The real estate industry is complex. Aside from trying to increase efficiency, and hiring the right talent, frequently the main reason that brokers hire agents (who directly represent the broker to clients) is due to legal requirements by certain states. Franchising brokers pay for support from their franchisor, where independent real estate brokers have more freedom with fewer resources.
Franchise Brokers and Independent Brokers
Real estate sales transactions include a broad range of moving parts and agencies, such as mortgage lenders, cash buyers, negotiation and settlement of contracts, possible property liens, and stated or unstated contingencies, just to name a few. States want to make certain buyers and sellers of real estate have protections against negligence and fraud. Some states have very tight rules on who is allowed to manage particular parts of the sale, and the most important person in the whole transaction is the selling real estate broker.
Regulations and codes governing the real estate industry frequently change, which lends itself to the real estate brokerage model. A Broker is a real estate agent who has put in the time and education to go from sales agent to company broker. In a sales transaction, agents are merely representatives of the broker, so the broker position is a pretty nice place to be. Successful brokers often have several to hundreds of real estate agents working for them.
It might be tough to picture real estate brokerages with hundreds, or in some cases, thousands of agents, they all are acting on behalf of the broker, who is, legally, the true representative of the client (buyer and/or seller). As far as brokerage models go, there is one for every taste and preference. We have all heard of the big brands like Century 21, Weichert, ReMax, 1 Percent Lists, and others, but what differentiates these franchise brands and your hometown independent Real Estate brokerage? Let’s take a look and try to understand the different pros and cons of independent vs franchise real estate brokers. Knowledge is power, and when you’re in the market to buy a home you certainly want to get the right broker.
Strengths and Weaknesses of the Franchise Broker Model
While a broker in private practice is allowed to work alone, they frequently utilize other Realtors to assist with the volume of work that goes into buying and selling homes. Realtors often sometimes cover for each other if one is going on vacation, but needs someone back home to manage their listing. All this is common practice in the industry. It’s not easy to start a brokerage. You have to recruit talent, somehow generate income quick enough to pay the bills, but if an independent naturally grows into this position, it’s often more lucrative than paying dues to a parent franchise company.
One of the main reasons a broker would purchase a franchise is for instant name recognition. Also, the parent franchise company will often provide support in the form of documentation, training, advertising, legal assistance, and a range of other industry partners and complexities that independent real estate brokers bear the full headache of.
A broker who buys into a franchise should be able to expect a lot of support, lead generation support, and a network of other industry professionals that come into play in various types of transactions. Among these include home inspectors, home appraisers, mortgage brokers, escrow offices (or closing attorneys, depending on the state), and the list goes on. This type of support is invaluable to a new franchise broker just starting out.
Real Estate Agents
Brokers who franchise have a distinct edge over their competition. Their training and support network is likely to be fully developed and structured. Not only do they provide support to the broker directly, they often support the agent in the form of training, tech tools, and marketing and advertising opportunities.
Access to Technology
While technology tools are available to all real estate agents, not everything is cheap. Franchise brokers can often support their agents with tools that translate to a better experience for the customer. Access to proper tech tools can make the difference between a smooth transaction and a very difficult one. Customer service is a big driving factor for referral and return business, so these tools can be invaluable in advancing their career and market dominance.
Leading Real Estate Companies of the World
Also known as LeadingRE, Leading Real Estate Companies of the World is a national network of real estate firms, both independent and franchises. These members are held to extremely high and strict standards of real estate in order to maintain their membership.
Independent Broker Pros and Cons
Sometimes more experienced agents will work for a major brokerage for a few years, then step out on their own and launch their own brokerage company. This can happen for a variety of reasons, such as one agent constantly beats out all the competition… Those agents can be enticed by keeping their entire commission, and potentially hiring working agents beneath them to generate even more income. Independent brokers may not have the support of a parent franchisor, but they also don’t have their rules to follow, giving them complete creative control to design, structure, and operate their business.
Uniqueness and Individuality
Almost always, a franchise broker has restrictions on how they can operate, how they use the brand name and logo, how they advertise and market themselves… there are usually rules for everything already in place. There is no room for uniqueness or individuality in a franchise. One should be like every other.
Access to Education
A franchise will have every aspect of the business in place up-front, therefore leaving less room for experimentation and trying different techniques for marketing and business in general. Since the independent broker knows he is going up against big franchises, independent brokers often find themselves more involved in community education, such as putting on “first-time homebuyer’s classes and other home-buying seminars or classes.
Again, due to the higher operating costs of a franchise, and less flexibility with many factors of the sales process, an independent broker can use his or her own creativity and personal uniqueness to bring a personal experience to the client, even if it means working weekends and after hours!
Franchise brokers are often bound to a parent franchisor that isn’t community-oriented, since the brokerage may be based out of the market, or even out of the state. Independent brokers frequently work hard to compete with the franchise powerhouse by developing in-depth knowledge on the local market, and may even be aware of homes coming on the market due to their close interaction with their community.
If you’re trying to decide between an independent broker vs a franchise broker, it’s best to start at the community level. Look for names you’ve seen on for sale signs. Do a google search for local realtors and read reviews. Do your research so that, regardless of who you choose, you feel confident in your decision.
What Do Independent and Franchise Brokerages Have in Common?
Similar to nationwide banks vs your local credit union, they both are different, but have similarities too. Regardless of which model you choose, there will be common threads between both models.
The MLS (Multiple Listing System) is the Realtor database that almost all homes for sale are listed in. Most real estate brokers have MLS access. Those that don’t may have other methods of advertising, they just don’t pay the extra fee or access to the MLS. It isn’t free. Access to the MLS means your agent, independent or franchise, can pull up all of the homes for sale in a given area. Their MLS access and functionality are the same.
Brokerages do compete, but that doesn’t mean they are always cut-throat rivals… although it does happen. But aside from any company affiliation, real estate agents are constantly striving to increase their education, expertise, customer service, and professionalism. Brokerages, whether independent or franchise, are still known to work deals together.
Brokers are (or should be) very serious about their legal responsibilities. Regardless of a sales agent’s style or approach, if there is a problem, you can always take the issue to the broker. Remember, the agent is merely representative of the broker, so if you have a problem, take it straight to the horse’s mouth. Responsibility and accountability are taken very seriously in the industry, regardless of the firm you work for.
Real estate agents are always working to improve themselves. It’s not uncommon for agents to pay a real estate coach to train their agents. Agents, too, often attend conferences and ongoing training outside the office to improve their knowledge and overall professionalism.
National Realtor Association
About half of all real estate brokers work for independent brokers, and although NAR (National Association of Realtors) isn’t a brokerage, you can expect agents from all styles of brokerages to be members of this professional association. NAR owns the REALTOR® brand name, and real estate agents who are not members of NAR may NOT refer to themselves as a Realtor. Realtors have further access to a higher level of training and professional development than a non-NAR member. Professional designations such as GRI (Graduate, Realtor Institute, ABR (Accredited Buyer’s Representative), and CRS (Certified Residential Specialist) are a few examples of professional designations a Realtor can earn and carry throughout his or her career.
Even though a private broker-agent can legally practice as one person, they often have other agents, or licensed or unlicensed assistants working under them to help manage the workload. Building a brokerage from a one-person operation is possible, but certainly not as fast as buying a franchise. This often becomes the decision of that broker looking to strike out on their own… should they try to start their own brokerage from scratch, or is buying into a franchise a better idea. I think a big part of the answer is whether or not the agent is already known through town. It’s a lot easier to open your own brokerage when people know you, but if they don’t, a franchise may be the fastest path to success.
Regardless of their bigger support structure and agent-onboarding procedures, built following the concept of “best practices”, a franchising broker faces fewer obstacles, consisting of greater overhead and less uniqueness. The things that make an independent broker special and of value happens to also be a significant obstacle. There may be fewer resources available, and their real estate agents might not utilize the current technology options to manage their organization.