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Interview with Karri Callahan, the CFO of Re/Max Holdings


Jun 10, 2020 by Deidre Woollard

Millionacres recently sat down via Zoom (NASDAQ: ZM) with Karri Callahan, the CFO of RE/MAX Holdings (NYSE: RMAX). Karri oversees all finance, accounting, tax, treasury, investor relations, legal, compliance, and risk management at RE/MAX Holdings and affiliated companies, including RE/MAX LLC and Motto Franchising. Karri is a native Coloradoan based out of Denver. She came to RE/MAX from Ernst & Young and has more than 12 years of accounting and auditing experience.

We talked with her about what she sees in the real estate market and how RE/MAX is preparing for the future.

We've heard a lot of talk about pressure on commissions. How do you think the role of the agent is shifting overall, and what do you think it's going to look like in the future?

We think that the role of the agent is as important, if not more important today than it has ever been. The home purchase transaction continues to become more complex. It continues to be the single largest transaction that people do in their lifetime. And it's continuing to actually become more infrequent. So now, it's seven to 10 years between purchase and sale cycle, whereas previously, maybe a decade ago, it was four to five years. Housing, just in the U.S., is aging, so each property is unique.

I live in an area of Denver where the houses are kind of similar, but our house is very different from the one six doors down. It's the same floor plan. So really, having that experienced professional who is going to act as a fiduciary on your behalf as a consumer and make sure that you can maximize your wealth creation is really, really important. It is more important today than ever.

Is it going to change? I think we would say yes. Nick Bailey, who is our chief customer officer, has been in the business for about 25 years. And he says, when he started in the business, the consumer was first, and then there was the agent, and then there was the house because the agent was really in between. You had to go to an agent to be able to even see a house.

Well, technology has already transformed that because now, consumers can go to all kinds of different sites and get information on property. Then the agent can really come in and deliver a whole lot of value on the other side of it.

As we look forward into the future, I think technology is going to continue to play a bigger and bigger role. Consumers have an expectation around convenience, around efficiency, and around just an overall better consumer experience. I think the full-time professional agent, the agents who are really leaning into technology, who are trying to provide a better experience for their customer, both in terms of their knowledge of the local community as well as leveraging technology, are going to be here to stay but will continue to evolve from a technology perspective.

You used the term "wealth creation." Can you explain what you mean by that. That's not how I think of buying a house. I know, obviously, you pay off your mortgage, you have an asset, but explain what you meant when you said that.

We started a Good Morning RE/MAX show hosted by Nick Bailey, our chief customer officer, on our We Are RE/MAX Facebook (NASDAQ: FB) page. It's open to everybody, you can actually go watch it. This past week we had Dr. Ben Carson on it, and he said one thing that was so interesting. He said, "The average renter in the United States has a $5,000 net worth, so your total assets are in excess of your total liabilities as an individual; the average homeowner has a $200,000 net worth."

When we're thinking about the power of homeownership and how that can really impact an individual's ability to position themselves on solid financial ground in the future, that's what I'm talking about in terms of wealth creation.

In some markets it seems that buyers are coming back to the market faster than sellers. How hesitant are people to allow visitors to tour their home, and how is this impacting the supply side of the market?

Callahan: The interesting thing about this pandemic, is that it is very different from the last recession. If you think about the Great Recession, it was very much housing-led, and this one I think is very different, the facts and circumstances. As we came into this pandemic, supply and demand in housing were relatively in balance. So, if you think about the supply side of the house, the builders have not come in to build enough inventory over the last 10 years.

From a generational demographics perspective, we have the millennials, which are the largest generation, coming into their peak homebuying years a little bit later than generations before them. Now, they have a little bit more income to be able to devote to housing.

So even coming into the pandemic, there was a supply and demand imbalance with much stronger demand than supply. That is something that we're seeing coming out of it as well. Buyer demand has picked back up stronger than supply. The good thing is in many parts of the country, we're starting to see some acceleration, showings are coming back up. They're still down compared to 2019, but they're inching up close to what they were pre-pandemic.

Then, we're starting to see listings come back on a sequential week-over-week basis as well. Buyer demand is coming back a little bit stronger than seller demand, but the leading indicators for housing right now are generally all positive in the vast majority of states across the country.

Are you seeing any trends of people wanting to move to the city, people looking at different things or moving away from the city?

Yeah. I think anecdotally, what we're hearing and just what our society has seen is the largest work-from-home experience that the world has ever encountered. I think the vast majority of companies, and very much us included, have been surprised at how well the transition has gone, at least the interactions that I've had.

People have been positive in terms of how well that transition has gone, so people are realizing potentially that they can work from anywhere, and if there are factors around family or cost of living or other things that are going to drive people to move, it feels like potentially there is a move out of more urban areas into suburban areas.

For RE/MAX, that trend would bode well for us because we are very, very strong in suburban and tight markets. The urban markets tend to be owned by more boutique agents and brokerages, but regardless of what happens, I think everybody has embraced the video technology, the fact that work can get done efficiently and effectively from different places. Overall, that bodes well for housing.

We've talked a little bit about working from home. Real estate's always been a flexible business, but do you feel like individual brokerages are going to need less space? Are they already starting to have those conversations with their agents?

Yeah, I think space is something that real estate brokerages have always talked about because it is a very significant cost to the individual brokerage operator. When we look at, really, what is the value of a broker? It's really about leadership, about providing value, and about creating a really impactful culture that highly productive agents really want to be a part of. What that looks like, from a space perspective, is really different across different cities, states, brokerages, entrepreneurs, and agents. The one thing that we've really learned as part of this pandemic is that your presence is really important to leading and building trust. Where that presence comes from, whether it's in a physical location, whether it's virtually, it can differ.

One of our top franchise owners actually in Canada spends half of the year in Ireland, where her significant other is from. She runs her brokerage from literally across the pond for half of the year. Many of our other brokerages feel like it's really important for them to be there from a physical space perspective.

We are always coaching our franchisees on that. Our franchise agreements have actually very nominal space requirements; a thousand square feet is the minimum. In some instances, even a little bit less than that. So it's really up to the franchise owner in terms of their desire and how they're going to build their culture and how they're going to lead their agents and their employees in terms of the space requirements that they need and want in their local offices.

With more people being unemployed, are you seeing more interest in people moving into real estate, and how is the industry handling most tests to become a Realtor, which have generally been in person?

Callahan: It is state by state. We are working with the National Association of Realtors and other regulatory and legislative bodies. That's something that, really, our franchisees are taking the lead on just because of the differences. It's really hard for us to manage that at the corporate level. So that's something that we are relying on our franchisees for. In terms of migration into and out of the industry, that's something that will be really interesting to see and watch over the coming weeks and months.

Obviously, as part of the Great Recession, we went from a peak of almost a million and a half Realtors, and that went down, I think, almost 60%. Now, we're back up to about 1.4 million Realtors as part of the National Association of Realtors.

What we're really focused on is delivering as much value as possible to our network right now. We've been very fortunate because of our business model that we haven't had to reduce our head count. We're really focused on deploying that head count to make sure that we're providing the best tools and services to our agents so that they can position themselves to stay in the business and position themselves to be successful in terms of executing transactions whenever the local municipality, city, and state restrictions are lifted.

Is RE/MAX considering any updates to their business model? What about iBuying?

I think one of the things that we have said historically is that we know who we are as RE/MAX. We are a franchisor, and we really help our agents and our brokers continue to help consumers.

I think in terms of the iBuyers, the good thing about real estate is that, although at RE/MAX we like to say RE/MAX is global, real estate is local. Whether you're working with a professional full-time real estate agent from RE/MAX or you're looking to sell your house in an iBuyer transaction, there is so much opportunity for many, many different business models to participate in this industry. Dave Liniger, who is our founder, always says, "In real estate, we compete like heck to get a listing, but then we collaborate to get it closed."

Sometimes that leads to two transactions, and we're seeing that with the iBuyers. So in many states, we have franchisees who are collaborating with iBuyers. So that's something that we will continue to evaluate in terms of if there are other opportunities that make sense for the RE/MAX network. But right now, we're not in the iBuyer space.

What are the pros and cons of preparing a home for sale versus trying to sell it as is? I know that's one of the things that some other companies are looking at now, providing those types of services for consumers as they prepare their homes for sale. Is that something RE/MAX is looking at, too?

Yeah. I think that those questions really highlight one of your first questions from earlier in terms of the importance of a real estate agent, because a real estate agent really can come in and help you as a consumer evaluate your property and really help you determine what is the return on your investment to some minor modifications, to some major modifications, or no modification at all, given what is going on in your local community.

So again, that's really, really important and that's truly some of the value that a full-time professional real estate agent like a RE/MAX agent can bring. I think that it will be facts and circumstances based.

In terms of us at the corporate level, we're always evaluating different partnership opportunities or other initiatives that could be impactful for our network. The one thing that we want to make sure of, though, is given our breadth and geographic footprint, we just want to make sure that any opportunity is something that can scale. Just because that market is very, very local, that's something that we just want to make sure that we feel like we've got the right partners to be able to scale with.

RE/MAX is famous for doing a lot of marketing. What are you thinking about in terms of marketing over the next six months or so?

We were so excited about our 2020 creative campaign that we launched in the middle of January. It was a fantastic campaign built entirely on humor. I loved all the spots when I first saw them, kind of at the end of December. We rolled it out along with some digital marketing assets such that our network could actually personalize the spots for digital and social media with their own business card and headshot.

It was just so resoundingly, positively well received, and then we got to March, and we realized the messaging was just not right. Our end card said, "Don't worry. We've done this a million times." That didn't really resonate well with consumers, because people are worried right now.

So again, because of the unique nature of our model, we actually pivoted our messaging and we completely changed our advertising tactics and strategies for both television as well as digital and social media to be much more responsive to consumer sentiment and just what is going on in society right now.

So, we're just continuing to monitor that, and we will continue to monitor that going forward, but we do believe the power of the RE/MAX brand is a huge competitive advantage for us. So, although we have scaled back a little bit in the marketing front, we have not completely eliminated it. On the contrary, we've really focused on changing our messaging and making sure that we're out in front with consumers as much now as ever.

RE/MAX has been around for almost 50 years. Our business model is proven, and we have proven it as the economy has gone up and down over the last five decades. We've really taken those lessons that we've learned and tried to incorporate it into the current environment.

We are also a network of entrepreneurs, and the entrepreneurial spirit is just the definition of what makes this society so amazing and so great to be a part of, and just the grit and the determination to get through it, just something that we're seeing at the local level, as well as at the global level. Then you couple that with the strong demand overall for real estate and the opportunity for housing to really help lead the way out of the current environment.

This interview has been edited for length and clarity.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Deidre Woollard owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook and Zoom Video Communications and recommends the following options: short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.