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The rapidly changing real estate industry environment is causing many
brokers to reconsider their position relative to aligning their businesses with
a franchising organization.
Some of those who are reconsidering are currently involved in a franchise
relationship while others are on the outside wondering how wonderful it must be
when someone else is making the tough decisions.
Either of these decisions will require new levels of thought as the
industry moves into a decade that is surely to oversee the most dramatic change
in its history. For
those brokerages that are already involved with a franchise the decision will be
whether or not to renew their existing agreement.
Understanding and projecting the trends that real estate franchising has
been following over the past few years is important.
As a beginning point it is helpful to recognize that there has been a
remarkable difference between real estate franchising and that of other
industries. The
fast food industry, for instance, discovered a decade ago that the ultimate
business and economic success of franchising required absolute adherence by the
franchisee to each and every policy and rule set forth by the franchiser.
In contrast real estate franchisers have bowed to what they perceived as
the “independent” nature of the traditional real estate broker.
In many cases they have allowed the franchisee to pick and choose which
of the franchise program elements they participate in. As
a result many of the ultimate market strengths of real estate franchising have
yet to be realized. In
recognition of these problems some real estate franchise organizations have been
moving to tighten their franchise relationships and the enforcement of these
agreements has become more stringent.
At the same time franchise agreement terms have become longer, many are
now ten years in duration.
The combination of these two factors have in many cases created a
franchise business relationship that is far different than that experienced by
brokers in the early 1990’s. In
order to be more competitive on Wall Street other franchise organizations have
moved to increase the economic ties between themselves and their franchisee
units. Like
the automobile franchise that requires the maintenance of minimum inventories,
some real estate franchises are now requiring that the franchisee promote and
incorporate into their transactions franchiser products such as mortgages,
insurance and home services. For
the non-franchised brokerage that is considering an affiliation the decision can
be even more difficult.
There is often a sense that forming a franchise relationship will protect
the brokerage from the changing times by allowing it to hide in the franchise
group. There
is also an expectation that the franchiser will do the big vision thinking and
will allow the broker to just keep doing what they have always done.
This line of reasoning may be faulty.
It assumes that the franchise in question “gets it” relative to what
is going on in the real estate industry.
That may be far from true.
A careful review of the current operations and credentials of major real
estate franchise organizations would disclose that most of their principals are
products of the traditional real estate industry.
Many started off as agents, moved up through brokerage management, and
ended up selling franchises.
Many are as confused and intimidated by the today’s economic and
technological revolution as the brokers themselves.
Some are the industry’s most vocal advocates of the “the past will
never change” school of futurism. Some
franchises have sought outside assistance but, within this group, many are
adopting a philosophy that suggests that the only good franchisee is the one who
obeys and pays without question.
For this group it has been an easy journey from the ranks of the mentor
to the den of the predator.
For some companies the franchisee is a merely a unit of economic
production to be harvested as closely as possible for the benefit of the
franchiser parent. Is
there a positive and productive franchise relationship available for the real
estate broker?
Yes, there are several available.
However the search for which franchise is appropriate for a specific
brokerages must involve a careful and methodic search.
Consider the following points of discovery. ·
What
is the underlying economic business philosophy of the franchise toward the
franchisee as reflected in its operational documents rather than in the
representations of its sales rep?
While brand may be important it can also be a subterfuge for
exploitation. ·
Take
a careful look at the franchise leadership team.
Are these individuals who can blaze a new trail or are they more
interested in tracking the status quo to retirement?
Age (younger) and experience (outside the industry) can make a difference
here. ·
In
this day and age can a brokerage really commit for ten years?
Most business planning is directed at two-year increments.
There is no one in the real estate industry who has a clue relative to
what the industry environment will look like in ten years. ·
What
is the franchise’s vision of what the business will look like in three years
and what are they doing to so position themselves and their existing franchise
units? Beware
of the idea that “we are working on it.”
Do not invest in what you cannot see. Everybody is working on it but only
a few will get there. |
