Does a franchise still hold the same value as in the past? As a broker/owner of a franchise, I ask myself this question more times than one would expect. But I think it is an important question every broker should ask at different times and under different market conditions. When the market began its fall in 2007-2008, I remember reading an article stating that franchises (particularly the bigger names) would be in greater demand than when business was booming. I thought this made sense, as marketing would be so essential to procure listings and buyers. I am not so sure I was correct.
Independent vs. Franchise -
I've had a franchise for over 6 years now and was at an independent prior to that. Obviously, an independent model has more flexibility and control than a franchise. Some franchise models offer just as much control to run your business as others, and some require the owner to adhere more to their model. In my current situation, I have an incredible amount of control. What it really comes down to is money and market presence. Make no mistake, a franchise will cost a lot of money. In fact, if you really focus on a cost comparison, in my opinion, one should only think about a franchise if one desires to have a large office. I would say 30+ agents easily should be a franchisee's goal, otherwise the numbers usually don't make sense.You will basically be working to pay agents and a franchise when under that agent count. Most of these scenarios (low agent count) is really the broker/owner doing most of the business.
Real Estate Broker's Purgatory
I remember reading an excerpt from Brian Buffini highlighting a brokerage purgatory is an office between 10 agents and 25 agents (somewhere in that range). Unfortunately, I read this after I opened a franchise (ironically it was the franchise that endorsed this reading material). But amazingly in my case, he was right on. Running a real estate office is expensive. Most agents really don't know what a broker goes through with budgeting, risks and obligations and well as office expenses, license fees, software and technology, staff, taxes, utilities, etc.. And that doesn't even count any franchise fees. Think about this - For every 20 agents, a broker can expect to pay franchise fees in the amount of $5,000 a month. The franchiser will say it's a pass through to your agents, but it isn't. (X) amount of commissions comes and and (Y) is deducted. If that fee (y) is deducted along with other agent deductions to the office, it is you (broker) taking that money away from the agent, not the franchise. That's perspective. When a broker has more than 10 agents and less than 25, the expenses are so high to accommodate that size of an office that growth is minimal. The problem is, it takes so much work to maintain that size of an office that getting to the next level is very difficult. Thus, you are in Purgatory.
It used to be that a franchise would offer the best technology a broker could find, and it was all in blueprint format to easily execute and train agents. Yeah, right. Again, this is my opinion, but I think the big franchises are only hindering its franchisees with their technology (think ball and chain). How? As a franchisee, you are spending so much money to the franchise you are left committed to their systems. I equate this to antiquated highways. In our area, we have a 2 lane highway that was engineered for the time the engineers designed it. By the time approvals and implementation were finalized, it was inadequate. Franchises boast models specific to their industry. Technology is not one of them. If this seems absurd, think where most people look for houses. Not on franchise sites. Trulia, Zillow, Realtor.com, YouTube, Google. In fact, an independent broker can easily spend the money committed to a franchise in these areas and probably get a better product that yields greater financial rewards.
Contract = Stuck. That is how I look at contracts. Yes, a very negative approach, I know. But don't sign a contract if you think you may want to get out some day. Defeats the purpose. Think about that when the franchise rep is praising your abilities and promising the land of unmatched wealth. Yes, things usually are worse than they seem.
In summary, for those of you thinking of opening your own brokerage and opting to be part of a franchise, I think franchises have value, but their value has been lost over the years with the success of technology providers. If you are a solid listing agent, and want your own brokerage, my advice is to form a team under a current office where you can pay a fee. This will get you ready budget-wise for an office. If you don't want to pay fees, stop reading. You are not an entrepreneur, thus don't quit your day job. If you can develop the team name, you can ultimately build your own brand and open your own office. Think hard if that Franchise Name generates you the 60-70k you will spend on it per year. You may be surprised to see it doesn't. You see, it's not really about total numbers (a 3 million dollar a year commission office may actually profit less than a 1 million dollar a year office), but what you can put in your pocket at the end of the day and what your business is worth when you retire.
Of course, the above are all opinions and I am sure many strongly disagree with my points. I welcome feedback. I will say that as a broker/owner, I still see more value having a franchise rather than not, but that pendulum is slowly swinging the opposite way.