For aspiring entrepreneurs not looking to start a new business from scratch, a franchise can be a smart investment. From a marketing and branding perspective, you’re buying into a model that already works. The company you’re buying into has already spent the time and money trying different strategies and ways of doing things. You, as one of their franchisees, get to benefit from all that hard work. If you go at it alone, you will have to learn from making your own mistakes and overcoming them all by yourself. But what is the cost of a real estate franchise?
What is a real estate franchise?
A real estate franchise is a large real estate corporation that sells its brand, logo, and other resources to smaller real estate brokerages and licensed real estate agents. The franchisee can then use these resources to support their operations, but they have to pay a fee and comply with any rules set forth by the franchisor. Knowing how real estate franchises work is important when deciding which route to take as they can be instrumental in your success as a brokerage owner.
Real estate franchise vs independent brokerage
Benefits of a real estate franchise
Franchises offer many advantages when it comes to getting the business off the ground. From brand awareness, to procedures, processes, and software already being in place.
A franchise will give you a proven model and software system that will help you grow your brokerage faster and with less risk than you can do on your own. Although upfront costs may seem high, there are many benefits to franchises that can help you grow your brokerage faster and with less risk.
When comparing the startup costs of a real estate franchise vs and independent brokerage, it’s important to consider the costs of doing everything yourself. Sure you would have to pay a franchise fee and royalties if you choose a real estate franchise, but that doesn’t mean there aren’t any costs for doing it yourself.
You may wind up spending a similar amount just figuring everything out yourself and then you have no one there to assist you when things go wrong. There will be expenses for designing a logo, building a website, establishing marketing objectives, and a host of other things that often come with buying a real estate franchise.
Benefits of an independent brokerage
An independent brokerage is another choice when you decide to become your own broker. Independent brokerages allow you to create your own brand without being bound to the specifications of the franchise. This could include your messaging, taglines and logos, which will allow you to differentiate yourself from other competitors.
You can name the company anything you want and do things the way you want. If you want to open another location, that too is completely up to you, given that you have been successful with your first location. And of course, you won’t have to pay any franchise fees.
However, while you may gain in money saved on start-up costs, you’ll lose the many benefits of a franchise. In addition to the name recognition that will bring you more clientele, it may also be more difficult to attract quality agents.
How much does a real estate franchise cost?
The upfront cost is one of the biggest differences between opening your own independent brokerage or purchasing a franchise. You can start your own independent brokerage by opening a small office or coworking space, and cut additional costs using less expensive software.
A franchise means that you are buying a business model. The franchisor may set standards for everything necessary to conduct business. This can include the size and layout of your office space, your furniture, and the software you’ll be using.
Royalties
Franchises are required to pay an annual royalties, which is a fee that is paid monthly to the franchisor. It can range from 3% to 6% of gross commissions, and/or $25 to $400 per month per agent. These fees are typically paid by the agents, not the franchisee.
Commitment
The length of commitment is another very important thing to consider. Franchise agreements typically last five to twenty years with renewal fees at every interval. The renewal fees typically amount to 50% of the initial franchise fee. This should be considered when planning your long-term financial goals.
Total cost to open a real estate franchise
The initial fee for a franchise ranges from $10,000 to $50,000. However, this doesn’t include many of the other costs associated with opening your franchise. In most cases, training and office construction aren’t included with this fee.
Let’s take a look at a few franchisors and the actual costs of opening a franchise.
Keller Williams
Keller Williams started franchising in 1987, and is headquartered in Austin, TX. The initial license fee to start a franchise is $35,000. However, when all the necessary costs are added, a Keller Williams franchise can total well over $300,000 to open.
RE/MAX
Headquartered in Denver, CO, RE/MAX began franchising in 1975. The maximum initial franchise fee to open a location is $37,500. When factoring in the fees for training, office setup, and signage, the total cost of opening a RE/MAX franchise may be in excess of $230,000.
1 Percent Lists
Founded in 2015 and headquartered in Covington, LA, 1 Percent Lists offers a maximum franchise fee of $15,000. In addition, a brick and mortar office is not required to become a franchisee. This greatly reduces the overhead and start-up costs typically associated with opening a real estate franchise.
Bottom line on the cost of real estate franchises
There are many things to consider when you make the decision to go out and open your own brokerage. These decisions may forever affect the success of your brokerage and how it operates. So make sure to do your research!
Write out a list of pros and cons to opening a real estate franchise vs an independent brokerage. Spending the time now may save you tens of thousands of dollars down the road. The true cost of a real estate franchise may be less than you think!