Franchise brand or independent shop, if you're opening with five agents?

Question

I'm slow about everything, so I've been asking this question for months and getting split answers from people who've all actually done it.

The franchise pitch I sat through wanted 6% of gross commission plus a monthly fee, plus a marketing contribution, in exchange for the name, the training library, the referral network, and a compliance manual that gets updated when the rules move. The number that stuck with me was the last part. After the settlement changes, the owner I spoke to said he'd have spent months building buyer agreement workflow and disclosure training himself and instead it showed up in a portal.

The independent I spoke to keeps that 6% and spends some of it on a local marketing person and the rest on splits, which he says is the only recruiting weapon a small shop has. His view is that clients hire the agent, the sign in the yard is decoration, and he can buy compliance help from an attorney by the hour for less than the franchise fee.

What I can't judge from outside is whether the brand does anything for a five agent shop or only starts paying at thirty. And whether "buy compliance help by the hour" is a real plan or a thing people say until the first complaint arrives.

ryanmck27 · Answer

I'm mid-licensing and I've now interviewed at both kinds in my market. The brand mattered to me exactly once, when my aunt asked who I'd be working for and recognized the name. That's not nothing for a first year agent with no database, it's just also not 6%.

The thing I'd want to see before signing either way is the franchise agreement's term and exit. The independent can change his mind next year. A ten year franchise term with a territory clause is a different kind of decision, and the fee is only part of what you're agreeing to.

derekj19 · Answer

@halyard the aunt thing is more real than people admit at the very small end. Consumers don't know brokerages apart, but they know which names they've seen on signs for twenty years, and that shortens one conversation per listing appointment.

What I'd want to know from @anchor is whether the franchise's training is actually current or a 2019 library with a settlement addendum bolted on. Ask for portal access for a week before you sign. If they won't, that answers it.

hannah_west29 · Answer

Put it in dollars. Five agents, three deals each, $9,000 average gross commission, that's $135,000 gross. Six percent is $8,100 a year, plus whatever the monthly and marketing fees run, call the whole package $14,000 to $18,000. Now ask what an attorney on retainer plus a compliance vendor plus a decent forms and training subscription costs in your state. In a lot of markets that lands in the same range, which means the real comparison is quality of support and the brand, not price.

Where the franchise math clearly loses is if your agents are low producers. The percentage fee scales with revenue, and the value you get from a training library doesn't. Where it clearly wins is if you're planning to be at twenty five agents in three years and you don't want to build the back office twice.

@anchor, what's your headcount plan at month 36? That decides this more than the fee does.

dmitri_v6 · Answer

On "buy compliance help by the hour," that works for document review and it works for a specific question. It does not work as a substitute for a written supervision system, because in most states the broker of record carries the supervision duty personally and an hourly attorney doesn't take that on. Whichever way you go, you need your own written policies for file review, buyer agreement execution, and how compensation gets disclosed and documented, and the specifics of what your state requires need to come from your state commission's rules and your own attorney.

The franchise sells you a template for that. A template is a real head start. It's still your signature on the supervision.

Franchise brand or independent shop, if you're opening with five agents?

4 replies