The real estate industry has been disrupted in 2020, but not necessarily to its detriment. In a recent Q&A with Karri Callahan, CFO of the global, franchise-based real estate company RE/MAX, I discussed a variety of issues related to her company and industry, as well as broader topics for finance professionals in the 21st century. In the first part of a two-part series, I asked Karri about how Covid-19 has impacted the real estate industry and how she as CFO has addressed new challenges and opportunities. Additionally, I asked her about RE/MAX’s franchise model and how a central finance leader can effectively manage a sprawling network of brokers all over the world while maintaining a strong company culture
Jeff Thomson: The real estate market tends to suffer in an economic downturn. In the Covid-19 downturn, real estate has been severely impacted, especially in urban centers. However, there have been positive gains for real estate in less populated areas as people look to leave cities. How has this sudden re-balancing of the market impacted RE/MAX’s business and operations? What have you done as CFO to mitigate or capitalize on that impact?
Karri Callahan: One might assume real estate has been slowed by the pandemic and resulting economic downturn, but in reality, while existing home sales were depressed in the late spring and early summer, activity has since strongly rebounded. Many markets across the U.S. are scorching hot – fueled by low interest rates, high demand and very low inventory. There aren’t many houses for sale, but those that do get listed are selling quickly. As we’ve seen, residential real estate has been a bright spot and has the potential of helping to lead in the country’s economic recovery.
According to the latest RE/MAX National Housing Report, July had the best month of home sales in our report’s 12-year history and according to the National Association of Realtors, each of the four major regions across the U.S. saw gains in both month-over-month and year-over-year pending home sales transactions in July. Inventory levels and the unemployment rate may be the governors on how strong the housing market ultimately performs this year.
With home being the center of people’s lives this year, it’s only natural we’ll see anticipated shifts in the market as people reassess the traits most important to them in their next home. Numerous factors will perpetuate migration as families may decide to move closer to one another, leave an urban center if they continue working remotely or simply move due to changing needs discovered by spending more time at home this year – like the need for a yard or a home office.
The jury is still out on whether increasing mobility tied to working remotely has had city dwellers leaving urban centers, causing a housing market boom in suburban and rural areas. For RE/MAX, that trend would bode well for us given our vast franchise footprint of over 3,500 offices spread across the United States. The pandemic certainly accelerated the already constricted inventory levels in many urban – and suburban – areas in the U.S. The biggest challenge for many of these metros will likely continue to be the lack of available and affordable inventory. As much as working from home policies continue to be adopted and may cause some shifts in migration, there are plenty of people who enjoy living in cities and will likely gladly take the place of others who may have left for a different opportunity.
The global pandemic moved swiftly, and we believe we were able to respond just as quickly, due to the attractive financial characteristics of our business model and the financial flexibility that it provides. Early in the pandemic we implemented a program designed to reduce expenses and help conserve cash. Overall, our goal was to preserve jobs as much as possible to support the continued expansion of our value proposition and reduce discretionary spend. We adjusted our cost structure rapidly to align with the environment without resorting to date to layoffs or furloughs. Simultaneously, we expanded our service offerings, extended our network’s meaningful financial support and maintained our dividend.
Jeff Thomson: RE/MAX is a global company operating on a franchise model, working with more than 130,000 agents worldwide. Does this complicate or simplify your role as leader of the finance function? Does it pose challenges to reporting or forecasting when you’re dealing with so many semi-independent operators with their own specific business issues?
Callahan: The expansive global footprint of the RE/MAX network is one of our company’s strongest competitive advantages and is one of the most exciting aspects of my job. From a single office that opened in 1973 in Denver, Colorado, RE/MAX has grown into a global real estate network with more than 130,000 sales associates in more than 110 countries and territories and over 8,000 offices worldwide.
My role, as with all of the several hundred employees based in our Denver Headquarters, is to serve and support our franchisees to the highest degree possible. The financial picture at our company – the master franchisor – includes all operational aspects of our business as well as ongoing investments that strengthen and/or expand our value proposition. We’ve been very aggressive, especially the past few years, in making strategic investments that help our brokers recruit and our agents increase their sales opportunities. Ultimately we’re a growth company, so that’s money well spent.
In terms of challenges, it’s fair to say our structure makes things interesting. Every office we have in the world – more than 8,000 of them – is independently owned and operated. Our business was founded by an entrepreneur and our franchisees are successful entrepreneurs with a wide range of opinions. We also have a number of independently owned regions that sub-franchise the RE/MAX brand in the U.S. and Canada – covering about 35% of our membership in those two countries – and all of our global regions are independently owned and operated as well. So our network is actually a vast collection of independent businesses united by the brand, the resources, the values and especially the culture. We like to say that we are a business that builds businesses and that at RE/MAX you are in business for yourself but not by yourself. That means we have a huge number of affiliate stakeholders whose livelihoods depend on RE/MAX staying financially healthy – and when you add our employees and our shareholders on top, our team has a lot to consider with every decision.
That said, as diverse as RE/MAX professionals are, they also tend to share common core traits: they’re serious about business, producing at the highest level, and providing the best customer experience. Our ability to attract professionals like that, and help them succeed even more as part of our networks, is a major reason we’ve been so successful for so long. What does that mean from a financial perspective? It means we can trust the engine that drives our revenue – strong agents who close lots of sales – which in turn builds strong brokerages that attract even more agents. We’ve seen the cycle work in every kind of market environment, which gives us great confidence in our strategy. But we never slow down or stop innovating, and we take absolutely nothing for granted.
This article has been edited and condensed.