How To Evaluate a Real Estate Franchise

How to Evaluate a Real Estate Franchise

In the current issue of the EXIT Recruiter Newspaper, a top litigation lawyer explains why he chose EXIT Realty.

If you're considering buying a real estate franchise, there are lots of options out there, but sorting through them all can be a daunting task. After conducting three years of exhaustive research into every major franchise available, Dan and Rose Castro, of Austin, TX, chose EXIT Realty Corp. International. 

Now the franchisees of EXIT Options Realty, the Castros were previously the owners of the biggest CENTURY 21 brokerage in Austin, TX. Soon after buying their CENTURY 21 franchise, which was five years ago, the Castros experienced a lack of support, training and innovative web technology from the corporate office. Despite this, the brand was taking an 8% royalty fee off the top of every deal.  The last straw was when the corporation stopped running TV commercials and all print advertising. The company also cancelled its national convention for 2010.

Over a three year period, the Castros analyzed franchise opportunities and met with executives from RE/MAX, Coldwell Banker, Keller Williams, Prudential, Better Homes, Sotheby's, ERA, Realty Executives, REALTY WORLD and Avalar.

"The difficulty most brokers have is that they are being squeezed financially from both sides," Dan explained.  "Their top agents squeeze them from the bottom by demanding higher and higher splits, while the franchisors squeeze them from the top by demanding high royalties."

A broker must perform a delicate balancing act by not giving away all his profits to his franchisor or his top producers. The Castros recognized that being affiliated with a national brand was a good thing - as long as they didn't have to give away all their profits.     

Several things about the EXIT Realty System made it stand out from the crowd. First, EXIT Realty doesn't require a royalty fee in the form of a percentage off of every deal. Second, the flat fees owed to EXIT are paid by the agents on a "per-transaction" basis, not by the broker.  Third, the starting split for a new agent at EXIT is 70/30, but the opportunity for the agents to increase their splits to 90/10 provides a big enough incentive to keep them motivated. And finally, EXIT gives the broker an incredible recruiting tool that no other real estate franchise offers - the 10% sponsoring residual bonuses. 

"Instead of just trying to sell my good looks, I now have a system to sell," Dan said. "I tell top agents that they now have the opportunity to create a business within a brokerage. All they have to do is introduce new agents, and I'll train them, groom them and grow them into top producers. I'll pay all the overhead, incur all the risk, and they can have 10% off the top of every deal. It's a no-brainer." 

Castro recently absorbed another small brokerage in Austin using this exact strategy. 

"I met a broker with nine agents working for him. I offered to relieve him of all his overhead, train his agents, incur all the risk, and show him how to pay 10% off the top of every deal that his agents closed - if he would simply join my team and bring all his agents with him," Dan recalled. "At first, the broker was reluctant to leave something he had worked so hard for so many years to build, but the thought of getting his life back, and freeing up 20 hours a week to spend with his family and to fish more, began to appeal to him."

After a couple of months of discussions, Castro welcomed the broker who brought all of his agents with him.

"There are lots of small brokerages out there struggling right now because of the recession," Dan explained. "It's a great time to go after them and sell the EXIT Realty system.  Actually, the system sells itself.  In this economy, if you're not busy selling houses, you can always keep busy by going to mixers and other functions where real estate agents gather, or by cold-calling top agents and taking them to lunch. There is always some REALTOR^® out there who's disappointed with their current situation."    

In addition to franchising, the Castros also own a mortgage company as well as a property management business in the Austin area.

Dan Castro is a full-time practicing attorney with 20 years of experience in business litigation and real estate. He's also an award-winning author, speaker and business consultant. His award-winning book, Critical Choices That Change Lives, is selling across the globe. His wife, Rose, brings 16 years of management experience with Corporate America to EXIT Options Realty, and handles all of the day-to-day business affairs of the company.  For your copy of the EXIT Recruiter Newspaper, contact your local EXIT Realty office.