I mean, there are portals in this industry. There are large brokerages. There are MLS’s. There are a number of third parties who work with this ecosystem from a data standpoint. And so, I think we’ll all have a lot more clarity in kind of six to 12 months both on how the ecosystem will evolve, how each of those different players will play in the ecosystem and even how companies will make kind of different choices. So it really is too early and we – some of that stuff is supposed to be sorted out over this summer. So I think we’ll have more – at least some more clarity in the next time we talk to you. But hopefully you can feel that we’re not just watching the issue closely, but we clearly have some hypothesis and are kind of doing some game theory about what we do think we want to do.
And again most important thing is we’re charging ahead with our agents and their customers to make sure their set up for success with buyer agency agreements, which we think are great and we think they are actually going to be helpful to us.
Tommy McJoynt : That makes sense. Thanks. And then, switching gears, in your pro forma illustration on Slide 22, it looks like it sort of implies a 30% increase in transaction volumes just going from 4.1 to call it 5.2 at the midpoint existing home sales. What’s the impact on commission splits that you’re using in this analysis to get to the $500 million to $600 million of EBITDA? I guess it’d be helpful relative to the 80.2% that you did in 2023?
Charlotte Simonelli : Yeah, there is a modest increase implied that’s normal with volume increases, but it’s not anything material. It’s not a – it’s not like 50 or 100 basis points of an increase. It’s more of a modest increase.
Tommy McJoynt : So transaction volumes increased 30%, commission splits would increase less than 50 basis points? Is that kind of what I’m hearing correctly?
Charlotte Simonelli : I’m not, like I’m not just disclosing the exact number used in our pro forma, but yes, it’s a modest increase.
Tommy McJoynt : Okay. Thank you.
Ryan Schneider : And remember that those numbers will be different depending on where you’re starting, right? You’re going to – you could have the same increase in units, but if you started at 5.5 million to 6.5 million, you would get some different numbers than if you start in this kind of record kind of low area with the trends that we’ve seen whether it’s kind of the stabilization we’ve seen or even in today’s world what with this past quarter, one of our brands had commission splits go down again, we’ve referenced that before. So, it’s a – there is a little less extrapolation on that thing maybe you are thinking, but I think Charlotte has got a good grasp on this and hopefully this kind of pro forma gives you a sense of just the financial octane to some of our cost work would give us in a more normal housing market, as well as the octane just a more normal housing market would give us.
Charlotte Simonelli : Then keep in mind like the bigger thing here is that we’re assuming the similar competitive environments, right? The volume is only going to create a modest increase in commission splits but something changes in the competitive environment that would be different. Like that’s what – that is what drove much more increases to our commission splits over time.
Tommy McJoynt : Got it. Thank you.
Ryan Schneider : Thanks, Tommy.
Operator: You next question comes from the line of Ryan McKeveny from Zelman & Associates. Your line is open.
Ryan McKeveny : Hey, good morning. Thank you for taking the question. I know commission rates have been discussed a lot. But just one final one on that. I’m not – I know a lot of factors can move that a little bit here and there. But if we look at just the quarter’s results, it looks like the small movements lower call it one to two BPS in franchise and brokerage. I guess, what would you attribute that down tick to?
Ryan Schneider : Yeah, frankly, in our brands business for example, we were down two basis points frankly driven by an increase in higher priced homes. In our owned brokerage business we were flat. And then remember last year, ABCR actually increased two basis points for the full year. And again that was really driven by the price mix of homes. So the real thing, Ryan, we keep seeing the move in the number around albeit quite small numbers these days is kind of the mix of homes that we’re selling and just because there is a pretty good range about what ABCR is depending on the price of the – for the home with more expensive homes having lower ABCRs.
Charlotte Simonelli : And in the first quarter, we tend to see that that results also sometimes due to the amortization, if you’re talking about ABCR and the brands business driven by amortization of like prior payments and other things over a smaller base.
Ryan McKeveny : Got it. Okay. That makes sense. And then, on the franchise side, you called out the strength in the share gains at Sotheby’s which is good to hear. I guess more broadly across the franchise network, obviously, very tough housing market. I guess, anything you could share about the general financial health or performance of the actual franchisees? And maybe some thoughts around how things like new franchise sales and renewals are going?
Charlotte Simonelli : Yes, as far as the health of the franchisees, we’re pretty much in a similar place to where we’ve been over the last, I don’t know sort of five to six quarters. And there is a process that we take when the market gets much softer that we’re sort of on top of it on a weekly basis on we’re analyzing things. We’re talking with our franchises. We’re helping them to make sure that they’re making the best decisions to run their business. So that they stay at a healthy spot. So, while the – while we are a little bit worse from a bad debt perspective, then we would have been in a super healthy housing market. It’s pretty stable actually. So, there’s always some things that one quarter could be some franchisee versus another one.
So things come in and out. On the whole, we’re sort of holding our own right now and that’s because we go through a lot of efforts to make sure that we’re putting our best foot forward to help our franchisees throughout this time.
Ryan Schneider : Yeah, I mean, I think that’s flat to a year ago and having gone through a tough year and have it be flat that’s a good thing. On franchise deals, we’re really excited and we’ve talked about this before. We had a record year of franchise sales in 2022 and I talked about kind of the flight to quality is the markets got bad. And we really saw that effect then, ’23 was a solid year for us. But, starting in the fall, when we settled our litigation, we got a big increase in kind of inbounds and interest. And I think it comes down to the questions that multiple people have asked here, which is, if you’re going to navigate an uncertain future how are you going to do it? Well, one way to do it is to – is to be with an industry leader who has hopefully shown some foresight and delivered, like I talked about things that help drive their profits up, their costs down, their insights up, provide the technology.
And so, we like the franchise sales fair amounts or feeling right now from both the value prop we have, but also the kind of flight to, call it, quality in this kind of uncertain future.
Ryan McKeveny : That’s helpful. And if I could squeeze one more in on the on the listing side. Ryan, you talked about the growth that you saw in the first quarter and obviously industry-wide data shows a similar uplift in inventory from a low base. And I guess, it seems to suggest that maybe the lock-in effect on homeowners had lessened a bit. So I’m curious if that’s your sense whether things I don’t know life events, other reasons for movement are happening. That’s offsetting the rate lock dynamic. And then more recently with interest rates moving much higher again in April, I guess any indications of homeowners or prospective sellers kind of moving back to the sidelines given the rate moves or does it seem like those who want to sell are still kind of sticking with their listing plans? Thank you.
Ryan Schneider : A lot of things in that question. My quick answer is, I don’t think a 4% increase in listings often incredibly blow base means the lock-in effect has loosened. I mean, it’s like – it’s like a 2% or 3% increase in home sales. Yeah that’s better than a decline, but it’s like off such a low base is still horrific kind of relative to history. So, I don’t think the lock-in thing has changed. I think people who do want to sell are selling. But it’s had some pretty historical levels. For us, the thing I think we are more excited about was, the fact that there is a lot more listings on the luxury side and because we have more share and better economics and more success there. The fact that those listings were up like 16% for us, like, wow, that’s good.
That’s taken some share in luxury, continuing the trend of Sotheby’s International Realty outperforming. But I don’t take too much comfort from the relatively small increase in listings vis-à-vis the lock-in effect, especially since a lot of the volume increase is still just price-driven across our portfolio and in the industry numbers.
Ryan McKeveny : Got it. Yeah, makes sense. Okay, thank you very much.
Ryan Schneider : Thank you, Ryan.
Operator: Your next question comes from the line of John Campbell from Stephens Inc. Your line is open.
Jonathan Bass: Hey guys. This is Jonathan Bass on for John Campbell. I wanted to quickly touch on TRG’s recently announced acquisition of Doma. What kind of potential do you guys see there with Doma? And do you feel like it can improve attach rates over time?
Ryan Schneider : So, just for clarity, so, TRG see is a – we are a minority player in that. That used to be our underwriter. A couple of years ago we did a deal with Centerbridge that we really like where we sold 70% of it, we took $210 million of cash and now we own that kind of piece of it. And since then, we like what they’ve done with the business, right. They brought in Berkshire Hathaway. They brought in Opendoor. They’ve brought in now with the Doma acquisition. Lennar is now part this thing and the valuation has gone up. And so, at the end of this all, we still think there is a chance that our stake in this will be worth more than it was when we own this thing. So we are very excited about that and we are really ready for them.
But I really can’t speak for them too much, but if you look from where we sit as a minority player here. This is a chance for TRG to be a top five player in the market, expand their presence into both homebuilders and mortgage origination distribution channels and then they can increase their market share in places like Florida and Texas. And I think the transaction they expect to close latter half of this year, they got to do all kinds of closing stuff. And like I said, Lennar is going to make an equity investment in this joint venture that we are a minority player in. So we’re not really in the driver’s seat on this one per se, but we’re obviously very excited for them to be successful and hope that helps answer your question.
Jonathan Bass: Yeah. Thank you. And then, maybe a change of gears here, but could you give us the latest business trends for Cartus and maybe how that’s changed over the past couple of years?
Charlotte Simonelli : Yeah, so, as I sort of mentioned in the script, Q1 was definitely softer than Q1 of last year, but Q1 of last year still held some pent-up demand from prior softness. It’s a very sort of cyclical business too. And it’s kind of tied to what our clients are doing. And the macro is impacting our clients, which is having them pull back on some relocation. So, I think we still feel very good about our share and how our business is performing relative to others. But it was definitely much softer from a client initiation perspective. I think that business tends to come back pretty quickly when the macro comes back. So we’ll see when that happens. I think we think for this year like it’s going to be a TBD. I think we’re planning for sort of a modest business this year.
But that can all change on a dime, because it’s really dependent on the budgets that our clients have. And it can be – it can flip flop very quickly. But Q1 was definitely much softer than Q1 last year. But Q1 last year still had some pent-up demand from prior softness. So we had a very strong 2022 for the same reason, pent-up demand, which lingered into Q1 of ’23. But it’s been much softer, mostly tied to our clients pulling back just due to the macro and what they are facing.
Jonathan Bass: Okay. Thank you.
Operator: As there are no further questions, I would like to thank our speakers for today’s presentation. And thank you for joining us. This does concludes today’s conference. You may now disconnect.
