Today Re/Max announced its largest annual agent gain in a decade and a bank account that’s $22.7 million in the black.
In its 2016 full-year and fourth-quarter earnings results, the company also reported total revenue of $176.3 million in 2016, down 0.3 percent year-over-year, and total revenue of $44.4 million for the fourth quarter of 2016, a 2.7 percent increase compared to Q4 2015.
A ‘landmark’ year
Agent growth: ‘We need the new blood’
Calling it a “landmark” year, Dave Liniger, CEO and co-founder said that in addition to the gains in agent count (an increase of 6.8 percent and over 7,000 agents), the company acquired six independent regions, launched Motto Mortgage and sold its remaining company-owned brokerages.
Re/Max attributed revenue growth to rising agent count in the U.S. and Canada (total count: 111,915), rate increases in the company-owned regions and acquisitions of previously independent regions, partially offset by the sale of the company-owned brokerages. After adjusting for the sale, revenue increased $3.7 million or 9.1 percent over the prior-year quarter.
Source: Re/Max full-year and Q4 2016 earnings conference call
The solid U.S. agent gains came primarily from Florida, Michigan and Georgia.
In Canada, agent growth exceeded expectations due to Re/Max’s high market share, broad scope of services and brand saturation, said Adam Contos, COO, in the earnings results conference call.
“We are pushing hard to get some of the younger millennial agents,” Liniger said in response to a question on the call. “In those efforts we have gone down on average tenure when they’re joining us. We need the new blood and we’ve got over 10,000 of our agents in their 60s now.”
As such the company anticipates a $10 dues increase in company operated regions effective July 1, 2017.
Motto Mortgage
Motto Mortgage, launched in October, is a program in which loan originators work within real estate offices so that agents can help homebuyers obtain mortgage loans for a “one-stop shop” experience.
Re/Max says Motto Mortgage will be RESPA-compliant (Real Estate Settlement Procedures Act-compliant) while satisfying consumer demand by setting itself up as an intermediary that will offer access to a variety of loans from four mortgage lender partners.
In the earnings call, Liniger referred to Motto Mortgage as the “most important new initiative we have undertaken in quite some time,” that’s garnered interest from franchisees, wholesalers, originators and investors.
“Our new brand, Motto Mortgage, is off to a successful start with the first franchises sold and the inaugural class of brokers trained,” Liniger added in a statement. “Looking ahead, many factors are working to support our continued momentum, including a gradually improving housing market, the potential of Motto and the benefit of integrating the regional acquisitions from last year.”
The first revenue from Motto Mortgage is realized after Re/Max sells a franchise and the franchisee attends 60 days of training, Re/Max CFO Karri Callahan explained on the call. Motto franchisees pay a monthly office fee for training, education, technology and high-touch support, so revenue is not transaction-based.
There is a three-months waiver of no fees, and between months four and 12 the fees will gradually increase. Once a Motto Mortgage franchisee has been in operation 12 months, the cost is 4,000 per month, so the initiative’s revenue add is “back-end loaded” for 2017 while offering a “great growth opportunity” for the company, according to Callahan.
Independent region acquisition
Re/Max went public in 2013 and is now using Wall Street funds to buy back entire Re/Max regions, Liniger told Inman in an earlier interview. The strategy helps the regional owners get liquidity and a viable exit from the business while Re/Max claims a chunk of its business back, and subsequently adds to its future value.
Source: Re/Max full-year and Q4 2016 earnings conference call
Regions acquired include:
- New York
- Alaska
- New Jersey
- Georgia
- Kentucky/Tennessee
- Southern Ohio
When asked whether, in general, it was common for agents to leave an office when Re/Max made an acquisition due to a potential change in ownership, Linger responded:
“No, if anything the opposite is true. Our New Jersey region was extremely well-run, a couple great entrepreneurs, we didn’t miss a stroke there. The agents are loyal to the office they work in and to the national company.
“If you look at some place like New York, that’s a little different story; it was not a well-managed region. We had to go in and terminate half a dozen of the brokers that really weren’t making it work, so the better the region the more likely it is that nobody’s going to leave.”
Total operating expenses increased 13.3 percent year over year in the fourth quarter to $29.9 million, “as a result of additional amortization expense from the acquired independent regions, which more than offset lower selling, operating and administrative expenses,” the company said.
Looking ahead
In discussing the 2017 housing market outlook, Liniger noted that 2016 was a positive year for housing and he expects more of the same this year.
Existing home sales reached 5.5 million in 2016, the highest level since 2006, while solid job growth and historically low mortgage rates were also drivers of a healthy housing market.
Liniger said that Re/Max anticipates interest rates to start to increase but that marginal hikes won’t keep homebuyers on the sidelines.
Housing starts are trending upward, while home prices are expected to increase at a lower rate than last year.
Moving forward, in first quarter of 2017 Re/Max expects agent count to increase 5.5 to 6.5 percent over first quarter 2016 and revenue in the range of $47.0 million to $48.5 million.
