With the number of homes sold decreasing and mortgage rates rising, there has been some uncertainty about how these changes might impact brokerages, who realized record earning the past few quarters. Despite these hurdles, RE/MAX Holdings experienced a strong first quarter.
During the real estate franchisor’s first-quarter earnings call with investors on Friday, it reported a total revenue excluding marketing funds of $68.2 million, up 25.9% year over year, and a net income of $1.5 million, compared to $1.2 million during Q1 2021.
“RE/MAX is a cash flow machine,” RE/MAX Holding’s CEO Steve Joyce said during the firm’s earnings call with investors. “It will cash flow in great markets and in good markets.”
Of RE/MAX’s $68.2 million in total revenue, excluding marking funds, 10.5% came from organic growth, 15.1% was growth attributed to acquisitions and 0.3% came from foreign currency movement.
The firm attributed its strong organic growth to increased event-based revenue due to higher attendance at its annual RE/MAX agent convention, increased broker fees due to rising home prices, incremental revenue from fewer agent recruiting initiatives, a price increase in RE/MAX continuing franchise fees, and Motto growth. Growth from acquisitions stemmed from the RE/MAX INTEGRA North American regions acquisition completed in July 2021.
Despite this strong growth, RE/MAX’s U.S. agent count is down for the third quarter in a row, but thanks to strong agent count growth in Canada and other international regions, overall agent count was up 1.6% during the first quarter to 142,405 agents, with the agent count for areas outside of the U.S. and Canada rising 3.3%.
On its earnings call, RE/MAX’s CEO and president Nick Bailey said the company is looking to recruit both independent agents and teams, in addition to expanding the teams the firm currently has. In response to questions about using acquisitions to increase the agent count, executives said that they do not expect to make any major acquisitions and that if a firm is acquired it would be a smaller scale “tuck-in acquisition.”
While the headcount increase is welcomed by the real estate franchisor, it did contribute to the firm’s operating expenses rising 21.5% year over year to $83.4 million. RE/MAX attributed the increase to “higher travel and events expenses largely from our annual RE/MAX agent convention, an increase in acquisition-related expenses, and the reinstatement of the full 401(k) match, partially offset by lower equity-based compensation expense.”
Although RE/MAX executives were pleased with the firm’s performance during the first quarter of the year, they want more. On the call, Joyce said he was working with the board and management team to implement initiatives designed to increase RE/MAX’s short and long-term growth.
“During the past quarter, we have made good progress evaluating the opportunities we believe will yield the best results,” Joyce said on the call. “And we are confident about our ability to shape our growth trajectory. Although, we’re not yet ready to divulge specific details, you can expect to hear more from us soon about these initiatives that are related investments as well as the anticipated results.”
RE/MAX’s mortgage franchise operation, Motto Mortgage, also saw strong growth during the first quarter with 17 new franchises being sold. While many mortgage companies are experiencing hardships and undergoing layoffs due to rising interest rates causing refinance volume to decrease, Ward Morrison, the president and CEO of Motto and wemlo, remains positive about the future of the firm.
“A big part of Motto’s appeal is that many of its franchisees and loan originators or LOs work closely with productive real estate agents who have an ongoing purchase transaction pipeline,” Morrison said on the call. “As a result, Motto has a higher percentage of purchase volume than the industry average, which is increasingly important during a rising interest rate environment.
“For example, during Q1, the purchase versus refi split across the Motto network was almost 80/20. That’s up from approximately 65/35 in fiscal 2021. And in contrast to the roughly 40/60 split, the mortgage industry did as a whole last year. Given our heavily focused on the purchase market, we believe Motto is a very attractive opportunity, especially for productive LO’s focused on successfully navigating a shifting market with reduced refi activity.”
As RE/MAX looks to the rest of the year, Joyce remains confident that his firm has what it takes to remain successful even as market conditions undergo changes. “We believe we are well positioned to grow even in a shifting market, and we look forward to sharing more in the near future,” Joyce said.