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Real estate franchising giant RE/MAX reported that the number of open Motto Mortgage offices fell for the first time ever as franchise sales slowed and some existing franchisees canceled agreements.
Motto Mortgage, which launched in October 2016, does not originate loans itself, but provides technology, training and marketing tools to mortgage brokers who work with wholesale lenders such as UWM, the nation’s largest mortgage lender.
Rising mortgage rates are making times tough for the mortgage business. Motto Franchising LLC sold 27 franchise licenses in 2023, down from 64 in 2021, with 246 open offices for the year.
This year, the number of open-plan offices fell for the first time in company history. In the first half of 2024, Motto Franchising sold only nine franchise licenses, down 50% from 18 in the same period last year.
Motto Mortgage office count reaches peak
Open Motto Mortgage offices peaked at 246 in the fourth quarter of 2023 and have dropped to 239 as of July 31, 2024.
But the number of Motto Mortgage offices open this year has been declining as some franchisees have terminated their licenses and new franchisees need time to get up and running.
RE/MAX said in reporting second-quarter earnings that the number of Motto Mortgage offices open fell to 243 at the end of the first quarter, to 241 as of June 30, and to 239 as of July 31.
Motto franchise president Ward Morrison said that while Motto continues to sell new franchise agreements, there has been an increase in terminations “due to a number of different factors.”
Ward Morrison
“Obviously, due to the macroeconomic impact, the volume of loans in the market has decreased, and it has become more difficult for offices to obtain some loans,” Morrison said in a conference call with investment analysts on August 9. “They have to go out and scrap every day, try to refinance in the market, try to buy in the market.”
Morrison said some Motto Mortgage franchisees lacked the “capital” to stay open in this environment because of “their financial position, lack of trading, [or] Maybe they have nothing to do with real estate.
While Motto “has seen an increase in some terminations over the past year, we believe that when the macro economy changes, we will be able to begin to increase the number of open offices again and continue to maintain the same level of open offices that we had prior to the macro economy.” trend.
Another headwind to sustaining past office volume growth is the seven-year agreements franchisees sign with Motto Franchising, with 2024 being Motto’s first full year of updating offices.
In April, Motto Mortgage announced that two original Motto franchisees—Motto Mortgage Prosperity and Motto Mortgage Supreme—had renewed their licenses.
Motto has since announced the opening of Motto Mortgage Royal and Motto Mortage INVICTUS in Florida; Motto Mortgage is sailing home in New Hampshire; and Motto Mortgage Premier Pros in North Dakota.
RE/MAX revealed in its most recent annual report: “While not all Motto franchises have been successful, over the first six years of their existence, Motto franchisees have had a higher success rate than similar small businesses in the financial services industry. The average operating rate of the enterprise.
The average fee revenue generated per office by RE/MAX has climbed steadily over the years, from an average of $3,000 per month in 2019 to $3,700 per month last year. RE/MAX also provides third-party loan processing services to mortgage brokers through another subsidiary, wemlo, which recently processed its 6,000th loan “completed,” CEO Erik Carlson said.
Eric Carlson
“Reaching this milestone is exciting for the Wemlo brand because such growth validates the benefits of offering our third-party processing services to mortgage brokers,” Carlson said.
New offices are not required to pay a monthly fee to Motto Franchising for six months after purchasing a franchise license. After that, the cost gradually increases, up to a maximum of $4,650 per month after 13 months. According to RE/MAX, as of the end of last year, more than nine out of 10 offices (91%) were in the highest monthly fee tier.
RE/MAX increases mortgage income and losses
Source: Inman’s analysis of RE/MAX Holdings Inc. earnings reports.
RE/MAX’s Motto Franchising and wemlo businesses generated more than five times the revenue last year ($14 million) compared to 2018 ($2.5 million). But after gradually becoming profitable since its launch in 2016, the mortgage unit’s adjusted EBITDA losses have widened over the past three years and will rise to $6.9 million in 2023.
Revenues from the mortgage segment in the second quarter of 2024 were $3.68 million, an increase of 2% over the same period last year. But RE/MAX’s mortgage unit’s second-quarter adjusted EBITDA loss (earnings before interest, taxes, depreciation and amortization) was $1.68 million, an increase of 15% from the same period last year.
Mortgage revenue grew 7% to $7.3 million in the first six months of the year, and adjusted EBITDA loss was $2.8 million in the first half of 2024, a 30% decrease from the adjusted loss of $4.0 million in the same period in 2023.
Morrison said Motto did “receive some money” when the franchisee terminated the license, “so there was really a put and take.”
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