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Actual property franchising large RE/MAX studies that the variety of open Motto Mortgage workplaces is shrinking for the primary time ever as franchise gross sales gradual and a few present franchisees cancel their agreements.
Launched in October 2016, Motto Mortgage doesn’t make loans itself however gives know-how, coaching and advertising and marketing instruments for mortgage brokers who work with wholesale lenders like UWM, the nation’s greatest mortgage lender.
Elevated mortgage charges have made it a troublesome time to be within the mortgage enterprise. Motto Franchising LLC bought 27 franchise licenses in 2023, down from 64 in 2021, ending the 12 months with 246 open workplaces.
This 12 months the variety of open workplaces is in decline for the primary time within the firm’s historical past. Motto Franchising bought solely 9 franchise licenses within the first half of 2024, down 50 % from 18 on the identical level a 12 months in the past.
Motto Mortgage workplace depend peaks
Open Motto Mortgage workplaces peaked at 246 in This autumn 2023 and has declined to 239 as of July 31, 2024. Supply: Inman evaluation of RE/MAX Holdings Inc. earnings studies.
However the variety of open Motto Mortgage workplaces has been shrinking this 12 months, as some franchisees have terminated their licenses whereas new licensees require time to stand up and operating.
The variety of open Motto Mortgage workplaces dropped to 243 on the finish of the primary quarter, to 241 as of June 30, and to 239 as of July 31, RE/MAX mentioned in reporting second quarter earnings.
Motto Franchising President Ward Morrison mentioned that at the same time as Motto continues to promote new franchise agreements, there was a rise in terminations, “for many different factors.”
Ward Morrison
“Obviously, as the volume of loans decreased within the market due to the macro economy, it’s tougher for offices to get some of those” loans, Morrison mentioned on an Aug. 9 name with funding analysts. “They have to go out there and scrap on a daily basis to try and get refis in the market, try and get purchase in the market.”
Just a few Motto Mortgage franchisees have lacked the “wherewithal” to remain open in that setting, Morrison mentioned, attributable to “their financial position, a lack of deals, [or] maybe they are not connected to real estate.”
Whereas Motto has “seen some of those terminations increase during this past year, we feel like when the macro economy changes, we’ll be able to start regrowing that open office count and continue on the trend that we had prior to the macro.”
One other headwind for sustaining previous progress in workplace depend is that franchisees signal seven-year agreements with Motto Franchising, and 2024 is the primary full 12 months Motto has had workplaces come up for renewal.
In April, Motto Mortgage introduced two authentic Motto franchise homeowners — Motto Mortgage Prosperity and Motto Mortgage Supreme — had renewed their licenses.
Since then, Motto has introduced the opening of Motto Mortgage Royal and Motto Mortage INVICTUS in Florida; Motto Mortgage Sail House in New Hampshire; and Motto Mortgage Premier Execs in North Dakota.
“While not all Motto franchises succeed, over the first six years of their existence, Motto franchisees have had a higher success rate than the comparable average small business operating in the financial services industry,” RE/MAX disclosed in its most up-to-date annual report to traders.
The common charge income every workplace generates for RE/MAX has climbed steadily through the years, from a median of $3,000 monthly in 2019 to $3,700 a month final 12 months. RE/MAX additionally gives third-party mortgage processing providers to mortgage brokers by one other subsidiary, wemlo, which not too long ago processed its 6,000th mortgage “clear to close,” RE/MAX CEO Erik Carlson mentioned.
Erik Carlson
“Reaching this milestone is exciting for the wemlo brand because growth like this validates the benefits to mortgage brokers (of) providing our third-party processing services,” Carlson mentioned.
New workplaces pay no month-to-month charges to Motto Franchising for six months after buying a franchise license. After that, charges are ramped up by escalating tiers that high out at $4,650 a month after 13 months. Greater than 9 in 10 workplaces (91 %) have been within the highest month-to-month charge tier on the finish of final 12 months, RE/MAX reported.
RE/MAX grows mortgage income and losses
Supply: Inman evaluation of RE/MAX Holdings Inc. earnings studies.
RE/MAX’s Motto Franchising and wemlo companies generated greater than 5 occasions as a lot income final 12 months ($14 million) as they did in 2018 ($2.5 million). However after inching towards profitability since launching in 2016, the mortgage section’s adjusted EBITDA loss has been rising bigger for the final three years, rising to $6.9 million in 2023.
At $3.68 million, Q2 2024 income from the mortgage section was up 2 % from the identical quarter a 12 months in the past. However RE/MAX’s mortgage section posted a $1.68 million adjusted EBITDA loss (earnings earlier than curiosity, taxes, depreciation and amortization) for Q2, up 15 % from the identical quarter a 12 months in the past.
For the primary six months of the 12 months, mortgage income was up 7 % to $7.3 million, and the $2.8 million adjusted EBITDA loss for H1 2024 was 30 % lower than the $4 million adjusted loss on the identical level in 2023.
Morrison mentioned Motto does “pick up some money” when franchisees terminate their licenses, “so that does sort of have a put and take.”
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