What's the difference between real estate franchises and branches?

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As an independent real estate professional, or a member of an existing brand exploring alternative models, it can be useful to understand the pros and cons of franchises and branches in order to make an informed decision to enhance your career.

“The most obvious difference between a branch and a franchise, when it comes to big real estate brands, is ownership,” says Walter Hart, the Rawson Property Group’s business expansion manager, and an active member of the real estate industry for over thirty years.

“A branch is wholly owned and operated by the parent company, which has complete control over all aspects of the business, including staffing, legalities and trust accounts. All agents are employees rather than independent business owners.

“A franchise, on the other hand, is independently owned and operated by the franchisee, who has control over their own day-to-day processes, staff, accounts and business assets, but must operate within the guidelines set out by their brand in their franchise agreement.”

More independent approach

While both models provide support and training for agents, along with the significant marketing and PR benefits of an established brand, franchises tend to allow for a more independent approach to business operations. This does, however, come at the price of increased responsibility.

“As an employee at a branch, an agent is limited to the business processes laid out by their parent company, and is unlikely to be able to make any real changes, no matter how creative or innovative their ideas may be,” says Hart. “As a franchisee, however, an agent can implement as many creative business solutions as they like, as long as they stay within the character and the legal and ethical boundaries of their franchise brand.”

Of course, not all real estate brands choose to be entirely franchise- or branch-based, and hybrid businesses are also fairly common in the industry. According to Hart, however, the divided focus created by a hybrid structure can be a problem for franchisees.

“What we often see with brands that own some of their own branches and franchise others out is that they keep the best areas for themselves and franchise less profitable neighbourhoods. This immediately puts their franchisees at a disadvantage, which is compounded by the fact that the brand’s income is not tied to the franchises’ success alone,” says Hart.

“Contrastingly, an all-franchise brand depends entirely on the success of their franchises for their livelihood, and is far more incentivised to ensure each and every franchise is operating at peak potential.”

Cheapest option not always best

Of course, the networking, support, training, technology and reputation provided by a respected franchise brand does come at a price. Normally percentage-based, fees vary from single to double digits, but Hart warns agents not to assume the cheapest option is naturally the best deal.

“A successful real estate franchise group should increase your business by significantly more than the franchise fee,” he says. “If this isn’t the case, take a good, hard look at what you’re getting for your money. It’s often worth paying a little more to get significantly better service and support – and profit – in return.”

Joining a franchise can also have another significant effect on a business’s profitability – namely increasing saleability when the franchisee decides to retire.

“Selling an independent real estate business can be difficult, particularly one founded on the reputation of an individual,” says Hart, “but a franchise linked to a well-known brand is a much easier sale. This can make all the difference when it comes to making a profitable exit from your business, and reaping the rewards of a successful career.”

While many agents prefer the reduced responsibility of being employed in a branch environment, there are many benefits to existing or prospective independent agency owners exploring their options under a franchise brand.

“There’s no one, right way to excel in real estate,” says Hart, “and you need to understand your own strengths, weaknesses and expectations before choosing the best type of agency for you. There’s no doubt, however, that a strong franchise can be a huge business asset to agents looking for an opportunity to make their mark on the industry.”