Deciding whether to join a national franchise brokerage or a local independent agency is an important decision for new real estate agents. In this article, we will take you through some key considerations.
One of the first decisions you will make as a new real estate agent is whether to join a national franchise brokerage or a local independent agency. It’s not a decision to take lightly, since it will, in part, determine the direction and pace of your initial months in the business.
Given the steep hill new agents must climb—and the expected high washout rate—picking the right agency type is a pivotal decision. What’s “right?” It’s the type that suits your strengths, weaknesses, financial resources and temperament. And here’s an important point. There is no one right answer. What works for someone else might be a disaster for you. So take your time and research your options carefully before you decide.
Another caveat: the lines between brokerage types have blurred over the years due to the advent of technology. If you’re looking to join an agency with robust training, a smaller independent or boutique office may well have the training you need, long considered a strength of national franchises. Meanwhile, a large national firm’s local franchise may have a supportive and responsive culture, a traditional competitive strength of independent boutiques. The point is, make your decisions based on your research and discussions with local agency owners, not on the stereotypes you encounter about each way of doing business. However, the reason we have stereotypes is that there used to be—and continue to be—meaningful distinctions between franchised agencies and local independent agencies. Take these differences into account, but don’t ignore exceptions to the rule.
With this as background, let’s discuss the strengths and weaknesses of the two main real estate brokerage models.
National franchise brokerages
A national franchise brokerage is an agency in which a real estate broker owns and operates a business linked to a national real estate franchisor. The franchisor’s business isn’t selling real estate per se (although it might operate some of its own franchises; see below). Its business is selling franchises to people who wish to enter the industry using the franchisor’s business model, branding and processes.
What does a real estate broker receive as a franchisee? The broker gets access to the national firm’s branding and operations manual in return for paying a franchising fee and a portion of the value of future transactions, usually referred to as royalty. The broker—or franchisee—also gets access to the national franchisor’s technology, agent training curriculum marketing resources and more.
Real estate brokers typically buy a national franchise because they want to operate their own business without the expense and pressure of starting a business from scratch. The national franchisor or a subsidiary of the national firm might also operate one or more of its own local franchises. Examples of well known national franchise brokerages include Century21, Coldwell Banker, RE/MAX, Keller Williams, HomeVestors of America, Realty One Group, Berkshire Hathaway HomeServices and many more.
According to the National Association of Realtors® (NAR) 2020 Member Profile, roughly 42% of all REALTORS® are affiliated with a national franchise, while 52% work under the banner of an independent firm. However, this overstates the power of national franchises because NAR also found that only 11 percent of all brokerages were franchise outlets in 2019, down from 13 percent two years earlier.
There are advantages to joining a real estate franchise. Heading the list is the power of the franchisor’s brand. Typically, a real estate franchisor has spent decades and millions of dollars building its brand. As a result, brand recognition, even in smaller markets, will likely be high. For example, most consumers will have heard of RE/MAX or seen its slogan “Don't Worry, We've Done This a Million Times.” Same with Coldwell Banker and its new CB North Star mark.
An Inman News study found that 80% of real estate agents surveyed said brand recognition was the main competitive advantage franchises have over independent brokerages.
Strong branding helps to open doors for agents working in a local franchise, accelerate consumer trust building, especially when securing buyer listings and eliminating objections to doing business. Brand power is especially useful for new agents, who need all the help they can get to build their real estate career.
National franchise brokerages tend to be well-stocked with tools and resources to help agents pursue business and close deals. For example, franchisors commonly provide turnkey marketing systems that bundle everything an agent needs to solicit business. This ranges from direct mail, online advertising formats, templates for agent websites and email drip-marketing campaigns. To develop all of these tools from scratch would take the average new agent many months. Affiliating with a national brokerage means you can hit the ground running from day one.
In addition to marketing tools, franchisors provide robust technology. They typically use their economies of scale to negotiate access to the software or hardware agents need to compete effectively. Or they might build their own proprietary technology. This includes real estate transaction management software, customer relationship management applications (CRMs) and website building applications. Not only do they provide technology, national franchise brokerages also offer training on how to use their technology and tech support when a tool or system breaks down. When you’re running around trying to complete multiple transactions and something goes wrong with your website, it’s helpful to be able to get timely tech support by calling or emailing your national office.
Agent training and support are a traditional strength of national real estate franchisors. Because a national franchisor’s financial results depend on getting new brokers and agents productive fast, they’ve made big investments in training. Curricula typically are broken down into multiple modules focusing on various aspects of an agent’s job. If you’re the kind of person who likes your development path to be well mapped out and available in the best format for your learning style, then a national franchise brokerage may be for for you.
Sales support is another desirable feature of national franchise brokerages. Once you sign on, your agency will likely provide you with leads, large listing inventories and access to referral networks that independent agencies would likely have trouble replicating. In theory, you might also have the ability to pick your broker’s brains and/or to work jointly with other agents in the office. However, mentoring and collaboration depends on each franchisee’s office’s culture, with some agents reporting they got just enough support to launch, but little ongoing help after that. Your mileage will depend on the the local franchise’s specifics, especially on the time, talents and preferences of your broker/owner.
What are the drawbacks of a national brokerage network? They relate to their scale or size. Because they’re in the business of attracting and signing purchasers of local franchises, they must give those buyers a turnkey process for running a successful business. This results in highly detailed branding guidelines, operational manuals, preformatted tools and systems, and requirements for handling just about every aspect of a real estate transaction. The high degree of standardization can lead to process rigidity. Agents often find this to be confining. For example, if they have an idea for improving a marketing tool or system, they may run into bureaucratic hurdles that stifle their creativity. In other words, since so much effort has gone into creating the franchise business model, the powers that be may resist ideas for enhancing it. This leads to agents feeling they can’t grow their business as they see fit.
Also, since franchised agencies can be quite large, a new agent might feel lost within the office, lacking the camaraderie and mentorship often found in an independent brokerage. Furthermore, in large franchises, the competition for leads among agents can be intense. As a new agent, you may lose out in the feeding frenzy for new sales opportunities.
Other disadvantages relate to financial matters. Because a national franchise brokerage provides extensive brand, marketing and operational support, it requires payback in the form of a royalty and a piece of each transaction. After you factor in the percentage of your commission you must pay to your broker and franchisor and so-called “desk fees,” your net pay may be considerably less than you expected. Only you can decide whether giving up a significant share of your commission in return for the brand power and business resources of a national franchisor is worthwhile. At a certain point, many agents feel the benefits received aren’t worth the cost. To secure a more profitable arrangement, they may decide to either affiliate with an independent boutique brokerage or to start their own firm.
Independent local brokerages and boutiques
Independent brokerages or boutiques are owned and operated by a broker who is unaffiliated with a national franchise. Such operations have more autonomy since they don’t have to comply with corporate marketing, branding or operational guidelines. Because they haven’t bought into a national business model and its rules, they can keep more of their revenue in house rather than paying royalties and commission splits to their national franchisor.
From the perspective of a new agent, an independent brokerage, which may be smaller than a local franchisee of a large national chain, can offer more individual coaching and mentoring to a new agent. And since the agency’s production will typically be smaller than a franchise brokerage, an individual agent “means” more to the office. This can result in more support, recognition and a feeling of being “plugged in” to what’s happening in the office.
Agents also report there may be less of a feeding frenzy around leads in an independent brokerage than in a national franchise agency. Newer agents may also be allowed to man the walk-in desk, a less common event in a franchise office.
What’s more, the culture of an independent brokerage office may be quite different from that of a national franchise agency. Collaboration and teamwork may be more prominent in an independent shop. Plus, there typically will be less red tape and innovation resistance than one finds in a national franchise. Agents who like to fine-tune their marketing plans and tools will find smaller independent operations to be more helpful and congenial in this regard.
Perhaps the largest benefit of working in an independent office is speed. If the brokerage leader senses an emerging opportunity in the local real estate marketplace, an independent agency will often be better able to react swiftly and decisively to it, perhaps within days or weeks rather than months or years in national franchise brokerage.
Training often has a different flavor in an independent shop. It may feature highly targeted instruction based on local specialties and rely more on one-to-one training, mentoring and fieldwork rather than on preformatted self-directed training often seen in national franchises. In addition, training in national brokerages tends to be broader and geared to the needs of brand-new agents, whereas in a boutique brokerage, it may drill down quicker into local specialties, providing more instruction on fewer topics.
Another advantage of an independent brokerage office is that the broker will likely have more flexibility to negotiate commission splits and fees with agents, whereas brokers with national franchises will be hamstrung by national compensation policies.
Finally, an independent brokerage will usually have a deeper knowledge of the local marketplace, since it likely originated and evolved in that area for many years. If you’re interested in selling a certain type of real estate in a specific community, you might get more knowledgeable support from an independent brokerage than a franchise agency.
Of course, independent real estate brokerages aren’t perfect. They tend to have smaller marketing budgets, which might result in weaker brand recognition and websites with lower web traffic and more primitive sales and transaction-support technology. And their local marketing focus and knowledge may be a disadvantage for agents when they need to source properties from outside the immediate marketplace.
The advent of virtual brokerages
Before we discuss additional considerations in making the national franchise vs. local independent decision, we should mention a recent development in the industry: the emergence of virtual brokerages. Due to the advent of real estate software as a service (SAAS), along with the growing popularity of online advertising, agents can now join virtual-only brokerages. These operations exist only online. Since they don’t lease or own expensive office space, they can afford to offer agents a more attractive commission-split arrangement. Other advantages include lower or missing desk fees, more advanced technology and even more independence than bricks-and-mortar independent brokerages typically offer.
With these advantages comes the disadvantage of having to work virtually. For agents who enjoy the camaraderie of working in an office, the prospect of working alone out of their home can be isolating and demoralizing. But for the right person, a virtual brokerage may be a perfect fit.
Putting it all together
Once you master the differences between national franchises, independent and virtual brokerages, you can begin to interview brokers in your area to select an office that suits your skills, resources and temperament. Before you begin interviewing, here are some things to consider.
- Think hard about what you want and need and how you like to work. For example, if you’re looking to source deals for yourself and don’t care about training or having a mentor, then just find the smallest brokerage available with the best splits and lowest fees. But if you want more training, then focus your search on national franchise brokerages.
- Regardless of whether you’re looking at franchise, independent or virtual brokerages, determine the broker’s approach to doing business. Is he or she also personally selling? If so, that
- Are you interested in pursuing luxury listings? Then a national brokerage may be better since owners of high-end properties often lean toward a national office because of its greater perceived brand power and broader marketing reach. An agent in a small local brokerage may find it more difficult to score a luxury listing than an agent in a national franchise office.
- Do you want to be a big part of a growing team, enjoying the ride as you and your office grows? Or would you rather join an already large agency, in effect becoming a small cog in a large wheel, with potentially less recognition?
- Finally, how do you feel about one day becoming a part-owner or leader of a real estate agency? If you have such ambitions, you may want to avoid joining a large national franchise brokerage, which may have fewer opportunities to enter ownership or management
In conclusion
Given the importance of this decision, think long and hard about which type of office will best suit your needs. With large national franchisors, you’ll have large referral networks and property inventories, more formalized training and a highly recognized brand. Technology and marketing resources will be readily available. But your ability to customize them to fit your needs and temperament will be limited or non-existent. The office culture is likely to be more rigid, less collaborative and more cutthroat.
On the flip side, independent real estate brokerages offer more flexibility, likely more generous financial arrangements and a deeper knowledge of local markets, but with fewer marketing resources and formal training opportunities. However, being smaller and locally controlled might give you greater opportunity to become a co-owner or agency leader at some future point.
Virtual agencies may have better commission splits, state-of-the-art technology, and a more flexible and responsive culture. But working independently from a home office might be isolating and lonely.
Only you can decide which of these three options is best for you. That’s because there is no single right or wrong way to enter the real estate business. There are only right and wrong ways for you.
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