Re/Max International, Inc. Business Information, Profile, and History

Company Perspectives:

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History of Re/Max International, Inc.

RE/MAX International, Inc. is one of the largest real estate companies in the world. RE/MAX specializes in residential real estate transactions, operating a franchise network comprising more than 4,600 offices located in 44 countries. RE/MAX sales agents receive 100 percent of the commission on their home sales rather than the traditional 50 percent received by agents working in conventional brokerage firms. The company's compensation system attracts top selling agents whose earnings are sufficient to pay for monthly franchise fees and other overhead expenses.

Origins

Dave Liniger's entrepreneurial career sent a shock wave of change throughout the real estate industry, but it began as a near failure, making for one of the most triumphant comeback stories in the history of late 20th-century business. Liniger grew up in Marion, Indiana, and attended the University of Indiana before dropping out of college. He joined the Air Force, which stationed him in Phoenix, Arizona, the birthplace of the real estate concept that Liniger would use to create a multibillion-dollar enterprise. Liniger's introduction to the real estate business occurred while he was in the Air Force. At age 19, he bought a house in Tucson, Arizona, remodeled it, and sold it for a $4,000 profit. Encouraged by his success, Liniger threw himself into his new line of work, using his salary from the military as down payments for properties and remodeling them for a profit. By the time he was 24, Liniger owned 20 single-family homes.

After securing his real estate license, Liniger joined a brokerage firm in Phoenix. He flourished as a sales representative, becoming the firm's top sales agent. Next, he moved to another Phoenix brokerage firm, a move critical to the future success of RE/MAX. Although Liniger spent only three months at his second Phoenix brokerage firm, it was there that he learned of the 100 percent commission concept. At a conventional brokerage firm, sales agents split their commission on sales with the brokerage's owner, who paid for rent, advertising, and other overhead expenses. At the Phoenix brokerage where Linger worked, sales agents received the entire commission and paid the office's overhead expenses together. It was a compensation system that placed greater financial responsibilities on the sales agents, but one that allowed top sales agents to garner a greater share of the profits produced from property sales.

After his three-month stint in Phoenix, Liniger moved to Denver, Colorado, arriving in October 1971. The sales skills he demonstrated in Phoenix rose to the fore in Denver, where Liniger excelled as a real estate agent and quickly established himself as a multimillion-dollar salesman. Liniger enjoyed resounding financial success in Denver, but after having experienced the rewards of the 100 percent commission concept, he disliked giving away 50 percent of his commission. Liniger's frustration spurred his desire to start his own company, one based on the concept under which he had worked in Phoenix. The 100 percent commission model was suited perfectly for sales agents of Liniger's caliber. Part-time agents, or those who recorded fewer sales, could not afford to pay for their own overhead expenses. The 100 percent commission system favored those at the top of their profession, the superstars of real estate sales. To make his entrepreneurial venture work, Liniger needed real estate agents modeled after himself, a legion of top-rated sales representatives who would inject the vigor his fledgling company would need to succeed. Theoretically, Liniger's business model promised success, but the practical application of the 100 percent commission system under Liniger's direction floundered profoundly at its start.

Liniger needed money to start his business, a company he named RE/MAX--an acronym for "real estate maximums." To obtain the financing, Liniger relied on his sales skills, acting as a pitchman for the lucrative potential of a nationwide real estate business predicated on the 100 percent commission model. Liniger convinced five Denver developers to invest $300,000 in his venture. Once he had their word that the money would be available, Liniger contacted a local personnel office to help him find his first employee. By his own admission, he lacked marketing experience and the ability to turn his venture into a nationwide business without help. The personnel office sent him a dozen candidates and Liniger rejected each one. The personnel office sent him a dozen more candidates and, again, Liniger rejected each one. Liniger interviewed still more applicants before he was satisfied. The 28th applicant was his future wife Gail, who was hired as RE/MAX's executive secretary. A St. Louis native, she had received a marketing degree from Southern Illinois University, which landed her a job at Ralston Purina Company, where she served as a customer service supervisor for five years before meeting Liniger. The pair, occupying an office in Denver, set out in 1973 to make RE/MAX a reality.

Troubles from the Start: RE/MAX in the Early 1970s

The business started promisingly, with David and Gail Liniger proving to be an energetic force. They opened eight offices in one month, but the company soon was beset by the first of numerous difficulties. The Arab oil embargo delivered a severe blow to Denver's real estate market in the fall of 1973, prompting Liniger's financial backers to withdraw their promise of $300,000. The developers found themselves strapped for cash by the collapse of the Denver real estate market, and Liniger found himself with eight real estate offices under his control and no money to sustain operations. Further, his business model depended on recruiting the region's most successful agents, which Liniger had failed to do. "We interviewed 204 agents the first month that we were trying to kick RE/MAX off," he explained in an April 1990 interview with Nation's Business. "But only four agents signed up--and they weren't the four best ones." Not surprisingly, those agents who were the market leaders in their profession were unwilling to uproot themselves and join an upstart brokerage. Before long, RE/MAX was incurring $30,000 to $40,000 a month in negative cash flow. From there, the situation worsened.

Liniger's debt mounted, leaving RE/MAX teetering on the brink of collapse. He was unable to pay quarterly federal withholding taxes, which prompted the Internal Revenue Service (IRS) to padlock all of the company's offices. Liniger prevailed in convincing the IRS that the only way the government could hope to get its money was to unlock his offices, but government officials were not the only ones demanding payment. The company was inundated with calls, as its debt reached $780,000. Creditors were demanding payment, but Gail Liniger was able to stave off their pleas for money while David Liniger worked furiously to recruit agents. By the end of the company's first year, the Linigers had 21 sales agents under their employ.

The couple's eventual success in recruiting a small number of top-selling sales representatives yielded a sense of stability, but also created its own problems. Denver brokerage firms eyed RE/MAX warily, becoming increasingly worried about the emergence of a new compensation scheme that threatened to seduce their best employees into leaving. Against the backdrop of this reputed fear, RE/MAX was beset by a flurry of damaging rumors. The company was accused of engaging in illegal stock offerings, that its sales agents were illegally dealing in government-backed mortgages, and that Liniger was using home buyers' escrow accounts to pay for existing bills. Before long, RE/MAX found itself the object of intense scrutiny. The Federal Bureau of Investigation and the Securities and Exchange Commission launched concurrent investigations into RE/MAX's practices. The state Real Estate Commission conducted its own investigation, dispatching auditors once a week for six months to examine RE/MAX's books related to escrow accounts. Each investigation failed to find any wrongdoing, but the company could ill-afford the negative publicity.

RE/MAX's arduous start tested the perseverance of the Linigers. The troubles also forced David Liniger to make one important alteration to his original plans for expansion. From the start, he wanted to create a nationwide network of RE/MAX offices that he alone owned. Financial constraints, however, led him to embrace a new mode of expansion: franchising the RE/MAX concept. Initially, Liniger's attempt to franchise the 100 percent commission concept failed; yet another problematic start endured by RE/MAX. Liniger tried to convince independent brokers to convert their offices to RE/MAX offices, but most agents were unable to pay for the monthly franchise fee and overhead payments. His attempts to expand failed until 1977, when he tried a new strategy. Liniger began selling franchises to entrepreneurial brokers who started their RE/MAX offices from the ground up. The strategy worked, as the company recruited 316 agents in 1977, nearly twice the number of agents who had joined RE/MAX during the previous four years. In an April 1990 interview with Nation's Business, Liniger explained the turnaround in the company's fortunes: "Our cash flow exploded, we took over the Denver market, we paid off our debts, and the rest is history."

After years of struggle, the RE/MAX concept began to demonstrate tremendous market strength and acceptance. Expansion carried the RE/MAX name across the nation, as the company built up its presence in cities such as Chicago, Dallas, and Atlanta. In 1980, RE/MAX expanded into Canada for the first time and quickly recorded astounding success. By 1986, the company dominated the Canadian residential real estate market, part of a systemwide network consisting of 11,500 agents.

By the end of the 1980s, RE/MAX stood as a towering real estate giant. The company had passed Coldwell Banker in the industry rankings, trailing only Century 21, the largest broker of residential properties in North America. As the 1990s began,

Chronology

• Key Dates:
• 1973: David Liniger opens the first RE/MAX office in Denver, Colorado.
• 1977: A new franchise strategy spurs growth.
• 1980: RE/MAX expands into Canada.
• 1991: RE/MAX enters the Caribbean Basin.
• 1995: RE/MAX expands into Africa and Europe.
• 1997: RE/MAX sales agents record more than one million transactions, the most recorded by any real estate network.
• 2003: The network of RE/MAX sales agents includes more than 80,000 representatives. Liniger's prognostications of RE/MAX's potential growth typified the confidence exuding from the company's management. Liniger predicted his company would not stop growing until there were 80,000 RE/MAX sales representatives working in the United States, at which point, he estimated, his company would account for 35 percent of all residential real estate transactions in the country.
• During the 1990s, RE/MAX expanded aggressively, as the company completed its first 25 years of existence. In 1993, after several years of negotiations, the company made a bold move overseas. RE/MAX signed an agreement for offices to be opened in 28 European countries and in Israel. First, the company expanded into Austria, Israel, and Holland, with its second wave of expansion targeted at England, France, Germany, and Spain. At roughly the same time, the company began forging agreements for its Pacific operation, with Japan, Korea, and Thailand slated for penetration.
• RE/MAX celebrated its 25th anniversary in 1998 as a formidable competitor in the global residential real estate industry. International expansion, which began in earnest in 1995, had extended the company's presence into the United Kingdom, Mexico, Australia, Turkey, South Africa, Singapore, Israel, and the Caribbean. Systemwide, there were 2,883 franchises operating in 22 countries. Sales agents, who had been difficult to recruit a quarter-century earlier, flocked to the "real estate maximums" concept, numbering more than 50,000 by 1998. The ranks of RE/MAX sales representatives constituted the upper tier of real estate agents, a body whose level of success far outstripped the performance of its peers. In 1998, the typical RE/MAX agent earned nearly $80,000 in gross personal income, more than three times the industry median income.
• As RE/MAX entered the 21st century, the company's expansion continued, creating a massive franchise network that spread across the globe. By 2001, the company's largest overseas operations were in Spain and South Africa, but the company also enjoyed success in a host of other regions, including the Middle East, where there were 77 offices and 405 agents in Israel and Turkey, and in Australia, home to 53 offices and 247 agents. By 2003, the entire RE/MAX network included more than 4,600 offices in 44 countries, with more than 80,000 sales agents working under the "real estate maximums" concept. In the years ahead, the company's redoubtable domestic strength and its growing international presence promised to ensure that the RE/MAX name would remain a leading force in the industry.