Thanks to its unusual compensation system, Re/Max has many of the best people in real estate clamoring to sign up.
LOTS OF HIS COMPETITORS assume that they understand what Dave Liniger is doing with Re/Max International Inc., his internationally franchised real-estate business. Their assumptions, however, in many cases mislead them.
Likewise others outside of real estate have concluded that what they think this transplanted Hoosier is doing in his business wouldn't work in their own. They ought to think again.
Liniger has built his company around a compensation system that appears to attract the best industry breeds into his business -- and to hold them there. Sixteen thousand Re/Max agents are, as Liniger likes to say, in business for themselves but not by themselves. Few have any financial incentive to leave Re/Max to set up a competing firm.
The skeptics' premature dismissal isn't hard to understand. The Re/Max compensation concept sounds terribly simple: the agent who handles the sale of a property keeps the commission -- all of it. He doesn't split it 50-50, or even 80-20, with the owner of the real-estate agency. He just keeps it -- and pays the expenses incurred.
"Oh," says a competing broker whom I asked about Re/Max, "you mean rent-a-desk? They never work."
Right, they don't -- at least not for long or very well. Liniger borrowed his idea from a rent-a-desk agency that he once worked for. It's still around but hasn't grown substantially. Between a rent-a-desk operation's owner and his agents there's no support, no encouragement, and no soul to an association that is strictly contractual.
So how come Re/Max is doing so well? Why, with only 22 of the 5,000 real-estate agents operating in Orlando, did one of the Re/Max agencies there account for 3% of the transactions completed during February? Or how come in the Denver market and in parts of Canada, where it's been established the longest, Re/Max handles 20% and more of the residential housing sales? And how come last year Re/Max, which wasn't even doing business yet in New York City and had only a toehold in other Northeast markets, accounted for 287,500 completed residential real-estate transactions, behind only Century 21 Real Estate Corp.'s 700,000 and Coldwell, Banker & Co.'s 313,850?
Maybe people don't appreciate what Liniger is really doing because the concept, while it is a radical departure from the way most service businesses compensate their employees, is too simple -- misleadingly so. But given the numbers he has produced, it seems odd to argue, as many conventional brokers do, that Liniger's compensation plan just doesn't work. Re/Max International sure looks like a success. You'd think the doubters would at least wonder why.
Since Liniger opened the first office in Denver in 1973, Re/Max has grown, as of February, to 14,909 sales associates working from 1,017 franchised offices in the United States and Canada. By Liniger's count, Re/Max agents participated in residential real-estate transactions worth $24.4 billion last year, a 55% increase over 1985. Liniger and his wife, Gail, own 97% of the Denver-based franchisor, Re/Max International. Its gross revenues, which depend more on the number of agents in the Re/Max system than on the value of the Commissions they generate, exceeded $7 million last year, by INC.'s estimate. Liniger will say only that they continue to grow 40% to 50% annually. He claims the company has shown a profit each year save one since 1977.
When you ask Liniger, chubby and scrubbed-faced at 41, what makes the company work, he sits you down at the end of a long, polished wooden table in his commodious conference room, dims the indirect lighting, and presses a single button. A curtain slides open and nine computer-controlled rear-screen projectors silently throw to the wall a mosaic of images and graphics that fade into one another, overlap, grow large, disappear, reappear again. Re/Max, the wall would have you believe, is the corporate hot-air balloon fleet, a slogan ("Above the Crowd"), conventions, advertising support, franchisee services, referral networks, relocation programs, training, seminars, and awards banquets.
Very impressive and the wall doesn't lie. Re/Max is all those things today -- just like other real-estate franchises that distinguish themselves by the color of their blazers or the design of their signs. But those things can't account for Re/Max's growth, because 10 or 12 years ago, when the growth was just beginning, the company had none of them. All Liniger had in his kit back then was a compensation concept. After the slide show, when he talks without the fancy packaging, you find that that's what he's still selling today.
His market? Not the real-estate buying-and-selling public, but the brokers and agents who service them. "We're in the real-estate salespeople business," says Liniger. The distinction is an important one.
To appreciate the appeal -- to broker and agent alike -- of the Re/Max system, you need to spend a minute with the microeconomics of the real-estate business.
In a typical residential sales office, agents, or sales associates, work on commission. Actually, they work on partial commission. When an agent generates a commission in a transaction, she or he keeps roughly half of it. The other half belongs to the house -- the broker who owns the agency.
How much does a sales associate take home? The National Association of Realtors (NAR) doesn't calculate an average annual gross income figure for agents, but the Washington, D.C.-based trade association does publish extensive survey-generated data. Using the NAR numbers for 1985 (the most recent survey), you can figure that the average (full-time equivalent) agent's share of the commissions she generated that year was $14,475.
The other half of the commissions went to her employer, who, after expenses, earned an average of $58,543 in 1985. That figure includes the firm's entire net income and the employer's own salary but none of the commissions income he might have generated himself.
So, according to the NAR survey, the average real-estate agent is probably shopping with food stamps, and her boss, while doing considerably better, is in no danger of achieving a perch on the Forbes 400.
Some sales associates, however, earn a great deal more than the average. Verna Parfeniuk, for instance, took home $160,000 last year, which was extraordinary even for Parfeniuk, the top producer in the Winnipeg, Manitoba, agency where she had worked for 14 years. More fortunate than most agents, Parfeniuk enjoyed a 60-40 commission split. But it still galls her that she had to hand $4 of every $10 she generated in commissions over to her agency -- even after she had more than covered the expenses that the agency had incurred on her behalf. What were those expenses?
