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Tactics of fast-growing Re/Max anger other brokers

THE BALTIMORE SUN

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.

Mr. Liniger attributes the slowdown to general industry sluggishness as well as the firm's launch of a corporate relocation program. But Stephen H. Murray, a Denver-based industry consultant, says the numbers also reflect rising competitive pressures on Re/Max.

Nonetheless, Re/Max is a force to be reckoned with, mainly because of Mr. Liniger's drive. A Vietnam veteran who says he has had an "extremely high" energy level since childhood, Mr. Liniger started his real estate career by buying a repossessed home in Tucson, Ariz., in 1966 for $350 and selling it 18 months later for a $4,000 profit. After learning about the 100 percent commission concept from an Arizona broker for whom he worked, Mr. Liniger moved to Denver in 1973 at the age of 26 to launch the concept nationally.

Mr. Liniger confidently predicted that Re/Max, short for Real Estate Maximums, would one day hire thousands of agents. And his first hire, Gail Main, was a coup. Ms. Main, who had a marketing background, provided the managerial skills Mr. Liniger concedes he lacks. Mr. Liniger also got some local developers to bankroll his plans for eight offices.

Then things started going badly. Sitting in a rented office, yellow pad on table, Mr. Liniger and Ms. Main interviewed 204 prospective agents. Only four signed on. "All we had was an idea and a pad of yellow paper," Mr. Liniger recalls. "We told people we thought it would work. But everybody wanted to stand around on the sidelines and wait for us to prove it."

Eventually Re/Max staffed several offices, but then the 1974 recession hit. Awash in debt, Mr. Liniger and Ms. Main made the near-fatal error of paying their office bills instead of their quarterly withholding taxes. "One day out of nowhere the IRS came down and padlocked all of our offices," Mr. Liniger recalls.

In a classic case of Liniger salesmanship, he spent a long day trying to persuade the IRS to let him reopen his business and pay the arrears in installments. "I pleaded with them, I begged them. I did everything but cry," he says, and he emerged victorious.

Five years after Mr. Liniger started his company, he says, 70 of the 204 agents he had interviewed at the beginning had joined him. "I just got caught up in it and worked 18 hours a day," he says.

He had to. Other brokers didn't take kindly to Re/Max's main growth strategy -- raiding other firms with an aggressiveness uncommon even in their business. In Chicago, a Re/Max broker sent out Re/Max business cards to prospects, each prospect's name engraved on them. In Denver, William Moore, president of Moore & Co. Realtor, spotted a Re/Max manager in Mr. Moore's own offices trying to recruit an agent. "I lifted him out of his chair and showed him the door," says Mr. Moore, who has lost some 60 agents to Re/Max.

Says Mr. Foster, the president of Long & Foster: "They are unbelievable. They will not hire new agents, while we do. They pick the best agents in other companies, and they woo them day after day after day, with calls, flowers and even cruises. It's almost like a cult."

As Re/Max prospered, Mr. Liniger's personal life also flourished. The relationship between Ms. Main and Mr. Liniger had evolved from a business partnership to what one friend called "the world's greatest love affair." But in 1983, a week before they were to be married, Ms. Main was seriously injured in a seaplane crash. When Mr. Liniger got to the hospital, she lay in a coma, and the prognosis was bleak. "For days on days, he would tell her how beautiful she was," says Mr. Curtin, the Middle States manager. "Finally, the doctor came in and said, 'Son, you're going to drive yourself crazy. She's not going to make it.' Dave got up and threw the doctor out and got another one."

After three weeks, Ms. Main regained consciousness and began extensive therapy. The two married, and today, although still partially paralyzed on her left side, Mrs. Liniger, 46, is the company's chief executive officer.

By the mid-1980s, Mr. Liniger had finally achieved critical mass. His organization was big enough to convince the top agents that he was going to survive. The money was enticing: Big producers might be paying Re/Max a fifth or less of what they had been giving their former broker-owners in shared commissions.

Given its continuing growth, most analysts say it's only a matter of time -- possibly within two years -- before Re/Max overtakes Century 21 in U.S. transactions. Richard J. Loughlin, Century 21's president and chief executive officer, won't throw in the towel, predicting that Re/Max will soon peak.

"Saying they will be No. 1 is a fine way to hype a system, but it's not something we're worried about," Mr. Loughlin says.

A bigger challenge for Re/Max may be the sudden explosion of real estate companies that are run like it. Two and a half years ago, two top Re/Max managers, David Rose and Jeff Asquith, broke away to form a clone called RealStar Real Estate in Arlington Heights, Ill. It has grown to 67 agents, and Mr. Rose and Mr. Asquith say a third of them come from Re/Max.

"Re/Max is a fine organization, but we felt that what was lacking more than anything else was support," says Mr. Asquith, a nine-year Re/Max veteran. "Re/Max provides the desk, a telephone and a name. But the salespeople literally sink or swim on their own."

Of the clone problem, Mr. Liniger says, "We understand that we're going to be imitated, but it's awfully hard to catch up to somebody who's growing as fast as we have been."

Within Re/Max, there is discontent among some agents.

The atmosphere in the offices is said to be like a shark tank. Although gathered under one roof, the agents, most of whom have been among the top producers at other firms, operate like )) independents. While other organizations may encourage unity and teamwork, at Re/Max it's strictly a numbers game, and it's every agent for herself.

In northern Virginia, Deborah Earman says she returned to Long & Foster after an unhappy year at Re/Max. While she made more money at Re/Max, Ms. Earman says, she had to lock up yard signs, contract documents and other items that Re/Max agents had to pay for. And agents didn't socialize. "I didn't like it because the camaraderie wasn't there," she says.

Lynn Alexander, another Long & Foster agent, says she jumped to Re/Max in 1989 just as the D.C.-area market was declining. A single mother with two sons entering college, she says paying a monthly fee with decreasing production proved too costly.

"It's just an added pressure in an already high-pressure business," she says.

Re/Max executives say they lose proportionately fewer agents than other brokers and that the shark-tank atmosphere is a myth perpetuated by jealous competitors.

In Woodland Hills, Calif., Re/Max agent Mark Litman says he was concerned about expenses when he joined a year and a half ago.

"But once I added up all the expenses, it still came out to about 8 percent to 10 percent of my gross commissions," he says. "So if you're producing, there's absolutely no reason why you should not be with Re/Max."

Partly to boost morale, Mr. Liniger has embarked on a 47-city tour to speak to his agents. And Re/Max hasn't lost its competitive drive. It scheduled its annual convention in Las Vegas this year to coincide with Century 21's, which was held at a nearby hotel. Re/Max insists the timing was coincidental. Century 21 executives complain that Re/Max brokers invited their agents to Re/Max parties.

"If we happened to run into each other in a casino," asks Richard Hegner, co-owner of Re/Max's northern Illinois region, "who can say what may have happened?"

Reprinted by permission of The Wall Street Journal 1991 Dow Jones & Co. Inc. All rights reserved

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