All right, we're gonna go get going here. Hopefully, you guys had great lunches and ready to rev back up. But we're here, day two, live at the Stephens Conference. Really appreciate you guys being here in person. I know it's. I've said this every session, but it's so easy to be virtual these days. I feel like it's so much more impactful to do these kind of things in person. So, appreciate you guys making the effort.
Hope everybody's having a great session so far. With me on stage is the RE/MAX team. I think we've done this, gosh, it feels like seven or eight years in a row. So it's always a pleasure to have these guys up here. But starting far side is Andy Schulz, he's the IR. And then, we've got Ward Morrison, he heads up the Motto business, which we'll certainly get into as well, and then Karri Callahan, longtime CFO, has been great to work with over all these years. But we'll get into the story today. For those who don't know RE/MAX, it is synonymous with real estate. These guys have... You know, I think the name RE/MAX is Real Estate Maximum?
Yep.
Is that right?
Yep.
So, you know, some of you guys have probably heard of the eXPs, and the Fathoms, and the real brokerages. A lot of those concepts kind of were started- or I think the concept, the idea kind of started from RE/MAX. These guys were the original disruptor back in the '70s. So we'll talk through the story, and kind of take us to current state. Clearly, we'll talk about the housing market. I think the only thing that's been chillier than the housing market is just room right now. Yeah, but things seem to be heading in the right direction. I think we got the CPI print yesterday, which was just a hair better, and the market thought it was a lot better, obviously.
I think the machines turned on and went wild, but seeing a little bit of continuation of that today. So that's an encouraging sign. I think earlier this year, you, you saw that also with a lot of these real estate-related names, outperformed the Russell by 3-4x to start the year. And then inflation kind of crept back in, everything kind of slowed back down. But I think that's just an early indication of how much these stocks have been out of favor and how much back in favor in a hurry they can be. But anyway, RE/MAX is one of those groups. So Karri, maybe if you can start us off. You know, we do this kind of informal poll every year where we, we kind of get a sense for how you guys are thinking about next year, right?
How you're thinking about the housing market in general. So existing home sales in 2024, your expectation relative, or maybe just the firms, as far as being up, flat, or down.
Yep, sounds great. Thanks, John, and thanks to everyone for being here. Thank you for having us. It's always a highlight for us in terms of being able to come and participate. Real quickly, before I answer your question, my colleagues in our legal department back in Denver reminded me to make sure, since it is being webcast, to refer you to our safe harbor disclosures that are on our website, at remaxholdings.com. With that out of the way from our end, definitely something I know that is on people's mind as we think about going into 2024. 'Cause as you said, I think it's an interesting time to be looking at the space. It's an interesting time to be looking at RE/MAX and all of our competitive advantages.
When we sit here today and we look at 2023 existing home sales right now, around 4 million transactions, and Ward can definitely share his perspectives as it relates to the mortgage market and what rates may mean as we go into next year. You know, probably looking at maybe a little bit of growth, but not expecting a kind of a hockey stick recovery at this point. Kind of that low 4 million existing home sales is probably, at least currently, what we're thinking of, in terms of, in terms of next year. But I think a lot of that is also dependent on what happens with mortgage rates. And maybe, Ward, if you want to kind of touch on that and, and how you see that playing into the equation as well.
Sure, I can jump in there. I think the most important thing about mortgage rates, we think, you know, right now, above the 10-year Treasury, there's a fairly large risk premium. There's some room for that to come down before the Fed even makes a move. We've seen some of that recently, you know, 50 basis point decrease, you know, recently in the 10-year, which is great. I think rates will have an opportunity to go down at the second half or fourth quarter of next year, but I think it's gonna be pretty steady up until then. But I think the biggest thing for me is getting, you know, the Millennials and the Gen Zs to be—they call it a new normal, with the rates being as where they are.
I call it normal normal, 'cause I started when lending when it was 10%. So 7.15 is- 7.125 is the 30-year average. So I think as they see that be stable, we really think that's gonna move some people off the fence.
Yeah. You might not be able to tell from my hair, gray as it is, but I am on the tail end of Millennials, and 8% rates was just a different stratosphere for me-
For sure
... frankly, the 4 million, I mean, 4 million home sales were obviously down a good bit from the 6 million we saw not long ago. But to me, 4 million going from 3%-8% rates, and 4 million is still a pretty good outcome for me. I feel like anybody who had you know, could afford the luxury of staying in their house and just sitting on a 3% rate would have done it. So 4 million is telling me maybe that's people who just have to move, you know, life events. But anyway, Ward, let's dive into that real fast.
I don't want to get too far in the sausage making of mortgage rates, but, like, 10 the 10%, you know, or the ten, 10-year is always gonna kind of be that base rate, and then what you refer to as a spread is a 10 between the 30. Why is that blown out wider than normal? What are investors demanding? What is that risk premium they're demanding? Why are lenders requiring that spread?
You know, just because of the inherent instability of the market, right? Until people know which way it's gonna go, they're gonna build in a premium, whether it's wholesalers, whether it's true, you know, investors, whatever it might be, they're looking for more of a premium over the 10 year than they ever have before right now. When it's booming, like a few years ago, it was very small. It was probably down to 125, 150 basis points. And so I think as it stabilizes, they'll be willing to take less premium, as long as they know foreclosures aren't increasing, as long as they know that the liquidity is still there, some inventory is still there, the ability to sell a home is still there.
So, I think as all the things around our industry, you know, even our lawsuit, we can talk about, that's been, you know, settled on our behalf, really feel like once that happens, they'll start to shrink that premium.
Mm.
So I think there's some opportunity. I don't know if it's gonna be huge, 'cause they did take a lot of risk lending money at, you know, two and, you know, 210 basis points, which was insane to me, right?
Mm-hmm.
I didn't think anybody would ever lend below six. I was obviously wrong. But you know, they do need a return on their, their risk of any loan in general, and they're taking a little bit more right now because of the market uncertainty.
Yeah. So if we were at the normalized rate, we'd be at about 6% mortgage rates.
Mm-hmm.
Is that about right?
Yep.
And so some of that, I guess you see the Mortgage Bankers Association, Fannie Mae, Freddie Mac, who are out there publicly saying, "Mr. Fed, please give us an exact indication. Promise us you won't raise rates in the future," right?
Yep. Yep.
That's, that's part of the reason, right? They want that clarity for the market so the spreads will collapse-
Yep
... or normalize, if you will.
Yeah.
Okay.
I think, I truly believe that, you know, 6.5 is going to move, you know, fence sitters, I call them, right? Everybody who's sitting there right now, if they just see them go down a little bit, I think it's going to induce a lot of the younger generation to make a move or other people to sell their house. You know, people still have life events. They still have divorces, death, etcetera, add a child. You know, we still are working remotely, so people are looking at it going, "We still are sharing one home office with me and my spouse, and I can't continue to do that forever." I think there's opportunities to have people move if they just have an inclination that rates are down a little bit, but stable.
Yeah. I think this market, like, best characterization word for me for this market is bizarre. It feels self-influenced. We're having a major... It's like the rest of the economy, if people worry about a sliding to a recession, right? Not hitting that soft landing. Housing's been in depression, right? We're talking about 28 straight months of year-over-year declines, and it's gotten pretty steep, you know, the depth of decline. But I think as you guys look at it, I mean, I've kind of mentioned this earlier, but do you feel like we're kind of at a base level where it's just basically people moving now or those who have to move?
Yeah, I think that, you know, there's always gonna be those life events, and there has also always been... There's still pent-up demand for housing, and I think that that's something that isn't really talked about. But coming out of the great financial crisis, builders haven't built, and then you also have had a significantly low cost of capital, and so you've had a lot of investors come in and just like, hoover up, snapping up some single family, single family housing. But at the... And then from a demographics perspective, you've had Boomers continue to age in place, you've had Millennials and—now even Gen Z, which are the largest cohorts, really coming in, and that's a whole confluence of factors that really has created a demand for housing that we're still seeing.
And so that's why, we, to your point earlier, even despite affordability and what has happened from a mortgage rate perspective, you're still seeing strong demand for housing, and we're still seeing very little supply, I think because of all of those factors. So even though, to your point, you know, of I don't want to think about how many quarters of a decline it's been, I think that there's. It's very different than it was in 2007, 2008, which was very much a housing-led downturn. This is almost, housing is kind of a by-product of the Fed's, you know, arrows and 'cause we're sitting at the center of the bullseye. And I think there's still a lot of, you know, kind of strength and demand for housing, which just has it positioned a little bit differently.
Toward point, you know, if things can just come down and stabilize and give people confidence to really lean into that demand, you know, as we look to the back end of, you know, the back half of 2024, you know, we're cautiously optimistic that those fundamentals will provide a tailwind.
Yeah. I feel like, you know, 21st century high rates, yet still continuation of home price appreciation. You've got a big fallout in, in home sales, but then there's no, record low kind of foreclosure rates, right? It's just, it's a bizarre market. I feel like all dictated by rates, right? If we can get rates right, the market feels like it's gonna come back. So I'm, I'm with you guys there for sure. So, the other questions, kind of informal poll, home prices, where you think that is next year? Is that gonna be up, flat or down?
Yeah. Wish I had the perfect crystal, crystal ball there, and I think a lot of that comes around kind of what happens with rates, but I think it's actually been somewhat, at least for me personally, it's been shocking to see that despite the increase in rates that we've seen, prices have really hung in there. And it's, you know, prices have hung in there, but also, just even like kind of List-to-Sell ratios have really hung in there, pretty much right on par. And so, you know, probably looking at, you know, maybe flat to maybe slightly up, 'cause we really, despite the significant run-up in rates that we've seen, we haven't seen price significantly get pressured, like, holistically across the country.
We've seen some more pockets of that, you know, some pockets of a little bit more decline in weakness, like on the West Coast, for instance. But, you know, generally speaking, you know, kind of flat, you know, flat-ish, I would guess. Don't know if you have a different-
Yeah, I was gonna jump in there on the regionality of it. It's going to be region by region.
Yeah.
It's going to be, you know, where there's high demand. If people are moving to Texas, if they're moving to Florida, those places are gonna still appreciate. If they're pulling out of states like California or other states that they're pulling out of, because of many different reasons, you're gonna see some depreciation, but it's gonna be low single digits for sure.
Yeah.
Most places, I think, are still gonna rise 'cause there's just not enough inventory.
Yeah, and then back on mortgage rates, I mean, when I mentioned the market being bizarre earlier, I mean, at one point this year, you had new home sales up 30, and existing home sales down 30. I don't know if there's ever been as wide a dispersion between the two. I think part of the reason is, obviously, we're inventory-starved, and new builders, you know, they're adding inventory to the market. But I think also they were able to buy down rates, right? And it's almost, they were kind of buying it down closer to 6%, and that felt like, to your point, kind of that magic number, like that would release a lot of demand. So talk to us, the last informal poll question is, where do you think rates go, right?
If you think we can get back to that six point at some point, if it's next year or not, but kind of where you think rates are gonna trend towards the end of next year.
Man, I wish I had that answer, the magic wand. I think they'll go down next year, but just not to that extreme. I think we're still gonna hang pretty tough in the seven range, somewhere around there, maybe dips into the sixes a few times, but it's hard to tell right now.
Yeah.
It really is.
Yeah.
But it is that magic number. The builders did find a number that moved people off the fence. You know, sellers can do that, but seller concessions were there for, like, a month, it felt like, where they were buying down the rate or giving concessions enough where the, the loan originator could buy down the rate, but those disappeared quickly, to be honest, 'cause the demand was still there. So-
Yeah
... we'll see if builders can continue to do that, but they found the sweet spot, for sure.
Yeah. Feels like you could almost have a little bit of a perfect storm towards the end of next year, where especially if we get into a little bit slipperier job loss type recession, where rates are naturally going to go lower off of that, right? And, you know, I think the big difference first, the great financial crisis, is you had a lot of people who were underwater in their homes, right? And they had no incentive to keep paying their mortgage, and to strategically default: "Here, lender, you have it back. Here's the keys, I'm leaving." Now, you've built up record levels of equity, and so you're incentivized now to sell your home, right?
Instead of giving the keys back to the lender, you're like: "I want to protect some of that equity or capture some of that, so I'm gonna sell." So you could have for selling with lower rates, that drives up affordability, and if... who knows what happens with these Realtor lawsuits? We're going to talk about that in a little bit. But if it's cheaper to sell your house or maybe there's this window where you can still have a free service, right? Where you can-- before there's maybe some kind of injunction, who knows where we go from there, but that could drive up some demand as well. So it seems like you got potential for a perfect storm, but we'll see there. All right, let's talk about the model. You know, you guys on the-- I guess maybe we'll rewind and go into lawsuits.
I feel like everybody's focused on that right now. You guys feel like you're going to have to... I'm sure you've talked about that all day in your one-on-ones. All right, so you guys, you reached a settlement. Talk to us about why the settlement, maybe what the lawsuits are, what is at risk or what is being challenged right now, why you guys did the settlement, and what kind of liberties that affords you.
Sure. So from a litigation perspective, we were named in a series of class action lawsuits alongside the National Association of Realtors, as well as a couple of the other national brokerages/franchisors. The ethos, kind of, of the case against us was that, because of a cooperative compensation rule that exists from the National Association of Realtors, there was a conspiracy to inflate commissions that were paid because of the structure of the industry, whereby the commission, there's an offer of compensation between the selling agent and the buyer agent. As it relates to RE/MAX, we have consistently defended ourselves in this case. We maintain that we did absolutely nothing wrong, and this case, these cases have been going on for many, many years.
Based on our evaluation of the time that was being spent from a management team perspective, the cost to defend ourselves, and the fact that the case that has been in the news a lot was the first of three cases that were known when we settled it, and now more than three cases, since a verdict came out in that trial on Halloween, we felt it was absolutely in the best interest of not only us as a franchisor, but on behalf of all of our independently owned and operated franchisees and agents, to settle the case, put the risk behind us, and simply move forward.
Not an admission of any wrongdoing, but just really kind of a risk-and-reward decision that on September 15th, when we reached the settlement agreement, we absolutely felt like was in the best interest of our company collectively, and now really feel good about the decision that we made.
Okay. Before we start getting into maybe the model, I'm gonna stop there. I'm gonna make this, like I said, kind of as collaborative as possible. If you guys have questions in the audience, feel free to hop in. Otherwise, I can keep moving.
You know, exposed to the cases that have been filed. Also the question is not, which you said you're not supposed to treble damages.
Yeah. So just for people that were, that are listening via website, question was: Are we protected on a nationwide basis? And then, as it relates to the verdict and the treble damages, if we're exposed from that perspective. So the first question, are we covered on a nationwide basis? The answer to that is yes. So the terms of our settlement agreement cover us and all of our affiliates for all of the three cases that were named, as well as any future cases on a nationwide basis. And then, since we did not participate at the trial, that is not applicable to us.
... the settlement, importantly, is still pending court approval.
Yes, thank you.
Which is an important detail.
Yeah. Yeah, yeah. I think you can kind of- Yeah, go ahead.
Just talk about what the implications are, jury verdict, and how that's gonna change the business.
So, the question is, what are the implications from the jury verdict, and how is that gonna change our business? I can speak-
Mm
... you know, specifically in terms of, in terms of our settlement. There's a financial component, and then, some other business practice changes, that we, are, you know, implementing, all of which are very important. So obviously, there is a, from a cash perspective, excuse me, a $55 million payment, that we will satisfy, over the course of time, based on, court approvals. So a portion of that has already been paid, and then there are two additional tranches that will get paid, this year and into 2024. And then some other business, practice changes, really focused on transparency, education, and NAR membership, which are very important.
We don't think that those business practice changes will have a material impact on our results of operations and cash flow, aside from that $55 million payment that I mentioned. In terms of your question on the jury verdict and what may happen more broadly, there is a lot of uncertainty about that. And there is probably a long time horizon that there needs to... You know, that that will play out. But we're, you know, obviously active, actively, you know, thinking about that, and we continue to stand for, you know, buyer representation and transparency.
You know, if we need to adapt because of changes from the industry and what may happen, once additional information comes out in terms of, you know, changes, we'll continue to adapt.
Just something. How do you know sort of the business practices, like what DOJ will consider sufficient, that sort of, you know, are we, the DOJ, say what they want in terms of business practice changes?
Yeah, so the question is, you know, how does the DOJ play into this, and what do we know? You know, at this point, we're still waiting. There's a lot of uncertainty, and at this point, you know, can't really comment on anything. It's obviously active and ongoing at this point.
But I would add in there, you know, we've been around 50+ years as a brand.
Mm-hmm.
We've adapted to seven or eight recessions. Our agents are highly productive. They average two-to-one over our competitors. So, you know, if the market changes and they make a little less commission, let's say, in the future, for some reason, their ability to go out and get one or two additional transactions that'll allow them to make what they were making before, I think is very, very doable. The education, the training, the support we provide them makes them very productive. And so I think over some of our competitors, where maybe we're averaging 16 transactions, they're doing seven, even if we lost a couple transactions because of rule changes or whatever, our agents are still in the business full time. You take seven transactions, you lose two, you're probably out of the business.
So I think, our adaptable nature is gonna be a big force moving forward, and the experience that we've had of seeing all these market dynamics and the changes, I think is very important to share.
Yeah, and I think it's an interesting time 'cause I think our franchisees and our agents are really leaning into this market, even, you know, with everything that's happening and some of the uncertainty that's out there, because of the fact that they are long-time, full-time professionals. I think it makes them, as Ward said, uniquely positioned to adapt and compete in the marketplace.
The other thing, if you've dealt with an agent, they can be emotional. I wanna be very clear about that, just like loan originators are. So uncertainty sometimes scares them. So us settling our case, us being done with it, you know, from that perspective, makes them much more confident to stay with us, but might produce the ability in some other brands that still haven't even been named in the lawsuit yet or just got named, could create some instability or uncertainty that could lead to a higher level of recruiting for us, and that's why we've been investing in recruiting 101.
So we bring people into our building on a monthly basis, owners of the franchises, team leaders, recruiters, and we're bringing them in right now to train them up, to get them geared ready to go back to belly-to-belly to recruit agents, because uncertainty is going to provide us opportunities, we think, to grow very, very rapidly, hopefully, in the future.
Just my only question, but, are you and the other brands mostly roughly 50/50 seller/buyer, or does... Do you skew one way or another just because? I don't know.
Yeah, so the question was, do we skew 50/50 in terms of representing buyers or sellers, or is it different than that? For us, it is about 50/50.
And then the other was just on the NAR, MLS. Where does that stand? I don't remember the details of your settlement and lawsuit, but how are you playing that state by state, or what's your assumption going forward? I guess it would be settlement. So what was that part about?
So the question, I think, is, how is maybe NAR participation on RE/MAX's behalf-
Well-
included in our settlement?
Did you agree they were not going to hit NAR's, you know, unless, you know, if you're representing a certain state? I don't know what that would look like.
Okay.
So.
Okay. Yeah, so the question is kind of how is NAR included or considered in our settlement agreement? So based on some of the other terms, the business terms of our settlement, previously in our franchise agreements with all of our independently owned and operated franchisees, we had a requirement that our franchisees be members of NAR. Pursuant to the terms of the settlement, we have removed that requirement.
Just a related question, you know, the extent you guys do it more on MLS as your franchises do across the country, whereas if one of the MLSs does not provide the transparency they require in terms of, again, I don't know, the details, but the exam by side commission, how that's negotiated, what if the MLS doesn't provide that? Yeah. Okay. Or if you're going to compete with every MLS across the country.
Yeah, that's an interesting question. What I can say just about transparency is we are and have always been 100% supportive of transparency. We actually took the step to put commission information on remax.com initially. And so we will continue to support that.
You know, I know there's still a tremendous amount of uncertainty. I think the DOJ, whatever involvement they have, I'm not fully sure they know what the outcome's gonna be if they tinker with the system, right? I do worry that we go back in time-
Yeah.
... and we, I think our U.S., the U.S. market is, we're the envy of many markets across the globe, right? I think we are the most efficient market. We can worry about who pays who and all that stuff, but, like, I mean, it's gonna be fragmented, right? And I think scale will matter for who remains.
Mm.
I think having a website will matter.
Mm-hmm.
Having the ability to aggregate buyers. You know, and if we end up having to pay, if agents or if a buyer has to pay for their own agent, we're gonna have to loop that into the... And there's regulations around that.
Right
... and laws and regulations are gonna have to change, looping that into your mortgage, and you're gonna pay a compounded 30-year- you're gonna end up paying $50,000 for your agent over time, right?
Yeah. I think that's some of the things that they have not anticipated yet. You know, the mortgage industry is already talking to, you know, Fannie Mae and Freddie Mac and Ginnie Mae to say, "Can we include the buyer's commission on the closing disclosure," right? Is it something we're gonna be able to do in the future? So they're already trying to preface that, so that's mortgage trying to help real estate.
Yeah.
But I think, you know, I think they're underestimating the impact that in our country, the buyer does get represented, where most countries, they do not. It's the listing agent, buyer beware. We've developed such a system of transparency, communication, and, and sort of coopetition together, and all of a sudden, if you can't afford a buyer's agent as a minority or a new home buyer or something like that, the people they want to help the most, and now they're not gonna be represented, that's gonna be a very, very unintended consequence, I think, that they are not anticipating. So there are some things I think they're gonna have to think through. For those of you older people in the room, I don't know if you remember the Red Books.
They were the, the listing book was a Red Book that you printed out every week as a realtor, and that was the bible of all the listings. That was horrendous, right? They held the power, and by, you know, giving transparency and, and having this cooperation together, we're posting listings online, we're sharing it. Otherwise, RE/MAX is gonna keep our 500,000 listings on our site, and somebody's gonna keep their 500,000 listings on their site, and you're not gonna be able to see both of them.
So I don't know if they fully understand, like you said, the unintended consequences, and hopefully, as an industry, both mortgage and real estate, that we can educate the DOJ and FHA and some of the other big government entities who think this was a win in a way, but they gotta make sure it's a win for the consumer.
Yeah. Well said. Yeah, I mean, EXP just established a relationship or a partnership with House Hunters, which is a global tech company that does nothing but help try to piece together all the listings out there that are all fragmented, right?
Mm-hmm.
I think we take advantage sometimes of the fact that we can wake up one morning and everything out there is on Zillow. Everything just nicely, right? And you know, we have no idea how it's all put together, but it's there for you, right? One day, we could wake up, and that's not the case anymore, right? So we'll see. We'll see where we go from there. But, let's just... And I hate, gosh, I hate going out here and speculating, but, like, in a world where there's less buy-side agent representation or the fees are down a lot, you mention having better agents, more productive agents.
I agree that's gonna help, but, like, maybe just kind of spitball the other areas, like maybe the website, right, is maybe one of those, how you guys can still thrive in that type of market.
Yeah, so I think, I think the productivity of the agents is a big, a big piece of that. I think the brand is a big piece of that and what that may mean to consumers. remax.com, it, it's still the number one branded website, kind of outside of the portals. And so I think not only having that brand here in the U.S., but also, it's the number two brand in Canada, and then a global brand as well, think that uniquely, uniquely positions us. And then even thinking about kind of the connectivity to other ancillary services-
Okay
... like our Motto business, you know, in a different kind of environment, even if there is compression, we just think we're uniquely positioned, because we do have full-time agents, they are professional, and then you have the brand, the web presence, and some ancillary services behind them.
... I would add in there, we still have our national ad fund, so that's a big deal. It's a pass-through, if you look on our financial statements, so every dollar in is sort of a trust dollar that we have to spend back out on behalf of the agents, whether it's technology that supports marketing or marketing in general. Most of our competitors, if they have to pay a settlement or if they have other situations go on or aren't making enough money, are going to cut back on marketing and advertising all day long, where we do not, right? It's the agents paying in, and we have to spend that money on their behalf. So I think that's a competitive advantage as well.
The other thing is, you look at independent brands today that are small. They don't have our negotiating power that Karri and her team can do with a kvCORE, who we teamed up with recently on technology. We go out and get the best technology and have group purchasing power 'cause we are a franchisor. So we can do something like that, and in that instance alone, agents in our own network were spending thousands of dollars a year on the technology. We got the technology, ran it through our tech, you know, tech/ad fund, and now they, they no longer have that cost. We just made that agent more profitable by having the same purchasing power that we do as a network to provide a tool that they were having to pay for.
I think those are some of the things that you can't underestimate, that our scale does make a difference.
Yeah. All right, so let's, let's rewind or fast-forward, I guess, to the last quarter. You know, the dividend's been a hallmark of your story for a long time, since your, since your IPO, right? You guys made the decision to cut that. You said you didn't, you know, you, you don't make that, or suspend that, you don't take that decision lightly. That was a long process, I'm sure, a board discussion after a while. You guys did say that these business practice changes are not expected to be material to operations. So I think some people felt like that was maybe a mixed message. So talk to us about what led to that decision and how we should think about the capital returns program kind of moving forward.
Yeah. So I think it's a, it is a great question, and we have. You know, as a franchisor, return of capital has been a cornerstone of our capital allocation philosophy, really since the IPO. But as we looked through, and looked across kind of a confluence of things right now, it's a complicated environment for us. Obviously, the, you know, I would say the settlement kind of has two pieces to it. The $55 million cash piece, you know, that, that is impacting how we think about things from a capital allocation perspective. And then we have the business practice changes. So I think if, you know, the intent in terms of, you know, hopefully alleviating some of that confusion is really kind of bifurcating it in two, right?
So when we look at the second part of that and the business practice changes, that's really what we were intending, you know, the comment around kind of results of operations and cash flow. As we look at not only the settlement, but just what's happening to the industry and to our business from the pressure on the end market, you know, the 28 quarters in a row of decline and just the uncertainty that we're faced with right now, we just thought that it was a prudent decision, obviously a board decision, to suspend the dividend for now, and, you know, we'll continue to evaluate that on a quarterly basis going forward.
You know, hopefully, once things are a little bit less complicated, you know, the long-term view around capital allocation and return of capital is still consistent.
Yeah, makes sense. 28 months of straight declines.
Yeah, sorry, sorry.
'Cause 28 quarters, like-
Sorry, twenty-
... I don't wanna lead you up here.
Sorry.
I'll, I'll -
Sorry. Sorry, sorry, sorry. Yeah.
Okay, so, I hear you there. I mean, it was over an 8% dividend yield, so I was-
Mm-hmm
... that was one of those things where I was like, "Man, that, that was really good profile, dividend profile." But it sounds like that as things maybe get better clarity, like, that's something that's still important to you.
Yep.
Okay.
Absolutely.
Makes sense. All right, let's move to the model a little bit. Why is it that RE/MAX is, like, 2x the national average in sales? Like, how are your agents more productive? How much of it is them versus you guys enabling and helping? Like, talk to us about the model.
Sure. So I think it's a great question, and I think if you look at the economic model and the history of the company, it really helps to highlight why we have that competitive advantage. As you said at the very beginning, RE/MAX stands for Real Estate Maximums. It was created by our founder 50 years ago, really under the promise that if you're gonna be a full-time professional in this business, you should be treated as such. And his promise when he created the company, which still transcends today, 50 years later, is that if you pay on a monthly basis, to be part of a professional organization, just like doctors or lawyers or other professionals, you should be able to, kind of eat what you kill in terms of your, of your commission.
So our model is very different than others across the industry. Agents pay on a monthly basis to be part of our network, and then, from a recommended commission split, they're keeping $0.95 on every dollar that they earn. So the nature of our economic model and what it means to be with RE/MAX innately draws higher productive agents to us, because if you can't afford to pay the monthly bill, then you can't work at RE/MAX. So we like to say, any RE/MAX agent can work anywhere in the industry, but not any agent in the industry can work at RE/MAX. And so that economic model, I think, is one piece of the kind of competitive advantage differentiation.
I think the other couple things that I would say is, you know, we take seriously what the brand means, and I think, Nick Bailey, who's the president on the RE/MAX side, has said, well, that we make good agents great. And so not only do we have a differentiation in terms of the economic model, in terms of how agents pay us, but then we take seriously education, training, marketing, and technology offerings to really help improve the productivity of our agents. Fourth quarter of 2021, made a strategic decision to really revamp all of our education training for our agents, put in a new learning management system, because we know our agents, the more they learn, the more they earn. And so we're always looking at things and focusing on things in terms of how to drive that productivity.
Ward mentioned the kvCORE platform, and really looking there in terms of deriving engagement, driving onboarding, because we know that if people are using that system correctly, they can really drive productivity. Because there's a lot of rhetoric and a lot of discussion around the industry around, you know, quote, unquote, "leads," but we know for good agents, the best source of leads is within their own repeat and referral network. And so if they're using the tools that we're providing around a CRM system, and a marketing campaigns, and drip campaigns to really keep in contact with their network, then they can really drive productivity. So everything that we're doing is really designed to make good agents great, and really position great agents to be the best agents in the marketplace.
That's a good rundown. So we spent far more time on the industry than I was expecting, so we're gonna have to kind of speed through this last part. I wanna get Ward in the mix here for sure. Because of your agent pay model, right, your fixed pay model, you guys are dramatically different than the large majority of brokerages, right? You're gonna look at their P&L, it's gonna be almost 100% recurring or transactional revenue. You guys have a big, much larger chunk of recurring. You'd have a little bit of an angle of transactional, so that could help with growth, especially as we come to the other side of the cycle. But talk to us, maybe in three pieces.
Agent growth will grow your top line, getting more revenue per agent will grow your top line, and then the ancillary services, the non-RE/MAX, the Motto Mortgage, that side of it will grow your P&L. So talk to us about kind of the building blocks, getting back to steady organic growth, like, call it low single- or mid-teens organic growth or mid-single digits organic growth, kind of how you get back to that level.
Yeah. So it is a great question, and I think the... It is important to differentiate, our model as a franchisor. So we're a franchisor. You know, north of 60% of our revenue, excluding some of the marketing funds that Ward was talking about, is recurring in nature. And so as we think about that return to organic growth, it is really focused on, on our agent count, in particular in the U.S. We've had great, outsized performance in Canada, and so continuing to, to leverage that. So really focused on kind of what we would call chunkier growth of agent count.
So, you know, bringing in, small to medium to even large-size, conversion candidates from other brands, and really starting to spur growth from that perspective, and then, also some initiatives that we have around growing teams within the real estate industry. So really getting back to that agent count growth. We do look at pricing as a lever when the time is right, from a market perspective. And so that's an important lever. We do have some other revenue streams around preferred marketing agreements and other things that could be levers for us over time as we think about that organic growth. And then the macro, as well, you know, we think that this is going to to turn.
It is a smaller piece of our top line, so kind of 20%-25% is tied to the macro, and tied to the commissions that our agents earn, and that we capture a small portion of. And so those are, those are some opportunities on the RE/MAX side. The mortgage side of the business is a really exciting growth opportunity for us as we look at the kind of two verticals that are within that. We have a franchising business with our Motto Mortgage business, which Ward can talk a little bit more about, and then a mortgage processing business as well, which has a lot of upside.
So we do think that that Mortgage business, over time, once the market stabilizes, really is a $100 million revenue opportunity, and so that's another kind of lever from a, from an organic growth, perspective.
Yeah. You wanna touch on Motto?
Sure.
Just kind of the concept behind it-
Yeah, yeah.
... what you guys aspire to be.
Yeah, yeah. We have about 250 open offices or franchises right now across the country. What we did, though, is we started a mortgage brokerage franchise. So we had real estate brokerage, now we have mortgage brokerage franchising, and 75% of our sales are to real estate companies or teams, whether they be RE/MAX or independents. We sell outside the RE/MAX network. So what we do is have them be independently owned, operated, and licensed mortgage brokers, a little bit different than the RE/MAX side. But we provide all the tools, support, just like RE/MAX. We provide marketing, we provide the loan origination system, we provide technology, CRMs, everything that's similar to RE/MAX, we do in our mortgage brokerage network. And so we tend to sell to real estate companies, a lot of RE/MAXes, as an ancillary service.
They're allowed to take that profitability from that company. They can't, you know, compensate the agents for it or anything like that because of rules around RESPA, but in general, they're growing as a mortgage broker. So we provide a network of wholesalers or TPOs, third-party originators, who will lend the money to our people. So we think we're providing a tremendous amount of choice to the consumers. For those of you who don't know much about mortgage brokerage, you know, prior to the Great Recession, 40% of all loans were originated by mortgage brokers. About 2010, it was 3%. We're already back to 20% as a channel.
We believe we're going to go back to 40% plus, because we're local, we're connected to the agents, and we're connected to the consumers and providing them choice that a lot of... If you're at, you know, a bank, you're gonna provide your bank's products. At us, you can provide multiple products. So it's really nice for the RE/MAXes to own a mortgage, like a Motto Mortgage franchise, because now they can get... When you go to closing, instead of getting one check, you're getting two. So we feel not only are we developing a revenue opportunity for us, but we're developing a revenue opportunity that'll make those particular franchisees even stronger because they're participating in it. The other thing, I used to be a loan originator. I cold-called agents endlessly to try to get their business.
If you could've told me I could've sat inside of a real estate company, I would've taken it all day long and twice on Sunday, because it was so hard. So it's giving that loan originator, who now is part of a Motto that's connected to a real estate firm, like a RE/MAX, a warm call. There's no such thing as a hot call in sales, they say, but a warm call, and we're connected to the purchase transaction. Refis are sort of the gravy of the industry. They come and go, but at Mottos that are tied to real estate companies, those LOs are tied to purchase transactions on a daily basis. They're not earning a 100% capture. We wish they were, but they always develop more capture as they sit in proximity to the agents, and that's been the exciting thing.
So we think not only on the franchising side, if we can get to, like, 1,000 franchises, that's probably a $50 million opportunity. And as Karri talked about, we also have wemlo, which is a loan origination system and a processing company that we're selling across the mortgage brokerage marketplace, not just our Mottos. And we think that's a $50 million opportunity, where we charge on a per-transaction basis to provide those processing services, and that's anywhere from $725 to, like, $1,125 a file, depending on where you are in the country. So it's a big opportunity that we-
How many Motto franchises you're at now?
250 open. Yep.
Getting to 1,000 is a $50 million opportunity, and then another $50 million from wemlo-
Yeah-
- processed
... if we can do X amount of processing transactions. Yep.
Very interesting. I think we've got time for maybe one more question, maybe two more questions, if you guys have any in the audience. Okay, it's a wrap. Thanks for the time, guys, and thanks for joining us from RE/MAX.
Great.
Appreciate it.