The final three months of 2022 were a challenge for RE/MAX, as the company tallied a decline in fourth-quarter earnings.
In its latest earnings report, RE/MAX Holdings, the parent company of RE/MAX and Motto Mortgage, brought in $81.3 million in the fourth quarter of 2022, marking a $7.9 million decrease—or 8.9%—from Q4 2021.
The company attributed the earnings dip to “negative organic revenue growth” and “adverse foreign-currency movements.”
Organic growth decreased primarily due to lower broker fee revenue, a reduction in U.S. agent count and an increase in recruiting incentives, partially offset by Motto growth and Canadian RE/MAX agent count growth. Rising interest rates adversely impacted affordability and weakened housing demand, resulting in fewer transactions and, by extension, lower broker fee revenue.
The company also reported a net loss of $2.6 million compared to its $3.1 million profit from the final quarter of 2021.
Despite its performance in the final months of 2022, company executives appeared optimistic about RE/MAX’s future amid the continued housing market stabilization.
“Our business showed great resilience during the fourth quarter while facing the strongest industry headwinds we’ve seen in more than a decade,” said RE/MAX Holdings CEO Steve Joyce in a Friday morning call with investors.
According to Joyce, that resilience was grounded in the company’s ability to mitigate its sales declines as the housing market experienced a “period of contraction” in existing-home sales.
While the second half of the year proved to be a nuisance for the franchisor—as it did for many in the industry—Joyce highlighted RE/MAX’s full-year performance as an example of its strength.
The company indicated that it increased its annual earnings by 7.2% to $353.4 million last year while also turning a profit of $4.8 million.
“One thing that the company has learned over the past five decades is the importance of distinguishing between what we can and cannot control,” Joyce said. “We cannot control the macroeconomic swings that impact the industry, but we can prepare for them and control our reaction to them.”
Company executives also touted RE/MAX’s global agent count as the franchisor saw its total agent count increase by 1.1% to 143,293 agents for the year. While that serves as a big-picture win for the company, the franchisor’s U.S. and Canada combined agent count decreased by 2.3% to 82,917 agents.
“Although there has been a recent contraction in both the U.S. net agent counts and the overall real estate market, we are thrilled that we had thousands of agents join RE/MAX last year,” said Nick Bailey, RE/MAX president and CEO.
During the conference call, Bailey struck an optimistic tone, highlighting several RE/MAX initiatives the company launched last year aimed at bolstering agent growth in the U.S. and accelerating the expansion of its mortgage business.
“We’re capitalizing on the market changes and driving innovation, such as our initiatives around teams, mergers and acquisitions, and conversions of brokerages. Both programs are showing early signs of success, and we are optimistic that the momentum we’ve built will help strengthen our agent count this year.”
Motto Mortgage, RE/MAX’s mortgage franchisor, earned some praise from Joyce on Friday as well, as the brand saw an uptick in open office count during Q4.
“The rapid decline in housing market activity during Q4 was highly unusual. Although we expect headwinds to persist, we also see cause for optimism as we enter the spring selling season,” Joyce said.
Motto saw total open franchises increase by 23.5% to 231 offices in the fourth quarter, which also marked a full-year increase of 20.3%.
While the company experienced solid growth in open offices during the fourth quarter, Ward Morrison, president and CEO of Motto Franchising, LLC, acknowledged that Motto’s overall business “has been sluggish due to the current macro environment.”
“The mortgage industry has been hit particularly hard by the Fed’s move to cool inflation by raising interest rates which have, in turn, put a chill on the housing market,” he said. “While believing Motto’s franchise model insulates us from a larger industry gyration better than most, we are not totally immune.
“We can see a tight correlation between a rise in interest rates and a slowdown in our franchise sales since Q2 of last year,” Morrison continues.
He said that Motto sold 40 franchises in 2022. While he spoke positively about the growth, Morrison also admitted that the sales pace was slower than in previous years when Motto sold 60 to 70 franchises.
“We remain focused on improving our growth opportunities,” Morrison said.
Looking ahead, RE/MAX Holdings expects agent growth to flatten in the year’s first quarter, with revenue ranging between $82 million and $87 million.
The franchisor anticipates annual revenue to range between $315 million and $335 million, marking a potential drop compared to its 2022 performance.
