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Franchise Negotiations

Hi folks. Today is question day for me.

I have an independent brokerage that is about 5 years old and getting to be pretty successful in our market niche. When we opened our own business, I had been working the foreclosure market for years. Now, it seems like the place to be.

Anywhooo, next week I am to fly out to visit with a franchise that does not have presence in my area. I have read through their offering package and see a lot of things that are great, but also a lot of things that are in need of negotiation.

Here's my big question: Do franchises negotiate or is it a take it / leave it deal?

For example, they seem to want 20% of the gross. I have agents that make 85-90% splits.

On their side, they have systems and national advertising, etc. (BTW - Their national ads are not run in my state right now)

On my side I have an established business that covers most of a state where they have no presence at all. It is a state that is near the top of the pack in foreclosures. We specialize in that and this franchise is breaking into it. We do commercial and they are breaking into that as well.

Are we in a position to negotiate at all?

Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Ohio Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.

United Country Ohio Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17

Posted by Rich Kruse on 03/30/2008 08:46 AM

Comments (22)

franchise

Originally posted at: Asset Management & Recovery: Franchise Negotiations

22 Comments on Franchise Negotiations

MAR

2008

Rich, I hate you're not getting more feedback, bc/ it's a darn good question. I don't know the answer, but I will offer my opinion. From leaving a government job for real estate, it seems that EVERYTHING in this business is negotiable. Whereas nothing was in my previous life. I'd say go for it.

I'll give you a prospective from an agent's view. When I started in the business, I was working for an independent office. I am now at a huge franchise office. There is a tremendous difference!

While working for the independent office, the broker checked into a franchise, just as you are. It was also one that wasn't prevalent in our area. As it turned out, it was going to cost the agent's more and the broker opted out.

Going to the large franchise, for me may have been a huge mistake. In my mind, the national exposure and just the name was going to be a significant improvement to my business. I was wrong. The only thing it offered me until recently was the use of the name.

Here are a few things to consider:

Since the franchise isn't well known in your area, is the name going to be worth the extra expense?

Does the franchise allow you to make your own decisions regarding commission amounts or are they going to dictate every commission and not allow you to use them as a negotiating tool?

Will they allow you to run your office the way you choose, or will they dictate that as well?

Are they going to advertise heavily in your area to get the name out there, or will that all be up to you?

What is the fee going to be to the agent's and will it be worth it to them?

Will you only be paying a 20% gross, or is there a fee to "buy" the franchise every so often?

How long do you anticipate it will take for your business to increase after changing to a franchise? (Cost Effectiveness)

Will you be bringing in enough to cover the expenses as well as your normal expenses until business does increase?

How many agent's in your office will it through out of the game because they can't afford the fees?

What does the franchise have to offer you and your agent's that they don't already have, and is it going to be worth the extra expense to them?

In this area, we have 3 companies that dominate the real estate market. 2 are large franchises and the other is an independent office. All 3 of them run pretty much neck-in-neck business wise.

Another independent office took on the franchise that my old broker turned down a year ago, and have not seen any real benefit as of yet. It takes a while. Granted, I work in a county of less than 35,000, but the people that list and buy through that office do so because of the agents, not the name.

Each franchise is different. My advice, (and this is only my advice) would be to check into more than one and get an idea of what areas you should negotiate on. See the differences in how they operate and what they have to offer. Do your best to make an informed decision. Some will make you sign a contract for 5 years or so, and that's a long time if it's costing more than it's benefiting you.

Hi Rich

I just did the franchise thing so far it has helped tremendously, I would like to know more about which franchise you are thinking of going with go to my website and call me when you get a chance www.hankmendez.com , would love to discuss further

Thanks

Hank Mendez

Rich, anything is negotiable, right? Depends on how bad they want a presence in your area. You could ask for 6-12 free to get going on your recruiting so your not trying to recruit and pay fees at the same time. IMO

I had placed an inquiry for my area, and was told there were no franchise's available. I asked if any did come up to give me a call. Now I see and hear of several new companies I was interested coming up. I don't know how to advise you on your situation, but ask lots of questions and take lots of notes.

20% of gross? That's HUGE!

Check out Realty Executives.... they don't take any piece of your pie at all. You pay on a per agent basis and are free to run your business as you wish.

www.realtyexecutives.com

I would say that everything is negotiable. Worth a try at least! Good luck.

Like Monika, I would say everything is worth negotiating. I am a huge believer in small independents so my question to you is what is your motivation?

Rich,

My advise will be to talk first with franchise owners and ask them about those points you feel need negotiation, this way you will have more inside when you are negotiating with corporate.

Bill

www.casalatino.com

Like any other negotiation, it depends on which one of you wants/needs the other more.

If you decide what your terms are and you stick with them, you may need to walk if they won't accomodate you. The question that then begs to be asked is this...will your business fail because you walked? Methinks not.

Email or call RE/MAX, www.remax.com, check out what they will do for you:) I am a small independent, however, if I were to belong to anyone, it would be them. I was part of their team for 13 years and had a wonderful experience while there. Systems you can get from Brian Buffini, he started a Broker System that helps you to recruit and retain your agents. National ads would be RE/MAX:)

It's a Good Life!

Fran, Broker~Mentor

20% seems like an awfully high amount. I don't have an answer, but I have a friend who opened his own brokerage a few years ago, and recently sold to a franchise.

As for viewing it from an agent's perspective. Last year I left a franchise and switched to a local brokerage that has more office, agents and volume than any of the franchises in our area. And it's been a much better move for me. The franchise was good for me for the first couple of years, when I didn't have my own reputation. At that time I needed theirs... or so I thought. I know believe otherwise. But making the change to a local company has had a LOT of benefits for me; the biggest one being NOT paying a franchise fee off the top of every transaction! And I like this broker better too ;) but I guess that's not a factor in your decision.

Regardless, I'd try to negotiate, no matter what their policy is. And let me know if you want me to call my friend.

Rich, we are bothers, 2 nationals and 1 large indy are courting me right now, but I'm having second thoughts about selling or joining. The fees are nuts and if you took 20% of your commissions you could build one hell of an advertising campaign all on your own. You will lose control thats for sure. Asset managers like Indy's because we can play cowboy, playing cowboy with a franchise.

Start your own franchise!!!! If you say okay, you'll have an office in NY by daybreak! Only a few states between us. You have built the mouse trap, now expand then sell. Greed is good!

MAR

2008

Thank you to everyone that offered a comment here. I hope to get more. Personally I think 20% of the gross is way too much.

Why am I thinking of this? Because the company has a growing auction franchise and that is a place where our business has huge growth potential. I am also negotiating with an auctioneer to come in and help grow it. I like our brokerage just the way it is, however it seems you cant have the bird without the feathers.

Jeff has one hell of a point. If my maketing budget was 20% of the gross, we would have a huge ad campaign on our hands.

APR

2008

Rich,

I agree with everything Lissa wrote. I think you need to look at your marketplace and see who has market share- if the top 3 are all franchises than possibly you should consider a franchise. My past Broker bought a franchise in the early 90's when the market was in a down-turn and found it difficult to pay that expense every month. Staying independent may make it easier to be flexible and change course if necessary in a challenging market.

I enjoyed the comments and the post. I work for an independent and our office kicks the butts of the franchises in my market. Yee Ha.

APR

2008

Rich,

I think in this market climate, everything is negotiable. Now whether or not that would be true on the other side of the table is another matter. One thing is for sure ... with 20% of the gross, they should be providing some extraordinary benefits to you AND your agents to justify that kind of "monthly nut".

Trust your gut; you know wh;en to hold & fold; E. Jeffrey has a good point!!$!

You could always stick a "FSBO" outside and see which other franchisees start a'courtin'! lol

I would also recommend checking out RE/MAX. I have owned my franchise for 1 1/2 years and could not be happier. The tools and support they offer us are amazing. I am also free to run my business as I see fit. I wish you the best of luck with whatever you decide!

20% is nuts. The terms are definitely negotiable. We started out with our residential franchise when we had six agents, and we still negotiated our terms.

It has paid off for us. Less than three years later, we have sixty agents in three offices and the franchise was a huge help in our growth.

Make sure whatever franchise you go with complements your company's culture and adds value beyond a name.

And, for the love of god, don't buy into the smoke and mirrors of some program where you agents "make more than 100%". If everyone is waiting around for residuals, who is servicing the clients and growing your business?

If you want any advice, feel free to email me. I'll also be in Columbus in May if you'd like to meet.

APR

2008

Rich, I own a franchise, and over all I am happy. But they do not negotiate at all, and later when you are into it for years, they may change the rules, because they can.

APR

2008

Rich,

Don't know if you made up your mind or not but I was with Realty Executives for the past 6 yrs and Fee/Max(Re/Max) prior neither one had the Tools ,System and the Recipe for success as WEICHERT REALTORS does for their Agents & Brokers,they are the 2nd fastest growing Real Estate Franchise in the U.S. per Entrepreneur Magazine, they are the 2nd largest relocation COMAPANY in the World,their Lead Network is awesome since our impact day of January 11th,2008 we have had over 75 leads flow into our office for our agents, it's worth taking a look at if you have any questions email my @ Hank@WeichertExcel.com

Thanks & Good Luck

Hank Mendez

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