought process behind it? It’s not that typical for startups making acquisitions. |
| Sam Sawyer: |
| When we were raising the seed round, a lot of the money that we were gonna use from that round, we wanted to hire software engineers and product and marketing people. LaunchPad Capital who led our seed around, they were an investor in this other startup called Full Reach. Full Reach was a company that was building software solutions for real estate agents and they already had an established team that had been working together. LaunchPad introduced us to the Full Reach team. They’re based in Lithuania. It was one of those weird things where we were able to acquire this entire team that had been working together for over a year. It allowed us to move faster, on that part of our business, and then the cash that we raise were just able to put it towards operations and growth and marketing. We weren’t looking to make an acquisition by any means. And it was just kind of one of those things that worked out timing wise and allowed us to move way faster at an early stage which is why I think we’ve been able to grow so fast, honestly. Acquisition is difficult, and it’s a lot things to figure out. But now, you know, months and months afterwards, I’m really glad we did it and I think long term it’ll make our company a lot stronger. I think it’s helped us avoid a lot of the hiring pitfalls or product pitfalls that a lot of startups fall into. We have a really solid team at the whole company. |
| Peter Ho: |
| I suppose most of the team members of the acquired company are still with Pinnacle today, correct? |
| Sam Sawyer: |
| Yeah. The team is still with us. We actually were all together in Dallas and Austin this past week and I’ve visited them in Lithuania last summer which was awesome. So that team is still intact. And then our U.S.A. based team focuses on brokerage operations and success like growth side of things. It’s split up nicely, even though we’re 8 to 10 h apart time zone wise. |
| Peter Ho: |
| Perfect. So when you look at the funding you have today, how do you prioritize your investment? Is it about expansion into different states? Or is it about adding layers into the products? What are your priorities? |
| Sam Sawyer: |
| Yes. The number one KPI, or metric, we track is agent count just because we are a subscription based revenue model. Every agent that we add, add to the ARR, annual recurring revenue, which is our most important financial metric. And so we prioritize spending the money on agent acquisition. But to us there’s a lot that goes into agent acquisition. It’s streamlining the onboarding process and the behind the scene things that most people don’t even see. We have this product called Pinnacle HQ, our internal agent office, or like agent marketplace. That’s where agents can access anything they need at the company from forms to documents, to updates about things happening at the company, and then they can also find marketing services. If they need to order a website, or if they need help, with making a flyer for a property. That’s kind of like our virtual office, the Pinnacle HQ. And then outside of that, we’re really focused on just growing into new markets. We’re launching Florida soon. We’re making some hires on the growth team, the agent recruiting team. We are really trying to beef up the agent success team. Once you’re an agent at the company, we want the experience to be really well run. The money is going towards agent growth, the main KPI. But you know retention is now a big thing we think about. You have to put the plane together while it’s flying, someone famously said that. But I really feel like that right now. So you start working on one thing and then something else is not going well. You got to fix that, and then you just attacking the most pertinent issue right in front of you, but thinking 3 months ahead at the same time. |
| Peter Ho: |
| Yeah. I think that’s great. Agent acquisition and agent retention. Those are your key KPIs. That makes a lot of sense. And what keep you up at night, Sam? I mean, what do you worry about right now? |
| Sam Sawyer: |
| Yeah. So with me it’s really just trying to think ahead and like, how can we really build like a mode around the business so like. Obviously, right now we’re attractive because our revenue model and pricing is interesting and different in the industry. But I know that can be copied very easily. And so we’re really trying to focus on this add-on services agent marketplace, that side of the business because I know that we can attract agents with the pricing, but you know, 2 years from now there could be 20 brokerage firms that look like us. So we’re really trying to have, the competitive pricing side, but also this service side. And I think the service side, if we can provide services, you know that are better, faster, cheaper, than what anyone else can provide. It will be really hard for us to have a high churn. Down the road, I think we can bring in other parts of the transaction to our platform like mortgage title, even like homeowner services, like you found a lot of homes and things break 6 months down the road, and, like you probably have asked your real estate agent like, who’s the best plumber. There’s some homeowner portal things were exploring, but those are all like things down the road. But there’s over like 25 different vendors that touch a real estate a residential transaction from like beginning to end, you know, from photographers to landscapers to title company. But right now it’s just agent acquisition. But yeah, not having like a defensible offering, is what keeps me up at night. Not literally. But you know what I’m saying that’s what I think about a lot. |
| Peter Ho: |
| AI, Chatgpt, have so much buzz right now in the last few months. I mean, how does it impact the real estate market in in the next 2 years, next 5 years? It seems to me some of these things is going to modify how people deal with real estate agents in a different way in the future? |
| Sam Sawyer: |
| Yeah, definitely, I mean, I think it’s a good thing for the industry. I think you know the simple things right now, like improving listing descriptions or just kind of the text based things that can become a lot better. I was in an article recently where I talked about that. But there’s some high level simple things you can clean up, e.g. property descriptions, or those kinds of things when you present a listing. But the thing that I think is exciting with AI, I really think it can improve the home search experience. AI can be trained to learn, like the types of homes that you or I love and instead of us having to spend every night scrolling through Zillow, or looking at homes based on these very rigid things, like 3 bedrooms, 2 bathrooms, 5000 square feet. AI can start learning Peter might not even know it, but he loves homes on corners like near parks, and 500 yards from the fire station. Home search hasn’t evolved since Zillow launched. You still go to a blank input form, like zip code. There’s not really an intuitive way to search for homes yet. I think AI can take home searching like a layer way deeper than what most people even think is possible. I think it can help someone go from 500 homes down to 5, and then the person can visit them in person. I think that is really exciting. Maybe after Pinnacle that would be something I’ll work on because I love that opportunity and home search is completely outdated, too, and no one’s really working to change that, either. But we could talk about that on another episode. We could talk about that for a long time. |
| Peter Ho: |
| I can tell you for sure that my wife would love that because she’s picky on things. Thanks again, Sam, for all the insights. Congrats on the fundraise and good luck for the business this year and the future. |
| Sam Sawyer: |
| Yeah, thank you for having me. This has been great. I appreciate it. |
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