If you’re considering entering the world of real estate franchises, you likely have many questions. While the process can feel overwhelming, it’s an exciting step in your career, allowing you to expand your entrepreneurial pursuits in the industry. If you’re ready to learn how to buy a real estate franchise, follow this step-by-step guide. You’ll find all the details you need, from choosing a company to recruiting agents. Let’s get started!
What Is a Real Estate Franchise?
A real estate franchise is a unique business model allowing an individual to buy into an established real estate brokerage brand. When you buy a franchise, you get the license to use their marketing materials, training, and support while paying a fee to the company. The franchisor often gives you tools to grow the brokerage with recruiting materials and other systems. It’s a great way to start your business without starting from scratch.
Steps to Buy a Real Estate Franchise
If you’re looking to take your knowledge and expertise in real estate to the next level, starting your own office is a great option—provided you have the resources and determination to make it happen. Going the franchise route will help you get started faster, but it’s important to understand the process first. Here’s a rundown of the steps you’ll need to take to learn how to buy a real estate franchise whenever you’re ready.
Step 1: Decide if a Real Estate Franchise Opportunity Is Right for You
Franchises have several advantages—brand recognition and established real estate brokerage services like processes, procedures, and software already in place, so you won’t have to figure everything out yourself. The whole point of buying real estate franchises is to tap into a proven business model and systems that help you grow your brokerage with less risk than if you were doing it independently. Some pros and cons of owning a franchise include:
|
|
|
|
|
|
|
|
Evaluate if franchising is the route you want to take rather than opening an independent brokerage or owning stock in a company. Start by asking yourself why you want to own a real estate office and remember the potential risks, rewards, finances, and effort it takes to manage and keep everything running smoothly.
Step 2: Choose a Location & Office Type
In the past, it was the standard for every real estate brokerage to have a physical office. However, with the growth of the internet, many agents now work remotely, leading to the increase of virtual real estate companies. Clients are less likely to stop by offices, making a visible location less critical. Take a look at some of the differences between the two:
With real estate companies operating in many different ways, it’s up to you to decide which style you want to invest in. Some key considerations when deciding which office type include:
- Agent experience
- Accessibility and visibility
- Market activity and local market trends
- Competition
- Client needs
- Office cost and space
Step 3: Research Companies & Choose a Franchise
Real estate franchises vary significantly, much like the agents associated with them. Start by doing your research to find the right fit for your values, budget, territory, and long-term plans. Don’t forget to consider factors such as brand recognition, available resources, and the services offered. With so many real estate franchises out there, your finances and location will help you narrow down your choices.
- Request Franchise Disclosure Documents (FDDs)
- Review financial details
- Speak with current franchisees
- Research and read reviews about the company
Once you’ve done your due diligence, you’ll have all the information you need to decide what brokerage aligns with your goals. Now, you are ready to move forward with financing and are one step closer to owning your brokerage!
Step 4: Secure Financing
To finalize your franchise purchase, you must secure your financing. Contacting a lender is the best way to get more detailed information on your financing options and determine what will work best for you. If you know other people in the industry who have opened a franchise, reach out to them and ask what worked and what didn’t work for them. Some financing options include:
- Franchiser financing
- Small business loans
- Home equity loans
- Traditional bank loans
- Cash
Pro Tip: Before securing financing to move forward with the purchase, you should have already reviewed your financial situation. This way, you know you’re ready to go when you decide on the company you want to buy into. If your finances are not quite there yet, consider working with a financial advisor to get your finances in order and prepare to reach your goal.
Step 5: Sign the Franchise Agreement & Buy the Franchise
Now that you’ve researched which franchise to move forward with and secured financing, it’s time to sign the franchise agreement and seal the deal. Once you’ve signed the agreement and paid the fees, celebrate your new business venture as a franchisee owner! After that, you’ll kick off your training process to get your office up and running.
Important Note: Putting your investments in a holding company adds protection. Speak with your accountant and lawyer to determine if creating a franchise real estate corporation would be best.
Step 6: Recruit & Retain Agents
Real estate franchises should already have established systems and materials in place to help you bring agents on board. This initial support can help you get started. However, after you have recruited agents to your brokerage, it’s essential to focus on their retention by addressing their needs throughout their real estate careers.
|
|
|
Pro Tip: Review your non-compete agreement if you came from leadership in another brokerage. It may prevent you from reaching out to agents at your previous company for a period of time.
Costs of Investing in a Real Estate Franchise
One of the biggest differences between starting your own independent brokerage and buying into a franchise is the initial cost. Franchisors have their set standards for pretty much everything, from the office space to the furniture, equipment, and software. Because of this, expect to spend more upfront to meet the brand’s requirements.
| Expense | What It Is | Approximate Cost Range |
|---|---|---|
| Initial Franchise Fee | A one-time payment made to a franchisor by a prospective franchisee to join their franchise system | $10,000 to $50,000 |
| Royalties | Ongoing payments made by the franchisee to the franchisor | 3% to 6% of your company’s gross commissions or a monthly fee of $25 to $400 per agent |
| Commitment | Franchise agreements are traditionally for five to 20 years, with renewal fees at each interval. | Typically, 50% of the initial franchise fee |
Frequently Asked Questions (FAQs)
Is it better to buy a franchise or open an independent brokerage?
If you have a clear vision for your brand, including logos and messaging, and a strong business background, then creating and building your independent brokerage might be the right path for you. You’ll need solid financial backing to successfully launch your business.
On the other hand, if you have the drive to build a brokerage but don’t have a vision or a solid plan, then a franchise may be the perfect solution for you. You gain a support network by buying into an already established brand with existing systems. However, there are several barriers to entry. You will be required to charge agents the same commission splits, maintain a minimum number of agents and employees, and ensure that your office space is located within your designated territory.
What do you do if the franchise territories are sold out?
Some franchises offer other arrangements for investors when all their prime territories are unavailable. However, sold-out franchise territories traditionally leave you with one of three options if you truly want to own a franchise:
- Partner or become an investor in an existing franchise
- Join a lesser-known franchise brand that has availability in your area
- Select an up-and-coming area that hasn’t been expanded into as of yet
What is the fastest growing real estate franchise?
According to Franchise Times, RE/MAX came in at the top spot among real estate franchises. This is the 16th year in a row that this company has earned the #1 position. They came in 14th on the overall list of top performing franchises.
Bringing It All Together
There are many factors to consider when deciding to open your own brokerage. However, this can be an excellent opportunity to advance your real estate career. Define your goals and values to ensure that you choose a company that aligns with your vision. If you have any experience with franchising that you would like to share, please leave a comment below!
