While many in the real estate industry have guarded outlooks for the rest of 2022 and 2023, executives at RE/MAX are confident that their firm has what it takes to navigate this market shift. And when it comes to the firm’s competitive edge, RE/MAX cites its agent productivity as the key factor.
“Interest rates go up and down, and recessions come and go, but no matter what, people are going to buy and sell homes. And based on our five decades of experience, it will happen millions of times every single year. People get married, they have kids, they get divorced, they move for jobs,” Nick Bailey, RE/MAX LLC’s president and CEO, told investors during the firm’s third quarter 2022 earnings call Friday morning.
“The key question is: Which agents or brokerages are going to be the ones helping those consumers with their home sales purchases? That’s where our main competitive advantage comes in. The productivity of RE/MAX agents,” Bailey said.
According to RealTrends data, RE/MAX agents have outproduced other large brokerage’s agents at a 2:1 ratio over the past 12 years. In addition, RE/MAX agents in 2021 had a median of 15 years of experience, while non-RE/MAX agents had an average of eight years, which the firm sees as a major asset.
“RE/MAX agents have nearly twice as much experience as the typical realtor in 2021 and an advantage that has widened in recent years,” Bailey said. “That means most of our agents have gone through market changes that many in the industry have not. That’s one reason we’re more confident and aggressive than many other brands right now.”
However, the firm’s confidence does not come from its agent metrics alone. Despite the headwinds generated by higher mortgage rates, along with the affordability challenges faced by home buyers, RE/MAX Holdings, Inc. in the third quarter of 2022 managed to generate a higher net income compared to one year ago — when market conditions across the country were white hot.
In Q3 2022, RE/MAX recorded a net income of $0.1 million, an increase compared to the firm’s $25.1 million loss a year ago. This increase in net income occurred as the firm’s operating expenses dropped by 34.9% year over year to $83.7 million, which the firm attributed to higher settlement and impairment charges incurred in the period one year prior.
Despite the increase in net income, revenue for the quarter was down 2.3% year over year to $88.9 million, as organic revenue growth dropped 4.9% compared to a year ago. This was caused by lower broker fee revenue, with fewer transaction sides closing and an increase in recruiting incentives as the firm looks to attract more high-performing teams and boutique brokerages.
According to executives, nearly 65% of revenue for the quarter, excluding marking funds, were attributable to dues and fees based on agent count and open Motto Mortgage offices.
Overall, the firm was pleased by the performance of Motto Mortgage, especially considering the annual decline in loan origination volume in Q3. Year over year, the number of Motto Mortgage franchises rose 19.9% to 211 offices.
“We believe the growth and success of our mortgage business is due to the unique and compelling value proposition each of our brands offer, and the fact that ancillary services, like mortgage, provide real estate entrepreneurs with opportunities for revenue and earnings diversification, something that is going to be increasingly important in the face of shifting housing market conditions,” Ward Morrison, the president and CEO of Motto and Wemlo, said.
According to Morrison, roughly 70% of Motto franchise sales have been to real estate professionals, and while he remains optimistic about Motto’s future, Morrison noted that the firm’s goal of selling 120 franchises in 2023 no longer looks feasible given the current interest rate environment.
Looking ahead, RE/MAX executives noted that increasing the firm’s U.S. agent count remains a top priority. Year over year, the U.S. agent count dropped 3.1% to 84,924. Despite this decrease, RE/MAX’s overall agent count grew by 3,300 agents to 144,300.
“In the U.S., we continue to see slightly depressed results, driven primarily by the uncertain housing market. We expect to see a notable industry-wide contraction in the number of real estate agents across the U.S. And in truth, that’s not a bad thing from our perspective,” Bailey said. “And while our model makes us more insulated than most, we are not immune. Our U.S. agent count will likely be under a bit of pressure for the foreseeable future.”