Dona DeZube is a writer based in Clarksville, Md., and regular contributor to HouseLogic.com.
Brokers Looking for Brands
Local franchises and new players are offering attractive options.
May 1, 1999
In a world where it sometimes seems as though a broker’s only branding choices are national franchises or independent, a number of brokers are trying new franchise options, ranging from regional "branches" to smaller, newer brands.
Branchising, around for more than a decade, has found steady ground among brokers looking for a local franchise. And newer entries, like REALTEC and EXIT, are trying to establish themselves as players.
Charles McKee, president of the Realty Alliance, a Dallas-based trade group for independent brokers, says, “Most of our large brokerage companies are either franchising their names or considering it. Some have done it for the past five to 10 years.”
Branchiser Harley E. Rouda Jr., president and general counsel of HER, REALTORS®, Columbus, Ohio, with 13 franchise offices, says he’s getting frequent calls from other brokers asking how his operation works.
Branchising is attracting small brokers, who today have a stronger need than ever for brand-name recognition, technology solutions, and hands-on management help, says Rouda.
“National franchises provide a brand and a modicum of marketing materials that the local franchisees can slap their name on,” Rouda says. “Where they’re weak is that they don’t provide strong training and coaching programs that can be implemented at the local level.”
The regional franchisors are more focused on improving the profit margins of their franchisees than are the national franchises, he says.
REALTOR® Magazine talked recently with many of the players in both national and regional franchising to get their perspective on what edge they offer brokers. In many cases, their take on what brokers need from them is consistent, but not surprisingly, their view of who can best meet those needs isn’t.
Personal touch, extra benefits
“The regional franchisor has a more personal touch,” says Doug Zimmerman, GRI, broker-owner of Zimmerman-HER,REALTORS®, Bellefontaine, Ohio, an HER branchise. “There’s a difference between selling real estate in California and selling it in Logan County, Ohio. HER has a better understanding of the local market.”
Zimmerman is also concerned that a national franchisor might look to him to fund national advertising. “That creates more cost, and whether or not you get value from it is hard to tell if you’re in Bellefontaine, Ohio,” he says.
Branchisers offer fiscal benefits as well, including lines of credit to help with expansion efforts and free training programs, says Howard “Hoddy” Hanna, CRB, broker-owner of Howard Hanna Real Estate Services, a Pittsburgh brokerage with 12 branchises. Hanna also offers its branchises a buy-back program that funds the repurchases of homes from remorseful buyers up to one year after the sale.
And whereas a national franchise might charge fees of 6 percent to 8 percent, plus a $20,000–$25,000 initial franchise fee, Hanna charges 6 percent, plus $9,900, and the broker can earn back 1 percent of that by meeting sales goals, Hanna says.
A concern for quality service
Not all regional companies agree that branchising is the right business model for them. Joseph Aveni, CEO and chairman of Realty One Inc., Cleveland, has bought a few companies in his geographic area but isn’t offering franchises.
“We looked at it. But we’ve stayed away from it because we’re concerned about the consistency of the service we’d provide our customers,” Aveni says. “Franchisees would be using our name, but they’d be providing inconsistent service, because individual companies operate differently. We wouldn’t have enough control over the quality of service.”
What price branding?
How much is brand-name recognition worth? Not $110,000, says Robert Alaimo, a former Century 21 franchisee in Enfield, Conn., who paid that much in service fees last year.
In January he became REALTEC Alaimo when he joined the new Dallas-based franchise that features a one-stop real estate center with an in-house mortgage operation. “I’m not certain that Century 21 did enough for me for that $110,000 that I can’t do for myself,” says Alaimo.
Lowering his franchise fees was not the only benefit. Alaimo was also drawn to REALTEC by the company’s one-stop shop philosophy. “The REALTEC plan is to have a loan officer in your office full-time, and the real estate company will share in the profits,” Alaimo says. “Also on the horizon is insurance sales within your office. People prefer a one-stop shop.”
Alaimo also liked the idea that he’d be getting in on the ground floor when he purchased the master franchise for Connecticut, one of nine master franchises REALTEC has sold since its start last year.
New brand, another option
When another new brand, EXIT International, put its franchise program together in 1997, it didn’t focus on discounts, ancillary services, or developing a national brand. Instead, the Toronto-based company looked at the needs of salespeople.
Seeing that the average practitioner is older than 40 and that many of them have no provisions for retirement, EXIT created a business model that provides a solution--residual payments that can continue into retirement. EXIT brokers offer their salespeople a chance to recruit new salespeople. The recruiters receive 10 percent of each of their recruits’ commission (subject to a $10,000 annual cap per recruit) so long as the recruit stays with EXIT. The bonus continues at 7 percent once the recruiter retires.
It’s a solution that helps brokers, too. “Broker-owners are looking for a way to conduct real estate so that they’re not spending 70 percent of their time running their company and 30 percent of their time recruiting salespeople, listing, and selling, because they don’t have any systems in place,” says Tami Bonnell, regional owner of EXIT of New England, Burlington, Mass.
“What EXIT does is offer brokers proven systems so that they can reverse the percentages,” Bonnell says.
EXIT introduced its first U.S. franchise about a year ago in southern Florida; franchise rights have been granted in Arizona, Maine, Massachusetts, Michigan, Nevada, New Hampshire, South Carolina, Utah, and Vermont. Indiana, New York, and Wisconsin can expect to see the EXIT brand shortly, say company officials.
Canadian brokers have already embraced the EXIT philosophy--the company has 30 franchise offices open and another 68 sold there. “Top producers want better technology, continuing education, and a group of peers they can look up to and work with for growth and profitability. They’re looking for leadership and education, things that an independent can’t provide,” she says.
Brokers want tools to compete
As brokers come off one of the best years ever in real estate, they’re looking for tools and technology from their branding partners to fuel continued growth, says Rich Rector, president of Realty Executives International Inc., Phoenix.
“In the past couple of years, there’s been an urgency about education and knowledge of what’s going on with technology,” says Rector. “Broker-owners want to be able to compete against Wall Street--type companies with high profiles.”
Fortunately for the brokers looking for those business solutions, national franchises and independents aren’t the only teams out there. Companies that don’t want to play for either are finding that there are plenty of other teams looking to fill spots on their roster.
The large franchise choice
Big-name franchisors, though, still remain a popular choice.
Although some regional brokers can offer their branchisees terrific name recognition, none can match the national name recognition of Century 21 or RE/MAX. And consumers today perceive brand names as better than independent companies in most marketplaces, asserts Gus Stamoutsos, senior vice president of franchise sales for ERA Franchise Systems Inc., owned by Cendant Corp., Parsippany, N.J.
“What’s facing the independent companies,” he says, “is that even though they might be able to service the consumers best in their marketplace and provide them with close to the services that a franchise can, the consumers would rather sell their home through a franchise company because they perceive there’s going to be more value in the franchise.”
Name recognition helps sell ERA franchises, but the No. 1 issue for many new ERA franchisees is technology, says Stamoutsos. “The independents have exhausted their capital resources trying to create technology. What they’ve developed today that cost thousands of dollars is going to be worthless a year from now. What a franchise can do is bring updated technology to their office.”
National franchises also provide other bottom-line-boosting benefits, Stamoutsos says, including deals with ancillary service providers such as Cendant Mortgage, title companies, and movers that allow brokers to increase revenues. To help the other side of the balance sheet, ERA also negotiates savings on products that brokers buy every day, such as business cards, overnight mail, office supplies, and signs.
Brand recognition persuasive
When Bill McCabe, CRS®, broker-owner of Century 21--Executive Realty, Schererville, Ind., joined Century 21, another Cendant company, it was brand-name recognition that sealed the deal. “I felt I needed to be associated with a brand name to attract salespeople, sellers, and buyers to the company,” says McCabe.
“If people drive in from out of town and want to go to lunch, they don’t go to Bill McCabe’s restaurant; they go to McDonald’s or another national brand name. That brand puts confidence in people’s minds about your competency.”
Whereas it might take 10 years to build public confidence in an independent, McCabe thought he could build up confidence with a brand name in two to three years.
“That’s the business model that’s driving real estate,” he says. “If you threw away all the programs the franchises had, the brand-name preference that all their national marketing creates would still drive buyers and sellers to you. That’s the No. 1 thing you’re paying for.”
Real estate companies affiliated with franchise organizations not only represent one-fifth of all real estate companies, but they also account for a significant portion of the industry’s sales force.
(Percent affiliated with franchise organizations)
Source: Profile of Real Estate Firms, 1996; NAR Economic Research
Note: 1996 data is latest available. NAR’s 1999 study will be released later this year.
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