I get a lot of questions from agents about how franchising works, how to buy a real estate franchise, the initial investment, and other general questions about the process. My name is Grant Clayton and I am the founder and CEO of 1 Percent Lists. We are selling our 1 Percent Lists real estate franchises nationwide and already have locations in several states.
There are tons of terms that you will be exposed to when you start looking into real estate franchises, such as Franchise Disclosure Documents (FDD), franchise agreements, non-disclosure agreements (NDA), among other things.
So if you are curious about how the process works for buying real estate agency franchises, what it’s like (it varies), and whether it might be for you then please read on. I’ll do my best to explain the pro’s and con’s of franchising both from a control and a financial standpoint in as simple a way as possible.
What is a franchise
First things first, what is a franchise? Franchising is when someone has built a successful business model and packaged that business model up (they are the franchisor) so that others can use their business plan of action to achieve a similar success story (these are the franchisees).
The original 1 Percent lists real estate brokerage that I started with my wife was recently named the third fastest real estate broker in America by INC 5000. So we definitely have a model that other agents can follow.
Franchise fees and royalty fees
Franchisees purchase the rights to do business as (DBA) that company for an initial investment called a franchise fee, which may vary depending on several factors, such as location and size. That franchisee must also pay a small monthly fee for operating as a franchise, often a percentage of sales, which is called a royalty fee.
Following the franchise rules
Some real estate franchisors are very strict as to how closely the franchisees adhere to their franchise model. Others, like myself, are more laid back on the process. As long as the agents are sticking to our core principles and practicing brand awareness, we give each independent brokerage quite a bit of freedom.
It is important to understand which of these scenarios you want for your own brokerage(there are pros and cons) and which you are getting. I would think at some point you would feel like a manager of someone else’s business if a franchisor is overly strict, which might be deflating.
Then again, having strict guidelines when franchising might ensure a higher level of success because there is less deviation from the core brand. After all, you are buying someone else’s concept because you want to repeat their level of success in the real estate industry, right?
Steps to buying a real estate franchise
When it comes to the steps to purchase a real estate franchise, those are pretty simple. However, each step to buying the franchise is important to understand. This is a significant legal process so I have included a lot of the information here.
Sign the franchise disclosure document
First things first, you will receive a franchise disclosure document (FDD) which lays out all of the rules, regulations, and expectations of a franchisee. There are some important things to note with an FDD:
- It is a disclosure, not an agreement
- You won’t negotiate the FDD it is what it is
- Signing the FDD starts the 14-day clock to own a franchise
- It is very slanted towards the franchisor
- Safe to assume you are agreeing to an NDA by signing that FDD
The FDD is registered with the state that you live in so franchisors will not CHANGE the FDD because practically they aren’t allowed to. Asking them to do so is the equivalent of looking at a property disclosure and asking the homeowner to fix things before you even write an offer on the house.
When starting the franchising process, the best practice is to accept the FDD and sign receipt of it so that everyone is in compliance and then analyze it (with an attorney if you choose as well).
The FDD is very weighted from a power perspective to the franchisor because this protects not only them but also the other franchisees from you making bad choices that can impact the brand negatively which can hurt other franchise owners.
Review and negotiate the franchise agreement
Seven days after signing the FDD you can be sent a franchise agreement. It is here where you can negotiate whatever terms you choose. Seven days later you can sign that agreement and become a franchise owner.
During that 14 day period, you should have regular contact with the franchisor so you know exactly what you are buying and what to expect. After you sign up and pay the initial investment for the franchise, the onboarding process should start with the goal of getting you open for business as quickly as possible.
There are very harsh penalties in place for sharing franchise information with outside sources who should not see it. I HIGHLY advise you not to share private franchise information with anyone.
The specifics of a real estate franchise
So let’s look specifically at what a real estate franchise looks like. When it comes to real estate that typically means the rights to use the franchisors: logo, branding, marketing materials, bookkeeping template, marketing plan, marketing tools, training, and everything else you can think of to launch a successful, growing real estate brokerage.
“This is a very important part of the franchising process”
Said Eric Potts of 1 Percent Lists SWFL in Fort Meyers Florida.Eric and Any Potts own the 1 Percent Lists SWFL franchise in Fort Meyers FL
A franchisee should ideally expect to receive all of the above channels (so to speak) plus continual comprehensive training on the execution of all of the services above. Other related services may vary from franchise to franchise, which is why it’s important to ask questions and learn about the franchising company.
More than just logos and training
From a practical standpoint, I employ a graphic design team that works for my real estate franchisees and their agents for free. I created a script for a video that would be used to target for sale by owner properties. I asked my graphic design team to make a video using that script. They then produce that video and I train my franchise owners and their agents how to use that script to generate more business.
Franchisee marketing strategies
Certain things, such as marketing strategies, we are very lenient on. If you are a franchisee that likes to generate leads the old-fashioned way like print, door knocking, and cold calling we can help with that.
If you are one of the “new school” real estate agents and want to focus on real estate digital marketing, we can certainly provide the tools and tech to do that at a high level as well.
At the end of the day, I prefer to take a pretty lenient approach with my franchisees as long as they stick to our core principles. I want each of them to feel like an entrepreneur and owner of their own real estate business as much as possible.
The success of your real estate franchise
You can own one of the best real estate franchises in the world, but it won’t do you any good if you don’t focus on marketing the brand, selling homes, and helping buyers. The success of your franchise and how much money you make is ultimately up to you.
Along the way, you are expected to grow your business and be a good example for the brand. You might be expected to grow your real estate franchise a certain amount per year or pay minimum royalty fees.
These are all items that should be negotiated in your franchise agreement. You should feel good about the odds of your business hitting these goals. You should also feel good about the marketing support and communication you have with the corporate offices to help you do your best.
The benefits of real estate franchises
I’ve talked to several agents who shun the idea of paying a franchise fee and then paying royalties. Unfortunately, many of those agents don’t understand they are buying a successful real estate business that was built on a mountain of failures.
For example, I have spent well into the 7 figures over the years on marketing, video content, employees, website development, and countless other problems. I have broken my business time and time again until it got to the point that it is hard to break and very easy to fix.
Owning an independent brokerage
Most real estate agents would be shocked at the amount of money you would need to invest to start and run an independent brokerage, especially for those agents without experience in this part of the real estate industry.
The only real advantage of independent brokerages is not having to pay the initial franchise fees and the royalty fees. That, however, is easily outweighed by the initial investment and ongoing cost of marketing, agent training, and establishing brand awareness.
The cost of building your own real estate brokerage
We sell franchises for such a low initial investment that you can’t hope to build what I have built for anywhere near the price I can sell you a real estate franchise.
Even if you nailed it on the first try, starting your own brokerage would cost you 10x more than to simply buy one of our franchises. Our royalty fees are only 5% so if you can’t hire a graphic design team, digital marketing services, and all of our other tools for less than 5% of your overhead (and trust me you can’t) then it’s cheaper to buy one of our franchises than build yours.
Just ask any real estate agents who tried to establish their own branding. They will tell you that establishing true brand name awareness can be not only difficult but also very expensive.
Is a franchise right for you?
It’s important to not let ego get in the way of success. If someone else in the real estate industry is doing much better than you are for much less money, why do you want to continue banging your head against the wall?
Just understand the different franchise opportunities and what you are getting yourself into and with whom. If it feels good and is going to make you more profitable, what do you have to lose?
I firmly believe that our real estate franchise model helps us offer the best real estate franchises out there. If you want to learn more about our franchise opportunities and purchasing your own franchise, contact us and I will personally walk you through the entire process of becoming one of our franchisees and answer any questions you may have.
Plus, I have several real estate agents, who own an existing franchise of 1 Percent Lists, that would be happy to share their own experience with their real estate franchise. They can help you understand the advantages of owning your own real estate company with 1 Percent Lists.