2011 Franchise Report: What's in a Name?

Franchisees say strongly branded companies offer advantages during tough times because of the support services and training they offer.

July 1, 2011

Lars Hedenborg had a big decision to make last year when he decided to open his own brokerage in Charlotte, N.C. With four years of real estate experience behind him, first at a small independent brokerage and later at a RE/MAX-affiliated franchise, he had to choose whether or not to go the franchise route. "I talked to a dozen agents at different companies and did a lot of research," he says.

Since he launched RE/MAX Real Estate Experts last December, Hedenborg hasn’t had an ounce of buyer’s remorse. The start-up investment of $50,000, including a $25,000 franchise fee, was money extremely well spent, he says. "The online training and design center, certifications, and free lead generation systems are unsurpassed," he says. "I believe in the value of the brand."

In 2010, before he opened his brokerage, Hedenborg and his six-member sales team sold 120 homes—and he personally sold nearly half of those. This year, he expects his brokerage to double that level of production. Sales totaled $27 million last year, and by June 2011 the office’s volume had already reach $25 million. "Training from RE/MAX and two outside coaches is helping everyone be more productive," he says.

Being affiliated with a big name like RE/MAX—and the responsibilities that come with it—may sound intimidating to prospective brokerage owners. But Hedenborg says he’s still enjoying the freedom to run his business the way he likes. "They make it easy to leverage the brand, but they don’t get in the way by trying to tell you how to get things done. I don’t feel suffocated."

Franchises Stay Prominent

Franchise companies are currently the most popular type of firm affiliation for REALTORS®, according to the National Association of REALTORS® 2011 Member Profile. A full 54 percent of members reported that they work at a franchised subsidiary of a national or regional corporation or an independent franchised company. But independents aren’t far behind. In the survey, 41 percent of respondents said they worked for an independent, non-franchised company.

Difficult market conditions, including high unemployment, restrictive lending, and a long-suffering economy, have hit franchise companies hard, with many brokerages scaling back offices and agents. RE/MAX, for one, has seen a net loss of 700 offices in the past two years. But with a renewed focus on productivity and training, savvy franchisees are learning how to thrive. Indeed, today’s market challenges are giving many franchises an edge in their recruiting and retention and are inspiring others to forge new partnerships as they look to chart a stable future.

One example: In February, ERA Real Estate, a leading national brand, announced its affiliation with the largest franchisor in the Gulf South, the Latter & Blum Network. New Orleans–based Latter & Blum retains its identity as a strong local brand established 95 years ago but now has access to ERA’s resources and national network through a new program called ERA Powered. The intent of ERA Powered is to offer prominent firms with a strong local brand a model that is "the best of both worlds," Charlie Young, president and CEO of ERA Real Estate, said at the time the program launched. Latter & Blum franchisees gain access to ERA’s lead generation and training programs, which should help spur growth while maintaining the brand recognition that has served the regional company well for nearly a century.

In another notable strategic pairing, the fast-growing Casa Latino franchise, which specialized in the Hispanic market, announced in January that it would become part of Nextage Realty International. Although the new company will still serve its targeted multicultural clients, the move is designed to give franchisees broader growth opportunities, says Casa Latino founder Robb Heering.

To be sure, independent brokerages that join large networks of affiliated companies like the Chicago-based Leading Real Estate Cos. of the World can obtain many of the same benefits that brokers and salespeople at franchises have. "Our members have the flexibility to customize the services they provide. It’s a hybrid model that lets the individual companies determine what they need," says Leading RE president and CEO Pam O’Connor. These can include everything from lead generation programs, branding, and marketing materials to blogging platforms, training, and professional development opportunities. Leading RE’s 580 companies together were responsible for $225 billion in sales last year, a higher volume than any single national franchise brand, O’Connor says.

KW Still Growing

At a time when the majority of national franchise brands are contracting in response to lackluster market conditions, one notable exception is Keller Williams, which has continued to see a net growth in agents and numbers of offices. Currently, there are 701 Keller Williams offices around the country—up from 689 in 2009—and 77,672 agents, an increase of more than 3,000 during that same period. "People are drawn to the consistent models that we have implemented for every office. These models cover our organizational, operating, and economic structures," says CEO Mark Willis. The company profit-sharing program, which paid out nearly $35 million to associates last year, also sets it apart from competitors. "We embrace the agent as a stakeholder in the business. And our training involves helping the agent think like a businessperson rather than a salesperson," Willis says.

Smaller franchise companies like Flat Rate Realty, which has 50 agents operating in 17 offices, differentiate themselves with incentives like buyer’s rebates. These rebates can be worth as much as 50 percent of the buyer agent’s commissions. "Those alone have increased my business by 25 percent over the past two years," says Flat Rate CEO Thomas Moulding. "We are changing the real estate business model."

Alex Perriello, president and CEO of the Realogy Franchise Group, which includes Century 21, Coldwell Banker, ERA, Sotheby’s, and Better Homes and Gardens, says it’s incumbent on prospective franchisees and sales agents to consider the distinct "culture and personality of a brand" before deciding with whom to affiliate. "Real estate is a local business, but each company has its own value proposition," he says, adding that brokers and agents need to spend more time sizing up franchises by meeting with various leaders in a brokerage, including the heads of marketing, training, and information technology. "It’s important to ask yourself where you want to be in five or 10 years and whether this is a company that can help you get there. Not enough people ask the right questions or meet the right people," Perriello says.

Brand Attraction

As a newly minted real estate salesperson, Danny McPherson considered both the independent route and franchises while determining where to hang his hat. Signing up with Hedenborg’s RE/MAX franchise made the most sense to him because Charlotte is known for significant relocation traffic. "It became clear that it would be easier to gain access to that with a national company," he says. "RE/MAX has real estate offices from coast to coast. People from New York to California have heard of us." He was also attracted to the agent-controlled lead generation system. "In other companies, if I know of someone moving to another city, I’d have to turn over the information to the relocation department. At RE/MAX, I get to select the agents on behalf of the client," he says.

The rapid-response time to leads also impressed him about the franchise. McPherson had eight closings in his first six months with Hedenborg.

Traditionally affiliating with a major franchise might have been a costlier move than joining most independents in terms of administrative and advertising fees and other costs, but McPherson says slower business has convinced many major companies, including RE/MAX, to lift some of the burden on agents to pay upfront fees. Now more companies are allowing them to wait to pay until they’ve received proceeds from a transaction they’re closing or by reducing their commission splits so agents can pay lower desk fees.

Longtime Coldwell Banker franchisee Edward Prodehl, CRS, agrees that the costs of owning a respected national franchise are worth it. "I get a lot of bang for the buck in terms of education, training, and marketing services. They also taught me what I need to know to buy other brokerages, That’s where I learned about negotiating," says the president and owner of Coldwell Banker Honig Bell, based in Joliet, Ill. Prodehl acquired three other brokerages over the past year, making him the largest Coldwell Banker operation in Illinois. "If I had stayed an independent," he says, "I’d be constantly reinventing the wheel."

Wendy Cole

Wendy Cole is the former managing editor of REALTOR® Magazine.