Starting a real estate business is a significant life decision that should not be taken lightly. When considering this major decision, people often go back and forth on whether or not to buy into an existing franchise and operate the business under the franchisor or to start an independent brokerage. Franchises typically draw business owners who are more risk-averse and like the idea of working under an established brand. An independent brokerage allows the owner to have full control and be more creative in the day to day operations and marketing of the business. Each model has its pros and cons, and below, we will review the key differences of independent real estate brokerage vs franchise.
Independent real estate brokerage vs franchise – The Key differences
Economies of scale
As a franchise, your franchisor will have the negotiating power to negotiate better rates by purchasing in bulk. For example, if there is a real estate software program, it can be costly for an individual to negotiate the price down because you only have the buying power of an individual. A franchisor will negotiate a lower cost for a bulk order as long as the franchises agree to purchase it. As an individual brokerage, one will have to look for lower-cost software programs that are more affordable for individuals. These lower-cost programs may not be as effective and could put you at a disadvantage in some areas.
Speed of Start-Up
When one starts an independent brokerage, it will require a commitment of time to learn precisely what will be needed to get your office up and running. If you open a franchise, the franchisor will be able to supply you with complete lists of what you will need to be up and running quickly. Also, you will not have to guess the number of supplies to order because the franchisor will provide you guidance on how much you will need for the year.
A franchise comes with a national familiarity of your brand from day one. If you operate an independent brokerage, you will need to spend years developing your brand into an instantly recognized one. On the downside, if you own a franchise, you will not be able to build your brand. If you are a creative person, you might find that your marketing material may be limited to only what reflects the national brand. While you will quickly inherit the positive aspects of brand recognition, there can be a downside. With so many franchises, if one of them does something that attracts negative press, it can potentially harm your business. Potential clients could associate your business with the behaviors of another franchise.
In addition to using the franchises brand recognition to attract clients, it can also produce additional benefits. When you start up a business, if you do not have startup capital sitting around, you will most likely need to finance part or all of the start-up costs. Lenders may be much more inclined to lend to a nationally recognized franchise compared to an individual starting an independent brokerage for the first time.
When you purchase a franchise, you know that you are teaming up with a proven formula. The franchisor will help you develop your business by providing training on the systems and IT support. You will also have access to experienced professionals who will be able to advise you when various issues come up. Having proven systems in place is a tremendous benefit for people who have little experience in the real estate industry.
With an independent brokerage, you will need to work on building your business model and will not have the support structure of the franchise systems. Real estate, however, is an always changing industry, and as an independent broker, you will be able to make changes to your business as the market dictates. However, with a franchise, changes need to be made at the corporate level, which means changes take longer to make.
Control and Autonomy
Control and autonomy might be one of the biggest differences when it comes to the independent real estate brokerage vs franchise comparison. If you want to be in complete control of all decisions related to your business, then you may want to consider an independent brokerage. When you sign up for a franchise, you will need to enter into a strict legal agreement with the franchisor. The agreement will set specific standards that must be adhered to if you want to remain under the brand. Also, if you’re going to leave the franchise for any reason, there may be severe financial implications to do so. The agreement also has an expiration date, which means the franchisor could elect not to renew the agreement.
As an independent brokerage, you will have full control over your business and the day to day operations. If you want to change a system, you do not need to consult anyone but yourself! Also, you should be knowledgeable about how to get real estate referrals.
Whether you are opening up a franchise or an independent brokerage, each venture will have a hefty start-up cost. Under a franchise, you will need to continue to pay the franchisor royalties on your profits the entire time you own the franchise. As an independent brokerage, you will be able to hold on to a more substantial part of your revenue, which will allow you to invest further in your business.
Help with Marketing
A national franchise will be able to assist you with creating a marketing plan for your specific to your business to advertise on Facebook, local papers, etc. Also, you will benefit from the national marketing campaigns that the franchises will conduct for the national brand. You will be able to tie in your local advertising with these national marketing pushes.
As an independent brokerage, you will also need to spend money on marketing your business. However, it is unlikely to be on the national level, unless you grow your brokerage into a national business!
No matter which road you go down, starting a real estate company is an exciting adventure, and we, at Realprocity wish you the best of luck!