Let’s start with what is a franchise. Franchising refers to when someone builds a business model that is successful and packages it up for others (they are the franchisor).
Franchise fees and royalty payments
Franchisees buy the rights to do business under (DBA) the company for an initial investment, called a franchise fee. This fee can vary depending on many factors such as size and location. A monthly fee of a small amount is required to operate as a franchisee. This fee, sometimes a percentage, is known as a royalty fee.
Real estate franchisors can be very strict about how franchisees must adhere to the model. Some are more relaxed about the process and may allow independent brokerages a lot of freedom, provided they adhere to core principles.
It is important that you understand the pros and cons of each scenario for your brokerage. Also, it is important to know what you are getting. If a franchisor is too strict, you might feel like a manager for someone else’s company. This could be deflating.
However, strict guidelines for franchising may ensure greater success as there is less deviation to the core brand. You are purchasing a concept from someone else because you wish to replicate their success in the real-estate industry.
Steps to buy a franchise in real estate
The steps required to buy a franchise in real estate are quite simple. Each step of buying a franchise is important. It is a complex legal process, so a lot of detailed information has been included.
Sign the Franchise Disclosure Document
First, you will be provided with a franchise disclosure (FDD), which details all the requirements, rules, and expectations for a franchisee. An FDD contains important information.
1. It is a disclosure and not an agreement
2. The FDD is the FDD. You can’t negotiate it.
3. The 14-day clock starts when you sign the FDD to get a franchise.
4. It favors the franchisor.
5. Signing the FDD is an affirmation that you have signed an NDA
FDDs are registered in the state where you live. Franchisors cannot CHANGE FDDs because they aren’t legally allowed to. It is equivalent to asking them to change the FDD.
The best way to start franchising is to accept the FDD, sign it and then examine it with an attorney.
The FDD is extremely weighted in the power perspective of the franchisor as it protects them and the other franchisees against you making poor decisions that could negatively impact the brand, which can harm other franchise owners.
Examine and negotiate the franchise agreement
You can receive a franchise agreement seven days after you sign the FDD. This agreement allows you to negotiate any terms that you wish. You can sign the agreement seven days later and become a franchisee.
You should keep in touch with your franchisor for the 14-day period. This will ensure that you understand what you’re buying and what to expect. Once you have signed up for the franchise and paid the initial investment, you should begin the onboarding process with the goal to get you started as soon as possible.
Sharing franchise information with anyone outside of the company is a violation of law.
Let’s take a closer look at what a franchise in real estate looks like. This usually refers to the rights to use franchisors’ logos, branding, marketing materials and bookkeeping template. It also includes the right to use marketing tools and training.
Franchisees should expect to be able to access all the channels above, as well as ongoing comprehensive training in the execution of all the services. The services that are related to franchises may differ from one franchise to another. This is why it is important to ask questions about the franchising company.
Your real estate franchise’s success
It doesn’t matter if your real estate franchise is the best in the world. But it will do you no good if the focus isn’t on selling homes and marketing the brand. Your success and the amount of money you make are ultimately your decisions.
You will be expected to develop your business and set a good example for others. You may be required to increase your real estate franchise by a minimum amount each year, or pay minimal royalty fees.
These are all things that you should negotiate in your franchise agreement. These goals should be a motivating factor for your business. It is important to feel satisfied with the support you receive from corporate offices and the communication they provide for you in marketing.
Many agents in real estate would be surprised at how much money it would take to open and manage an independent brokerage. This is especially true for agents who have never been involved in this area of the industry.
Independent brokerages have the advantage of not having to pay initial franchise fees or royalty fees. However, this is easily offset by the ongoing marketing costs, agent training, and brand awareness.
Building your own brokerage in real estate is expensive
Franchises are sold at a very low initial investment. You can’t build what others have for the same price as they can sell you real estate franchises.
Ask any real estate agent who attempted to create their own branding. It can be difficult and expensive to establish brand awareness.
Are franchises right for me?
You shouldn’t let your ego stop you from achieving success. Why should you continue pounding your head against the wall when someone else is making more money in real estate?
It is important to understand what franchise opportunities you are entering and who you are partnering with. It’s a good feeling and will make you more money, so what are you waiting for?
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