Share
View the 2023 Franchise Report (PDF)pdf
In the highly competitive residential real estate market, brokers are always searching for that glass slipper—the ideal business model that will help them garner customers, serve their agents and generate profits. Buying a franchise has long been a popular choice, enabling brokers to retain local ownership while enjoying the services and visibility of a national company.
Brand recognition is a major factor—but not the only one. “RE/MAX does a lot for us,” says Tom Skiffington, president and CEO of RE/MAX 440/Central, a 12-office Pennsylvania operation that spans from Allentown to Philadelphia. “They do a lot in terms of services, name recognition, group purchasing for advertising, and referrals that you couldn’t get without a franchise.”
Downward Shift
Overall, franchise affiliation has trended down slightly among members, according to National Association of REALTORS® data. NAR’s 2023 Member Profile reports that 55% of members are affiliated with an independent company, while 39% are affiliated with a franchise. “But that’s not a significant jump for independent companies,” says Brandi Snowden, NAR’s director of member and consumer survey research. “In 2021, that number was 53%, which was another slight increase over 2020’s 52%.”
Broker-owners are even more likely than agents to say they’re part of an independent company, Snowden says. “This year, 87% of broker-owners who don’t sell and 85% of those who do sell say they’re part of an independent company.”
"There are a lot of new franchises, and different models are designed for different agents." —Tom Skiffington
The growth of national companies without franchise opportunities no doubt plays a role, as does the fact that independence remains a hallmark of the residential real estate business. Still, thousands of brokers and agents remain committed to the concept of franchising. And with new franchise models emerging all the time, there’s always an opportunity for another try at that perfect fit.
Evaluating all the options available in your market is critical before joining any franchise, says Skiffington. “There are a lot of new franchises, and different models are designed for different agents,” he says. “Look at your market and your agent pool to see if the franchise is a good fit for your company. And are there enough agents in your market for you to be profitable with that model?”
Every two years, REALTOR® Magazine offers a scan of the residential franchise landscape. Among the franchises that provided data for the magazine’s 2023 Residential Franchise Report, nine showed an increase in number of offices, eight saw a drop, and three held steady. Among those showing office growth since the magazine’s 2021 report:
- NextHome Inc. added the most offices, at 143, along with 1,172 agents.
- Berkshire Hathaway HomeServices added 67 offices, though its overall agent count increased by less than 100.
- Engel & Völkers North America added 42 offices and more than 350 agents.
- HomeSmart International grew by 30 offices and added the most agents, at 3,484.
- Exit Realty Corp. USA added 27 more offices and 1,000 agents.
- JPAR added 10 offices and 460 agents.
Meanwhile, most of the largest franchises have been shedding offices and agents. “If you look at what I consider the four big, pure franchise companies—Anywhere, RE/MAX, Keller Williams, and Berkshire Hathaway—nearly all those incumbent franchises are losing agents net,” says Steve Murray, senior advisor to HW Media and partner at Real Trends Consulting in Castle Pines, Colo.
Those shifts aren’t necessarily contractions, he says. They’re due, in part, to the shuttering of brick-and-mortar offices that’s been underway for years. The movement in agent counts, Murray says, reflects the fact that agents are also searching for their perfect fit. “Agents have more options than they’ve ever had before. On a national level, we have a whole shift going on.”
That shift includes a recent acceleration in broker mergers and acquisitions. In 2019, 9% of NAR members reported that they were affiliated with a company that had been bought or merged in the past two years. That number essentially held steady through 2022. In 2023, it skyrocketed to 26%.
What Brokers Want
Real estate franchising is reacting to the ongoing industry disruption.
“Franchising in the real estate business has been pretty notorious for overpromising and underdelivering,” says Laura O’Connor, president and COO of JPAR Affiliated Network, a flat-fee brokerage headquartered in Texas.
“Franchises come up with new technology—everything’s new—and it’s often a little flash in the pan,” she says. “They know a lot of people will get attracted by a shiny penny and won’t dig in to know if there’s real work behind the promises that have been made to them.”
JPAR itself has recently undergone change. Its first franchised office opened in January 2019, O’Connor reports. It had its most rapid growth in its first two years and then was acquired in April 2021 by Cairn Real Estate Holdings, a group formed by Rick Davidson, the former CEO of Century 21.
“We hit the pause button for about a year to make sure the foundation was right for more rapid growth,” says O’Connor. “We restructured. Now we’ve opened our fifth office in 2023 after opening four offices total in 2022.”
Brokers discussing franchising with JPAR, according to O’Connor, are often not first- time franchisees. “We find people will have tried something else first and feel they’ve been let down,” she states. “Some franchisors are offering one- or three-year terms instead of longer-term commitments. Brokers test those out first and then come to us with a much better understanding of what they’re giving up by not partnering with a franchise for the longer term. It’s hard to accomplish something in your first 12 months of operation.”
O’Connor says the brokers she speaks with have already decided to join a franchise. It’s a matter of which one. They often start by asking about whether, by joining JPAR, they can grow their agent count. “That’s usually the first, main area they ask about,” she says.
“The second is what the onboarding process will be for them as an owner,” she continues. “How much time do we invest in it? Will the agents have a smooth transition? What PR efforts will be put toward the grand opening? They want to know the full process of how they’re going to make this move.
“The third thing they ask about is what we call the technology deep dive,” says O’Connor. “They’re looking to franchise because customers or agents have had a difficult time and friction during the transaction. They really want to know there’s a streamlined tech solution, not just at the owner level but also for agents and clients.”
The Benefits of Branded Assets
For Better Homes and Gardens Real Estate Native American Group in Virginia Beach, Va., franchising was all about growing through diversification. Susan Jenkins, CEO and principal broker, has co-owned and operated the brokerage with her husband, Barry, for 33 years. Until they joined a franchise in 2013, 90% of their business came from government contracts to sell real estate–owned properties.
“We wanted to expand our private-sector business,” Barry explains. “They provided the tools—the training, ads, everything you need—and very quickly brought business consultants who were employees of Better Homes [and Gardens] into our offices to show us how to use the assets the brand was bringing to us. But one of the most important things they did for us was to provide name ID.
“We increased our gross commission income by 450% in a couple of years, but not by increasing our REO business,” he adds. “The franchise enabled us to borrow its influence to expand.”
Note: Better Homes and Gardens Real Estate is part of Anywhere, which owns some of the largest brands in residential real estate. Anywhere declined to participate in this year’s report.
If you’re franchise-curious, Susan Jenkins advises investigating how a potential franchise company will partner with you to do things like increase your gross commission income and help you with recruiting, branding and technology. “What does its support system look like?” she asks. “What does its leadership look like? What are its future plans?”
To some extent, it’s the franchise’s responsibility to help you be successful, Jenkins says. “So how are they going to increase your bottom line?”