Wanna Own a Franchise? Think Again.

By
Real Estate Broker/Owner with RE/MAX Home Experts

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.

Technology

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

 

 

 

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.

Summary

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.

 

 

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688,653
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

Good timing on this post. I was very close to discussing a franchise but I think you've just changed my mind. Thanks for the info.

Feb 10, 2012 10:40 AM #58
Rainer
288,529
Thomas McCombs
Century 21 HomeStar - Akron, OH

Thank you for a very thoughtful analysis.

Many current franchisees probably wish they had seen this earlier.

Feb 10, 2012 12:40 PM #59
Rainer
8,341
Jeff Tepermeyster
ProQvest Inc. - San Francisco, CA

I'm an independent real estate broker and will stay this way for as long as i can. Will not go into deatils, however my advise is to stay away from the franchises. 

Feb 10, 2012 01:06 PM #60
Anonymous
Michael Duffy
As the President of the United Country franchise family, I could not agree more that, with the exception of our franchise, franchises give you basically nothing but a name to put on your sign and lock you into 10 year agreements. Since we were founded in 1925, we have approached the responsibility of being a franchise partner about 180 degrees differently from all others that came much later. We believe we need to help our franchisee market listings. And additionally provide them with unique, iinovative tools to help them provide better services than their competitors so they can differentiate themselves from all of their competitors. So we advertise our franchisees listing in our national real estate catalogs, national magazines, over 100 major newspapers, over 3,000 privately operated top ranked lifestyle websites, etc. Think about it, you will never see another franchise advertise a listing unless the local office pays for it. We do it everyday and have for 86 years. If a franc his eddies not solve your marketing, technology, training and recruiting challenges, what's the point? We are the only franchise that offers 3 year agreements, but almost all of 600 offices that have been with us decades sign 10 years agreements which they demanded we offer. I'm not kidding. They asked u's to offer a 10 year contract. Our first two offices from 1925 our still with us today. There is a reason. I have no idea how an independent can keep up with the technology, marketing and training required to grow in today's (and ESP. tomorrows) market. A franchisor should help you sell real estate and that means marketing your listing, finding out of area buyers and putting you in a position to earn higher commissions because you have something better, more and unique to offer local property owners. I'm just sayn.
Feb 10, 2012 04:33 PM #61
Rainmaker
800,021
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

Jon Gosche #48 - you can re-blog it.  Don't know if it was members only before, but it's not now. (P.S. Jon Gosche is the broker/owner of our small independent brokerage and he is also my dad).  Great post. -Kasey

Feb 10, 2012 05:09 PM #62
Rainer
55,010
Jairo Arreola #SOLDBYVETERAN
PRG Real Estate - San Jose, CA
VA Home Loan Specialist - SF Bay Area

great post! I see a variety of comments. I would say that most people would like to be on their own. I think I will head that way!. Good Luck to all

Feb 10, 2012 05:48 PM #63
Rainer
211,341
Jack O'Neal
HomeSmart Elite Group - Gilbert, AZ

Most of the franchise business models have not changed to deal with tecknology. You mentioned office size, we have teams in our offices with 20- 30 people in them

Feb 11, 2012 12:01 AM #64
Anonymous
Ds
Any advice on how to transition to an independent office. I have 17 mos left in a ten year agreement and don't want to renew
Feb 11, 2012 01:07 AM #65
Rainmaker
848,807
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi John, great post.  I think the franchise has value in some consumer eyes.  But where I am the franchise owneremphasizes that it is the agent that sells.  In the difficult market we are in in Ocala Florida, we have had anumber of agents strike out on the own.  I am watching to see if they survive.  As you point out the costs and business complexities a broker faces are significant.

Feb 11, 2012 01:13 AM #66
Rainer
33,952
John Benson
RE/MAX Home Experts - Philadelphia, PA
Broker/Owner - Philadelphia Real Estate

At John Arendson - If you were thinking franchise, I would still meet with reps and take it as far as you can without signing any obligation. 1st, those franchise agreements are protecting the franchisor and not really you (in my opinion). One thing to focus as you go through the process - ask lots of questions and present lots of scenarios. I will likely put together top questions to ask the franchise when interviewing and post. This will be from my point of view now as opposed to when I was green and was easily jaded. Keep in mind - they are "selling" you rather than offering (though its called an offering).

Feb 11, 2012 02:11 AM #67
Rainer
12,415
Bryan Stephens
Renown Realty and Property Management - La Sierra, CA
Looking for Homes in the IE Call Today - Inland Em
Thank you for writing this article. It has helped me with my decision not to open a franchise but to go independent.
Feb 11, 2012 05:11 AM #68
Rainer
11,841
Tim James
Home, James! ® California - Orange County, CA - Dana Point, CA
Broker
Excellent topic & responses. It all comes down to ROI. Our industry has changed. Bricks & mortar overhead can sink your franchise. Consider Home, James!(R). Ours is a virtual franchise with strong brand recognition. Contact me for more details: drtimjames@HomeJames-California.com. To all, the very best. Cheers!
Feb 11, 2012 05:12 AM #69
Rainer
26,049
Randy & Nancy Selby
The Woodlands,TX Connect Realty.com - The Woodlands, TX

Just getting caught up on responses; a day late. I have been a Broker/Owner with your franchise and completely understand the pitfalls. Went to a national broker owner conference where everyone was complaining about having to sell like crazy themselves to keep the doors open. Decided to bow out not too long after that. KW was great for several years but the local franchise was too restrictive in some areas. Did just fine with my own shop but actuallty got bored with the lack of synergy I guess. I am a trainer and educator at heart. Liked Exit but the franchisee got in financial trouble. thought about going on my own again but was offered a State Broker.VP with Connect which ia non-franchise high tech, high split residual income company. In  22  states and doign quite well. Excited about the top of the line lead generation and the constant searching for ways to improve everything.  They have allowed me to teach at the nationally famous Champions School of Real Estate and mentor my recruits through the Brian Buffini programs. I am teaching a Peak Producers class right now. I am thankful for all of my experiences and have nothing bad that I want to say about any of the companies I have worked for. Bottom line, people buy from Realtors, not companies.

Feb 11, 2012 05:49 AM #70
Rainer
36,516
Jacqueline Drake CRS
Jacqueline Drake Realty - Saint David, AZ
Southeast Arizona land, farms & horse properties

This is an interesting post regarding franchises. I was not familiar with the fees and the need for a certain number of agents to be profitable. I am an independent broker and have been for about 17 years and I love it. I have never considered buying a franchise. The Internet has leveled the playing field, most buyers looking for property will call the brokerage offering listings that meet their needs. I work a niche market where I live and know the area better than anyone trying to compete with me. I control that niche market having substantially more listings and sales than any other brokerage. A big part is knowing my market and advertising on sites where I reach that market. I would probably pay more in franchise fees than I do for marketing without improving the results.

Another thing that works well for me is answering my phone and responding to Internet inquiries promptly. It's amazing how many agents don't answer their phones and don't get back to people. I have made sales to buyers who called other agents first but their call went to voice messaging and their call was not returned.

If someone from outside the area is looking for someone to list a property and they don't check to see who is working a particular area they will probably call a franchise with a name they are familiar with. That can happen but those who check to see who is doing the majority of the business in my market area they call me.

Jacqueline Drake CRS

Jacqueline Drake Realty

Cochise County AZ

Feb 12, 2012 06:40 AM #71
Anonymous
Pam O'Connor

This subject is near and dear to my heart, as I've worked for networks of independent brokerages for over 25 years and have a passion for locally/regionally-branded, highly entrepreneurial independent companies.   Our network, Leading Real Estate Companies of the World, has 500+ of the best ones, with 140,000 wonderful agents.  While I admire many of our franchise competitors, I do think the game has changed from the early days of real estate franchising, when having a more disciplined business model and national advertising were very important in a world of mom and pops.   Today, the game-changer has been the Internet.  Consumers search for real estate professionals on Google and real estate search sites, not via traditional advertising.  And younger consumers really like the personality of a local brand that is tied to the community.   That doesn't, however, mean that there is not an important role for networks.  In our case, we provide the national/global connections, listing exposure, education and technology resource pricing leverage that single brokerages may not be able to get on their own, and invaluable idea-sharing and mentorship.  We've had excellent growth in the last 10 years despite the market downturn, so I speak from experience when I say that local brands are "in."  According to the REAL Trends annual Top 500 Report, of the 96 top markets they survey, our LeadingRE independents - local brands - were #1 in the market in almost 40% of them, more than any national brand.  That speaks to the power of local brands today.

Feb 15, 2012 12:53 PM #72
Rainmaker
1,607,805
Charles Stallions Real Estate Services
Charles Stallions Real Estate Services Inc - Gulf Breeze, FL
Buyers Agent 800-309-3414 Pace and Gulf Breeze,Fl.

You sure got em to thinking, we worked for a big francise for 4 years and another for 4 then our team didn't see the point, when everyone called the office thinking our team leader was actually the broker so we just went independent 4 years ago and have never looked back

Feb 19, 2012 11:04 AM #74
Rainer
36,640
Ken Anderson
Apex Results Realty Inc., Brokerage - Burlington, ON
Broker in Burlington, Ontario

Excellent discussion.  Franchise owners:  Go BIG, or go HOME!  I owned a small independent company years ago, 11 agents.  Made some money, but had great comeraderie and everyone was enthusiastic.  Worked with another broker, also independent, and had a great time before he sold the company.  Was instrumental in starting up a R/M franchise and helped to grow it into a powerful office.  Also helped to grow a fledgling NRS franchise that was working well until the franchisor went broke.  Now working for a franchise that does nothing to benefit my personal business, and can't figure out why the broker still carries the banner.  I'm still with it because I like the owner.  But it is costly, and of no benefit to me personally.  Time to re-adjust I think.

Feb 25, 2012 10:50 PM #75
Rainer
299,244
Paddy Deighan JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

I have never been a fan of franchises...too much paid for too little bebenfit and this country is becomming one Giant franchise with predicatble food or merchandise in stores because they are all franchises. Every strip shopping center is filled with franchise stores - because they tend to be better risks.  It is regreattable but true..franchises do have a higher likelihood of success.

 

Paddy Deighan

http://www.homesavers.pro

Feb 29, 2012 06:08 AM #76
Rainmaker
273,670
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

I appreciate your candor. I have rejected starting my own office because you end up seeing more problems in 6 months than you will see in a lifetime on your own. I may try the team concept though. Thanks.

Sep 29, 2012 12:29 AM #77
Rainer
135,682
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

I owned an independent brokerage for a couple years that I closed after the market collapse.  It's always good to hear broker's opinions on this topic in case I get the urge to take the plunge again.  Thanks!

Oct 17, 2012 06:38 AM #78
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John Benson

Broker/Owner - Philadelphia Real Estate
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