Tactics of fast-growing Re/Max anger other brokers

September 15, 1991|By Jim Carlton | Jim Carlton,The Wall Street Journal

KANSAS CITY, Mo. -- Earlier this year, Re/Max International Inc. proudly announced that its local office had overtaken Coldwell Banker as this metropolitan market's top residential real estate broker. Coldwell denied it, and promptly accused Re/Max of using misleading figures.

Considering the animosity Re/Max has generated in the residential real estate market in the past 18 years, Coldwell's response was relatively mild. Dennis Curtin, now Re/Max's Middle States regional manager, says he received threatening letters and phone calls when he brought the first Re/Max franchise to Kansas City. "One caller said, 'Be careful, don't turn your back,' " Mr. Curtin says.

That's more typical of the reaction Re/Max, the country's fastest-growing real estate chain, has come to expect from other brokers. As Re/Max has expanded from one office to 1,800 across North America, the company has enraged many established brokers by raiding their shops for top agents. Even worse, as they see it, Re/Max is undermining the whole real estate brokerage system by paying agents 100 percent of their commissions in exchange for an annual fee.

They're vultures who feed on us," says Wesley Foster Jr., president and chief executive officer of Long & Foster Real Estate Inc. in Fairfax, Va.

Although Re/Max's growth, like that of most real estate companies, has slowed over the past 18 months, the company continues to report higher sales volume and to open new offices. Yet, even as it challenges Century 21 Real Estate Corp. for the position of America's No. 1 residential broker in number of transactions (Re/Max is already the leader in Canada), the company is also becoming a victim of its own success.

Some Re/Max agents complain of a cutthroat environment in which colleagues try to steal customers or even for-sale signs. Clones of Re/Max are grabbing agents and listings. The firm has saturated some markets, such as Denver, Chicago and Washington, D.C., where as many as four Re/Max agents from different offices sometimes show up at the same house seeking the listing. And traditional brokers have started matching the same 100 percent commissions for some agents.

But the man who created and now runs Re/Max isn't worried. "I'm a fairly competitive person," says David L. Liniger, 45, who opened the first Re/Max office in 1973 and is now chairman of the private company. "The more people try to stop us, the more it becomes a personal challenge."

Mr. Liniger, a short, stocky dynamo who talks incessantly, has shaken up the way real estate agents operate in North America. Instead of paying Re/Max's 29,000 agents part salary and part commission, Mr. Liniger's independent franchise owners pay them no salary but allow them to keep 100 percent of their commissions. Most traditional brokerage firms split commissions -- typically about 6 percent of the sale price -- with their agents.

In exchange for getting the entire commission, Re/Max agents pay a yearly fee averaging $18,000, and sometimes additional amounts, for marketing, classified advertising and back-office expenses. Re/Max's headquarters and regional offices receive about $1,200 of the yearly fee.

Although some professionals, such as doctors, lawyers, architects and a handful of real estate agents, have operated on this kind of commission system for years, it didn't take hold in the real estate industry until Mr. Liniger came along. The most powerful brokers hated the idea and rallied their agents. Mr. Liniger broke down those barriers with a combination of perseverance and pugnacity.

"I guess I grabbed a bigger vision than others did," he says.

Mr. Liniger and his wife, Gail, have built Re/Max into a network of offices serving almost every major market in the United States, with heaviest concentrations in big cities, the Midwest and California. While other top franchise brokers averaged an annual growth rate of 9.9 percent between 1984 and 1989, Re/Max grew 20 percent a year. That growth has slowed now, but rankings published by the newsletter Real Trends show Re/Max still posted an 8 percent gain in U.S. sales in 1990, with volume of $49.25 billion, while every other major firm had a flat year or shrank.

Moreover, Re/Max has a dominant share of the nation's best agents. Re/Max agents average $2.6 million in yearly sales, far higher than the $1 million averaged by agents for Century 21, a unit of Metropolitan Life Insurance Corp.

"This man [Liniger] is considered as a kind of god by agents," says Bill Echols, vice president of Re/Max's huge California region.

Mr. Liniger declines to disclose financial results, but regulatory filings for 1989, the latest available data, show that revenue from the sale of franchises, which cost between $17,500 and $25,000, dropped to $1.3 million from $1.7 million in 1987. Re/Max's 1990 performance fell far short of its own projections for both agents and number of transactions, says a company executive.

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