New Franchise REALTEC Joins the Fray, but Will It Survive?

We recently conducted a series of interviews on the progress of REALTEC's start-up operation with Daro Blankenship, REALTEC's vice president and chief operating officer; Patrick McGeeney, its senior vice president of marketing; and Charles Ward, creative director of TeamMark, REALTEC's advertising agency.

February 1, 1998

Amid the flurry of consolidations and the blizzard of franchising going on in the industry, a new business is touting itself as the newest national real estate franchisor.

REALTEC Real Estate, based in Dallas and incorporated in 1992, kicked off its marketing effort in July 1997 and is in the midst of recruiting franchisees while working to raise $10 million in capital. Can an upstart draw brokers--it wants 2,500--when big-name franchises are snapping up companies like pickup sticks? Only time will tell, though REALTEC says it’s poised for a breakthrough in 1998. So far a handful of brokers has signed on.

REALTEC bills itself as an alternative to the large real estate franchisors. Whom, then, do you consider to be your competition?

Blankenship: On the one hand, you might say that the big franchisors are our competition. Our market, just like that of the big guys, is the independent broker in large markets who hasn't joined the big guys. But we’re different, because we’re also looking at the independent in much smaller markets.

We look to the major franchisors as a model, but we’re different in a lot of ways. You might say they’ve plowed the road for us. They’ve shown the independents the value of joining a national real estate franchise, but we’re going to offer something different.

What’s the difference between you and the others?

Blankenship: First, the cost. You can spend $25,000-$50,000to join one of the others. [Others in the industry say franchise fees range anywhere from about $5,000-$30,000 not including capital investment fees.] We're charging a one-time fee of $3,000--$2,000 for the franchise and $1,000 for administration. We're also charging a lot less in monthly fees. Some franchisees are paying 6 percent, 7 percent, 8 percent of their gross sales to the home office. What that does is penalize success, and we don’t think that’s fair to the really good brokers out there.

Is your monthly charge a flat fee or a percentage?

Blankenship: Right now, we’re charging a flat fee of $1,400 a month.

What are the other major differences between you and the other national franchisors?

Blankenship: We aren’t user unfriendly--doing audits all the time. We’ll be there to help every step of the way, but we won't be intrusive. We don’t want to take away from franchisees’ independence. We’ll provide national brand-name recognition and offer local advertising in the form of local cable TV ads, promoting the REALTEC name as well as the franchisee's company name, address, and phone number.

We’ll also have ongoing training--every franchisee will get a satellite dish to receive REALNET Direct Television-provided sales training.

You'll be able to do that for $3,000 up front and $1,400 a month?

McGeeney: There are really two main differences between us and the Big Five.We don’t own the studios or do any production, since we buy training programs directly from REALNET, so we’ve avoided the dramatic overhead costs of some of our competitors.

Unlike them, we don’t have to pass that costalong to brokers. All our training will be done through REALNET, which is the company we’ve contracted with to provide direct satellite broadcasting of training information and breaking news. Through REALNET, we can contact media buyers and buy local cable spots for less than $100 if we buy in volume between 6 p.m. and midnight.

The other main difference is our corporate philosophy and what it means to a broker's bottom line. All the others have a rigid system of procedures and reporting mechanisms. We don’t have that kind of system. All that costs money, and the brokers with the other franchise companies have to pay for it.

Ward: The Big Five have auditors, but we don’t audit our franchisees because they’re independent. If we charged a percentage, we'd have to audit the brokerage. We'd have to spend a lot of money for that, but since we don’t, that overhead is completely eliminated. What we do is provide support and a television presence that independents can’t possibly have. It would be too expensive.

Explain the television concept.

Ward: Our commercials, which are now running in Pensacola, Fla., and will soon be running in Las Vegas, give our brokers something that would be totally out of their reach as independents. The production value is very high quality. The ads were done by Robert LaTorre, who did a national Coca-Cola spot with Troy Aikman. The idea is to show how easy it is to sell your house with a REALTEC professional.

Where will the ads air?

McGeeney: We're now on “CNN Headline News” and ESPN, and we’re scheduled to be on the “Larry King Live Show.” All the spots will be on cable. When this takes off, I expect they’ll be on national networks, too.

You've set a goal to sign up 2,500 brokers by the end of 2000. How's that progressing?

Blankenship: Right now, we have three brokers signed up, and we have a few more ready to join.

Is that encouraging?

Blankenship: Nothing ever moves as quickly as you'd like, and this process is no different. Our marketing program is really just beginning, and we believe that right after the first of the year, things will start to pop.

Why the first of the year?

Blankenship: Our capitalization program will be stronger by then. Our first stock offering raised $3.5 million, and that got us started. With the next $6 million or so, we’ll take off. The important thing is that we get the people we want. We're picky, maybe too picky, but we want the right type of broker who'll grow with us. We have a dynamic idea, and we think the time is right.

Why is this the right time?

Blankenship: If you look back four or five years ago, there was something like 150,000 real estate brokerages in the country. Now there are about 85,000, according to Laurie Moore-Moore, coeditor of Real Trends newsletter. About 50,000 of those are independents. The average salesperson makes about $26,000 a year, and the average broker earns less than $100,000 a year, she says.

I believe that independents want to make more money, but they don’t have enough money to join a big franchise. We give them a national image and national exposure, and they don’t have this big giant breathing down their necks with procedures and textbooks and audits. We leave people alone to run their business the way they want.

We provide training, national TV advertising, and marketing help. We have an affiliation with a lender that will give them one-stop shopping for their customers, and we have an agreement with Travelers Insurance. We think we have it all. Now our job is to sell this idea to motivated people, and we’ll all be happy.

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