In light of the recent verdict in the Sitzer/Burnett commission lawsuit, RE/MAX executives expressed great satisfaction about their decision to settle the suit — as well as the Moehrl and Nosalek lawsuits — for $55 million before it headed to trial.
“While it came as a significant financial cost, we believe it was absolutely the best decision for all of our stakeholders, affiliate, employees, shareholders, and debt holders alike,” Steve Joyce, RE/MAX’s CEO, told investors and analysts during the firms third quarter 2023 earnings call with investors Friday morning.
Although some have speculated that the approval of RE/MAX’s settlement, as well as the settlement reached by Anywhere Real Estate, may be put into jeopardy by Judge Stephen Bough’s yet to be announced injunction and final ruling on the suit (as well as a potential DOJ action), RE/MAX executives told analysts on the call that they were confident it would be approved.
Executives also expressed confidence that the terms of the settlement agreement would not have a significant impact on the firm’s profits and financial viability moving forward.
“In the settlement we agreed to certain business practice changes, many of which we already do,” Nick Bailey, the president of RE/MAX said. “Apart from payment of the settlement amount [of $55 million], we do not expect the terms of the proposed settlement to have material impact on results of operations and cash flows.”
According to Bailey, the franchisees and brokers he has spoken with are pleased with the settlements.
“Most of the brokers are really working hard to keep their agents focused on the business,” Bailey said. “There are still people out there buying and selling, but as things progress, if there are additional changes that affect the manner in which they do business, then they will make those changes.”
Regardless of what these changes may look like, Joyce told investors that the strength of the RE/MAX brand would help carry the firm through any unexpected challenges that may arise.
“We have the most productive agents and because our model is very different than anything out there, if you are a highly productive agent, regardless of where commissions go, you are still going to like our model and you are going to still like being with us because it is the most enabling of the brands out there to sell more houses,” Joyce said.
What happens to commission rates? Buyer’s agency?
Despite the executives’ confidence and reassurances, analysts asked Bailey and Joyce to walk them through a variety of scenarios of what the fallout from the Sitzer/Burnett, as well as Moehrl, Nosalek and Gibson lawsuits, may look like. One of the largest concerns expressed was what the impact to commission rates will be.
“When we look at history, commission rates have been shown to follow supply and demand,” Bailey said. “Commission rates went down in the mid-2000s, they came back up during the Great Recession and they’ve come down even sub-5% since then,” Bailey said. “I think that we are going to see much of the same — that this is going to be driven more by supply and demand.”
Bailey was also asked to weigh in on buyer’s agency and the viability of buyers’ brokers if cooperative compensation goes away.
“In some of those countries where we operate, where there is no buyer’s agency, it can be very difficult of buyers and difficult for consumers as a whole. In some of them it is just a ‘buyer beware’ mentality,” Bailey said.
For this reason, Bailey said RE/MAX firmly supports buyer’s agency and believes that “it serves consumers very, very well.”
“A dozen years ago, when tech really started to take a center seat, not just on home search, but just in all the data that has became available to potential buyers, we found, and the data showed this, that consumers are using agents at a higher rate today than they ever have before,” Bailey added.
Q3 financial results
Although the commission lawsuits and the myriad of questions the Sitzer/Burnett verdict has created took up most of RE/MAX’s Q3 2023 earnings call, executives also took some time to review the company’s financial results for the quester.
During Q3 2023, RE/MAX reported an 8.7% annual decrease in revenue to $81.2 million. In addition, the company reported a $59.5 million net loss for the quarter, compared to a $140 net income a year ago.
As the housing market has slowed in the past year, RE/MAX’s U.S. agent count has dropped. Compared to a year ago, the firm’s U.S. agent count is down 6.0% to 56,494 agents. Despite this drop, RE/MAX’s overall agent count is up 0.7% year over year to 145,309 agents, thanks to strong growth in its international agent count (up 7.4% annually to 63,527) and Canadian agent count (up 1.1% annual to 25,288).
Moving forward, RE/MAX executives said they are continuing to focus on initiatives to grow U.S. agent count, including the expansion of its pilot program to attract more teams of six or more agents to the firm.
“I think as we see the overall number of agents in the industry reduce, we are just not immune to it,” Bailey said. “What we are doing is to look at what other growth initiatives with teams, with M&A, and with some of recruiting to get some positive momentum going and counteract any level of attrition of the overall industry.”