Apr. 12: How Agents obtain leads; the scoop on Realogy and RE/MAX

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more


Refinancing as a lead?


As a Real Estate Agent, how do you find your leads? One interesting idea that you may or may not have considered is current homeowners that have perhaps discovered their home it is too small, doesn’t have enough bathrooms, another bedroom is needed, etc. and are contemplating a home remodel.


Does the costs and benefits of building what they want save more money than buying a different home, potentially in the same neighborhood?


There are some factors worth consideration. Cash-out or a new equity line will probably not cost less than purchase money financing for a new home. Also, an equity line is usually an adjustable rate so the payment will more than likely increase.


Is there enough equity in the current home to borrow enough to cover the construction costs including extra funds for cost overruns? If not, will the extra money needed deplete or significantly reduce reserves or retirement accounts?


How does the math work out between financing and paying cash for your remodel versus selling the current home and buying a new one? In some scenarios, a new home can be purchased for less than the cost of remodeling.


I would wager a guess that there are a lot of homeowners out there who have not done the math to even ponder this possibility. So if you know someone or know someone who knows someone thinking about remodeling, a little Q&A could result in both a buyer and a seller.


Stock analysts start following a couple companies


Agents know that RE/MAX Holdings, Inc. (RMAX) is a real estate brokerage franchisor. The RE/MAX brand has the top market share in the country according to the company and, based on agent count, RE/MAX is the third-largest brand globally with over 100,000 agents as of 4Q15. RMAX has a high-margin, recurring-revenue business model with attractive capital flexibility. But a recent analyst’s report from KBW opined that “we think much of this is priced in at the current valuation.”


“RMAX has an attractive franchise business model. Almost all the company’s revenues are earned from its franchises and around 60% of 2015 revenues were recurring and not directly driven by agent sales volume. We expect the company to continue to generate EBITDA (earnings before interest, taxes, depreciation and amortization) margins around 50%.


“RMAX has a solid history of growing agents. Since the beginning of 2013, RMAX has grown its U.S. and Canada agent total by a compound annual growth rate (CAGR) of about 4%. RMAX is also pursuing the re-acquisition of franchises in independently owned regions, which can increase franchise revenues by between 70% and 85% for re-acquired franchises. The company also has some pricing power with its agents and has increased fees over the past several years.


“RMAX generates solid free cash flow due to its high margins, limited capital expenditures (‘capex’), and low leverage. This allows the company to return capital to shareholders as well as fund growth. Further, the low leverage gives the company the flexibility to increase leverage if necessary for a large acquisition. RMAX currently yields 1.7%, and the company paid out a special dividend of $1.50 per share that was distributed April 8, 2015.


“Despite the positive attributes of the business model, we think most of the upside is priced in at this point. We initiate coverage of RE/MAX Holdings, Inc. with a Market Perform rating and a 12-month price target of $34. Given the strength of the business model and low leverage, we value the company at 12x enterprise value to EBITDA.”


KBW also weighed in on Realogy Holdings (RLGY), the largest residential real estate broker in the U.S. and involved in 16% of existing home sale transaction volume in the country. “The company has an attractive business model that generates meaningful free cash flow that should increase as leverage declines. We believe RLGY shares are a good way to get exposure to the on-going recovery in the residential housing market, where existing home sales volumes remain about 25% below peak levels. However, we believe the recovery will continue to unfold at a modest pace. Given that backdrop, we believe that RLGY shares are appropriately valued at the moment.


“Realogy is the largest residential real estate broker in the country. Through its many well-known brands, the company either directly or as a franchiser participates in 16% of existing home sale transaction volume in the U.S.


“Total existing home sales peaked at 7.1 million in 2005 and troughed in 2008 at 4.1 million transactions. Although home sales have picked up meaningfully from the trough, 2015 existing home sales of about 5.3 million still remain 25% below peak levels. We would expect home sales to continue to grow as the housing market moves back towards a more normalized state. We expect RLGY to benefit from these trends.


“We also expect the company to benefit from lower leverage. The current leverage remains somewhat high with a net-debt-to-EBITDA ratio of 3.9x. The company’s meaningful cash flow conversion and positive earnings outlook will continue to drive net debt to EBITDA lower to its target 3x level, at which point we expect RLGY to become more aggressive in its return of capital…while RLGY’s earnings will have cyclicality, we believe that the residential real estate recovery still has room to run, so we should see relatively steady growth for the next several years.”



Two brooms were hanging in the closet and after a while they got to know each other so well, they decided to get married.

One broom was, of course, the bride broom, the other the groom broom.

The bride broom looked very beautiful in her white dress. The groom broom was handsome and suave in his tuxedo. The wedding was lovely.

After the wedding, at the wedding dinner, the bride-broom leaned over and said to the groom-broom, “I think I am going to have a little whisk broom!”


(Sounds to me like she was sweeping around.)    





(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman. To subscribe please visit www.knowledgeforrealestateagents.com.)