If you are thinking about a new career in real estate, you may be pondering whether you should launch your career under the umbrella of a real estate franchise (like Century 21, Re/Max or Keller Williams), join an independent firm, or strike out on your own.
Getting started in real estate, no matter what model you choose, involves a number of upfront costs. First, you must take the required courses specific to your state and pass the exam for licensure. Once you have your license, make sure you have the financial resources to purchase needed items such as business cards, signs, marketing, advertising, lockbox and association dues.
Before we jump in, it’s important to understand the difference between a real estate agent and a real estate broker. To be a broker requires more experience and more education (though this differs from state to state). A broker can work as both an agent and a broker, and many work as both. A real estate agent can only work as an agent. And an agent cannot work independently from a broker.
Join a Franchise?
Knowing the pros and cons of joining a franchise lays the groundwork for understanding the other two models of real estate — independent firm and solo.
Franchises usually have a well-established regional or national brand. This is helpful when you’re new to the industry and you’re name isn’t out there yet. If you align yourself with a reputable firm, clients may view you as skilled and trustworthy based on the brand’s reputation.
An existing franchise usually offers proprietary software and tools, marketing materials such as flyer templates and logos, opportunities for office hours to gain access to walk-in clients, and mentoring for complex transactions.
With a franchise, you get administrative and transaction coordination assistance including maintaining files, sending paperwork between you and other agents, working with title and escrow companies and processing commission checks.
Many agents prefer to join a firm when they are just starting out because of the increased opportunity for leads, mentoring and colleague support. Because franchises tie the brokerage and the agency together, agents also have the support of a broker in-house. Once an agent has built a successful and deep clientele, as well as learned the ropes of all types of transactions, they might feel more confident about starting their own brokerage.
Franchises don’t offer their brand and tools for free. A percentage of each commission earned will be paid to the brokerage and the franchise. Franchise fees can range but are typically around 5 percent. Most brokerages also take a cut. Some do this by simply charging you a monthly desk fee — from $100 to 40 percent of a commission. Others work by taking their “split” on a commission, usually 50 percent until the agent earns a specified amount in a calendar year (typically $19,000 to $27,000).
Need for volume
Split commissions and fees can make earnings for a new agent low until they have established a client base and have enough transactions in a year to start earning profits. If an agent grosses $5,000 on his first sale of the year, $2,500 of that sale would go to the brokerage toward the split and another $250 to the franchise. The actual check the agent receives would then be for $2,250. The agent would need to factor in their expenses for taxes, marketing, advertising, photography and the like. Many agents find that the only way to recover their expenses sufficiently is by taking on a high volume of clients throughout the year.
Franchises usually have strict rules about how agents represent their business. That means adhering to guidelines around logo use, signage design, website user interface, and templates for business cards and flyers.
For some, these rules can feel restrictive and they don’t allow much creative license for how an agent builds their business.
Join an Independent Firm?
New agents have the option to join an independent firm, which is smaller than a large franchise, but not venturing out solo. According to the National Association of Realtors, 59 percent of Realtors are affiliated with an independent, non-franchised company. Independent firms offer more flexibility, fewer fees and allow agents to give more input into processes and procedures. These firms can be as small as a couple agents or very large.
Independent firms typically have local authority and have built a reputation in a geographic area. When you’re looking for independent firms in a specific area, does one or more agents seem to be the most prevalent? If everyone in town knows Jane Smith is the one to work for, check out her company, whether independent or franchise, and see what’s making her successful.
Should you decide that starting your own firm is the way you want to go, be sure and check your state’s licensing requirements for brokers. Most will require additional education and an exam on top of your real estate salesperson license to qualify you to run your own business. You can’t practice real estate completely solo. You will need to hang your license with a brokerage or take the necessary education and gain the experience to become a broker yourself.
Running your own business is usually the most profitable model since there are no fees from your commissions that go to a firm. It also means you have the final say (and creative license) in marketing decisions and can work as little or as much as you choose.
For this freedom and flexibility, solo agents must forgo the support system of a larger franchise, as well as the clientele and infrastructure a larger name brand provides.
To develop a robust client base, you’ll want to assess your managerial and business skills, as well as develop a solid business plan to determine if you can design and maintain a financially profitable company.
Deciding the Right Model for You
Before you decide to join a franchise, an independent firm or to start your own business, consider:
- What agencies in town get the most listings — independent firms or franchises?
- Is there a particular independent firm with strong local reputation?
- Do you need or want the support from a larger franchise?
- Do you favor flexibility and freedom over support and resources?
None of the three real estate agency models is the right or wrong path. The decision is simply based on what makes the most sense, and is the best fit, for an individual agent.