When a real estate brokerage grows fast, cash flow and controls still matter

Two documents, one company, one month apart. In June, Fathom Holdings announced a deal that it called transformational. In July, it told federal regulators that its financial controls had failed and that past numbers might be wrong. Both statements are true. The space between them is exactly where a smart agent learns to read a brokerage.

Fathom earned its following honestly, so let us start there. It made its name by breaking the old commission-split model, letting agents keep nearly all of what they earned in exchange for a flat fee, and running lean in the cloud instead of paying for offices nobody used. Thousands of agents made the switch. The company went public and kept adding agents. That was a real accomplishment, and it gave a lot of working agents a raise. Keep that in mind through everything that follows, because the goal here is not to knock a company while it is down.

The goal is to teach you how to see trouble early.

According to HousingWire, Fathom’s first-quarter 10-Q filing with the SEC disclosed material weaknesses in its internal control over financial reporting and warned that those weaknesses could have resulted in material misstatements in its financial statements. Translation: the checks meant to catch errors before investors see them were not doing their job.

The filing pointed to one origin

During a 2021 acquisition, the company’s founder and then-CEO, Joshua Harley, and its then-CFO, Marco Fregenal, signed what the document calls a side agreement that tried to bind Fathom without the board’s knowledge. The board says it found the agreement only this past April. It decided the company was not bound and that the deal did not have a material effect on financial information.

Then, the filing said the thing companies almost never say about their own leaders. It stated that the tone at the top set by its former Chief Financial Officer and former Chief Executive Officer was insufficient to support effective internal control over financial reporting or the Company’s commitment to integrity and ethical values.

A company does not write that sentence lightly. It is an admission, in a federal document, that the problem started at the top.

Powerfact: Culture is not what a company frames on the wall. It is what its leaders authorize when the board is not looking.

To its credit, current management is not hiding

Fathom terminated Fregenal as CEO in June, citing conduct inconsistent with the Company’s policies, including its Code of Ethics. Harley, the founder, had already stepped down as CEO in late 2023, citing family reasons, with Fregenal taking over. New leadership is now in place, and the company has laid out a remediation plan that includes rewriting its code of ethics, adding training, and tightening how agreements are approved. Disclosing a weakness is uncomfortable. Doing it in writing is the honest move.

But read the rest of the same filing. It also acknowledged Fathom’s history of negative cash flow and leaned on its pending acquisition by Bed Bath & Beyond to stay solvent. The buyer has agreed to fund the company for a year and a day, which Fathom says helps address substantial doubt about the Company’s ability to continue. That is going-concern language, one of the most serious phrases in corporate accounting, and it sat in the same quarter as the word transformational.

Powerfact: A brokerage can be growing and fragile at the same time. Agent count is the headline. Cash flow is the truth.

It is worth sitting with how ordinary this can look from the inside. Agents at a growing brokerage see new offices, new recruits and confident all-hands meetings. Very few of them ever open a 10-Q, and that is not a criticism, it is human nature. But the people who do read the filings are rarely shocked when the headline finally breaks, because the warning signs were sitting in public documents months earlier.

What real estate agents should do

This is not a reason to run. It is a reason to look and to build a business that would survive your brokerage having a bad year.

Start with the public record. If your company trades on a stock exchange, its filings are free at SEC.gov. Pull the latest 10-Q or 10-K and read two sections: risk factors and controls and procedures. Skip the jargon and look for plain admissions, the way Fathom admitted its controls were not effective. Ten minutes will tell you more than a year of company pep talks.

Next, treat leadership turnover as data. Executives leave all the time. But a departing CEO, a new CFO, and a material weakness in the same three months is not noise. It is a signal.

Ask your questions out loud. At your next office meeting, ask how the brokerage makes money, whether it is profitable, and what changes for you if it gets acquired. Watch how leadership answers. Confidence explains. Discomfort deflects.

Finally, own your business. Your past clients, sphere, online reputation and skills go with you no matter whose name is on the building. Agents who treat themselves as the enterprise never have to fear a headline about their brokerage. They already know where their value lives.

The Fathom story will fade from the news cycle. The lesson should not. Every brokerage runs on a tone set at the top, and sooner or later that tone shows up where it cannot be edited, in a filing, in a courtroom, or in how agents get treated when money is tight. Choose the companies whose private conduct could be read aloud without flinching. And whatever logo you hang your license under, make sure the strongest brand in your business is your own.

Darryl Davis, CSP, is a national speaker, coach, and the bestselling McGraw-Hill author of How to Become a Power Agent® in Real Estate. Over four decades he has trained hundreds of thousands of real estate professionals, and he is the founder of the POWER AGENT® Coaching Program. For more information, go to DarrylSpeaks.com.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

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