RE/MAX in 2022: Modernizing the franchise model, teams and more https://ift.tt/3GX2zvI

Through December Inman will be digging into the real estate industry’s most prominent brokerages, iBuyers and paradigm-shifters to suss out the biggest challenges each face in 2022. Check back regularly as we publish new reports on Keller Williams, Compass, CoStar and others in the days ahead.

RE/MAX has long been one of the most stable brands in the real estate industry.

The brokerage, which was founded in 1973 and went public in 2013, is often cited as one of the most recognizable real estate brands by consumers. In mid-December, web-based desktop publishing software company Lucidpress released findings from a survey that showed RE/MAX is the second-most recognized real estate brand by consumers, just slightly behind Coldwell Banker, which took first place.

That kind of longevity fosters stability in a company, but it can also sometimes pose a challenge when it comes to keeping up with the times.

RE/MAX has rolled out a number of initiatives of late, however, to do just that — the brokerage debuted a new data company, G73, last spring; it’s continued to invest in agent apps like the RE/MAX University learning management system; it keeps growing the Motto Mortgage network; and it gained a major win with the acquisition of the North American regions of its RE/MAX Integra franchisee last summer.

But the question remains whether or not such steps are enough in an industry that constantly craves the new and innovative.

Experts Inman spoke with expressed respect for the industry stalwart while noting that there are a few things the brand may want to consider as it looks forward to 2022. RE/MAX also shared with Inman what’s top of mind as the brokerage moves into the new year. Here are the big takeaways.

Creating a more robust teams structure

“From a RE/MAX standpoint, I think [one major] challenge they face [is] trying to continue to grow team structures in a very competitive market,” Jeff Lobb, founder and CEO of training and coaching company SparkTank Media, told Inman.

Inman has done extensive coverage of the rising popularity and force of teams in the real estate market over the last year. Teams seem to be sweeping the country, and some have speculated whether or not they could ultimately replace the brokerage in the future.

If any traditional brokerage or franchise wants to stay relevant moving forward then, it seems like they’ll truly have to embrace teams and establish a robust support structure for them to remain competitive.

“Teams are taking away the leverage of what the brokers normally had, such as arrangements or joint ventures, mortgage partnerships, title relationships, and a team could come in and easily create their own mortgage and title relationships and not leverage the brokerage’s that they pay, [which] benefit the brokerage,” Lobb explained. “So teams are creating a challenge underneath a brokerage in the real estate space.”

During a recent conversation with Inman, RE/MAX President Nick Bailey actually hinted that some teams program-related news may be on the horizon for the company, but he couldn’t reveal the details.

“Dave and Gail Liniger, founding this company almost 49 years ago, really were at the forefront of bringing teams as a whole to the entire industry,” Bailey said. “I think we’ve got some fun things that we’ll be doing next year to not only continue with that, but enhance it as well.”

Distinguishing between innovation and industry noise

Over the last few years, the real estate market has been flooded with new options for consumers and real estate agents alike. In a separate recent conversation with Inman, real estate expert Mike DelPrete described how crowded the marketplace has become — so much so that it’s getting “out of control.”

“There’s a lot of innovative ways and new ways to buy and sell homes,” DelPrete said.

Bailey said that this is certainly one of the brokerage’s challenges today — making sure both consumers and agents can parse the noise from the industry innovation, a topic he actually recently tackled in his latest “Keepin’ It Real with Nick Bailey” episode.

“There is a lot of noise,” Bailey told Inman. “So I think one of the biggest challenges is — [which is] kind of what we do best — is making sure agents within the industry, within our brand, those that are joining us, really understand how to stay focused and make sure that they’re selling a lot of real estate. Because there are lots of different models, lots of new entrants, lot of competitors and obviously not all are focused on the same thing.”

Bailey added that at the end of the day, one of the brokerage’s primary focuses is to create full-time, top-producing real estate agents. With the market having been so hot in the last year, many newer agents may not realize the gaps in their real estate education until the market starts to shift more and leads start coming less easily.

Once that time comes, Bailey said the company’s challenge will be to make sure agents have a firm foundation when it comes to their education and training, or have access to the tools they need in order to build an even firmer one.

“Our challenge is making sure that we continue to drive home the foundation of exactly what we’re about, which is helping a lot of buyers and sellers and agents to become wildly successful in this business by making sure that they are set up to help a lot of buyers and sellers and sell a lot of houses,” Bailey said. “We’ve got to make sure to get messaging out there and make sure that we say, ‘Hey folks, here are the market changes. Make sure you’re ready for it.’”

Bringing the franchise model into the future

Experts Inman spoke with said that RE/MAX’s franchise model posed a challenge because of its inherent limitations relative to other, newer models now available in the industry.

Victor Lund, founder of consulting firm WAV Group, said that the limitations the franchise license places on franchisees in terms of opening, buying and selling offices — as well as owning franchises with other real estate companies (it doesn’t allow for this) — is a disincentive for potential franchisees, and may spur them to seek out companies with different models.

“These rules are obsolete and prevent businesses from scaling,” Lund told Inman in an email. “They allow companies like Compass, Howard Hanna, Side, Redfin and so many others, to scale beyond them.”

Speaking from his experience as a former vice president at franchise-based Exit Realty, Lobb said one of the major challenges franchise model real estate companies face is ensuring they’re partnering with individuals who will become successful franchise owners.

“I know over the years, [RE/MAX] would sell a franchise to a strong producer or a top producer and many times, respectfully, that type of producer may be awesome at producing, but not necessarily [awesome as] an operator,” Lobb said. “So what we found was, franchisees getting sold franchises that were great at production, but not great at operating the franchise — and those are the ones that struggle.”

“You’re seeing some franchisees merging, getting acquired, because they’re staying the model and carry the overhead of what agents demand,” he added. “When you look at the models they’re competing with, there is no reason to purchase a franchise when you look at, let’s say the eXps, or the other models.”

When asked about modernizing the franchise model, Bailey expressed unwavering support of the model the company currently uses, and noted that nearly half of Realtors any given year are affiliated with a franchise.

According to NAR’s member profile statistics from 2020, 42 percent of Realtors overall were affiliated with a franchised company, and 46 percent of Realtors who are dedicated sales agents were affiliated with a franchise.

“I think some competitors want to leverage [the argument against franchises] to their benefit,” Bailey said. “But what they’re going to find should be on their challenge list, not ours, and that is: Agents want support at the local level.”

Bailey also added that the franchise model is beneficial when it comes to implementing new technology because often that requires scale.

“Because of our scale, we’ve been able to do these strategic acquisitions of tech,” he noted. “There are a lot of companies that if you don’t have the scale, you don’t have the ability to invest in those type of things and support agents the way they need to be super productive.”

Battling low inventory

For-sale home inventory in the U.S. fell to an all-time low during the four weeks ending Dec. 12, according to a recent report from Redfin. Active listings were down 20 percent from the same time in 2020 and down 43 percent from the same period in 2019.

With low inventory continuing to be a threat across the country, the challenge of helping agents find listings into 2022 is one very much on the brokerage’s mind, Bailey said.

“Inventory levels are still going to continue to be low, so that presents a challenge for agents to say, ‘Where do I make sure to find the right listings?’” Bailey said.

To help combat the inventory shortage in the coming year, Bailey added that the brokerage is doubling down on tech in its First app, the company’s machine learning and artificial intelligence (AI)-powered app that helps agents identify individuals within their sphere of influence that may be ready to flip into listings.

“We are expanding that product because it has proven to be so successful for agents to get listings out of their own database, out of their own sphere, and at a time when there are forecasts that in the next three to five years, up to 50 percent of transactions could come with a referral fee,” Bailey said. “We’re using not only our technology, but also the challenge of agents finding listings, and leveraging the First app based on machine learning and AI, to hand those listings back to the agents because they’re already within their sphere.”

Monitoring U.S. agent count

RE/MAX delivered solid earnings results throughout 2021. Second and third-quarter earnings, in particular, excelled in the wake of the RE/MAX Integra acquisition, with the company hitting a record $91 million in revenue during the third quarter and overall agent count increasing by 4.6 percent year over year.

Broken down by region, however, the brokerage saw strong agent growth across Canada (agent count was up 4.6 percent, 8.3 percent and 10 percent year over year during the first through third quarters, respectively) while U.S. agent count seemed to struggle. By contrast, agent count in the U.S. was down 0.6 percent year over year in the first quarter, it was up by a modest 1.2 percent in the second quarter, and then dropped again by 0.5 percent in the third quarter.

Given its surging growth in Canada (which Bailey said was “on fire”), those U.S. agent numbers may not quite be a point of concern for the company as of yet, but it’s something RE/MAX will want to keep an eye on, especially as some of its competitors best the brokerage in overall agent count growth. Keller Williams’ total agent ranks increased 8.3 percent year over year in the third quarter, while eXp’s total agent count was up 82 percent year over year in the third quarter (which, to be fair, is a bit of an outlier in terms of its massive growth, but is still a competitor to RE/MAX).

“We have a number of states that have absolutely had some great growth,” Bailey said. “We’ve also had a couple of states in which we ran into some offices that we had some terminations of some larger companies for various reasons that I cannot make public, that in the third quarter did create us to change that guidance and that [full-year agent growth] outlook a bit.

“But coming off of the strength of the U.S. growth in Q2, we still continue to grow throughout almost every state, and that growth has shown up throughout most of the year.”

Email Lillian Dickerson