The case against
Inevitably, the relationship between network and agent involves the imposition of contracts. This is where things start to get interesting, particularly for the strong willed and independently minded. Typically, franchise networks require a contractual term of around three to five years, at minimum, and penalties for non-performance can be heavy.
Networks must impose controls to regulate quality and protect their brand. Agents choosing to operate within the confines of a network must accept that in return for the advantages they enjoy. However, bizarrely, breaches of branding regulations represent one of the biggest problems and disputes are commonplace. From the network’s perspective, each bad franchisee has an adverse impact, not just upon their business, but, indirectly, upon the whole network. The franchisor therefore has an obligation to demand compliance in order to protect the interests of all who operate under its umbrella.
In a twist that mirrors vendors who choose their agent in the belief that they’re the best, then begin working against them from the moment the ink dries on the agreement, it’s extraordinary how frequently agents choose to join a major brand then decide it needs their personal touch to draw more business. Agents can’t have it both ways. So, those who find it difficult to suppress their creative instincts should think twice before joining a network. Sometimes referred to as “brand bandits”, these are the agents who tinker with branding believing that they know best. One such example is the agent, operating under a national brand, who announced to nearby franchisees that following some “research” in a local shopping centre he’d concluded that the branding on his signboards was more recognisable with the addition of an eye that looked as though it had been hit by a baseball bat! Others have been tempted to “enhance” their branding with additional local motifs such as breaking waves and rising suns. It is crucial that agents recognise when they operate under a brand, it’s untouchable! It’s crazy to pay for a brand that has been developed and promoted at great expense and then dilute that same benefit. Legal disputes can run into hundreds of thousands of dollars.
This is not to say that franchisees can’t make a contribution to impose their personality on their business – far from it. Most networks encourage their franchisees or members to contribute to the development of their brand and business but, obviously, to the benefit of all. It’s only the renegades who insist on going it alone who can expect to run into trouble.
Franchise fees are a contentious issue. Typically based upon a percentage of gross sales commissions, some networks also demand a cut of property management income. Then, there’s often a variety of additional marketing levies. Some networks take an alternative approach, charging a flat monthly fee regardless of turnover. Both approaches have advantages and disadvantages. With the former, fees increase as your business grows and networks will also largely fund your setting-up costs to sweeten the deal. However, while many agents are happy to pay tens of thousands of dollars for the benefits they receive when signing on, it’s later that the dissatisfaction kicks in. With the latter, a predictable, flat monthly fee will help with budgeting but could be more expensive in a quiet month. That same flat fee can start to look more attractive as the business grows though.
Franchise contracts usually place restrictions on the sale or transfer of businesses and this inhibits the franchisee’s ability to deal with their own affairs. Of course, there’s good reason for this. If a network has been meticulous in its choice of franchisee, why would it be less meticulous in the choice of a replacement?
Once ensconced in a network, some agents become too dependent and delude themselves that the network has a duty to be involved with their business, solving daily issues or protecting them from the predatory practices of competitors. This is incompatible with franchising as a concept. One such agent was reportedly furious with her network when other franchisees did not jump to her rescue when her business was beset with staffing problems. Needless to say, that business no longer exists.
The establishment of an estate agency within a network needs to be undertaken with skill, patience and capital. With more than seventeen major real estate brands in Australia, there’s plenty of choice for those wishing to shop around. Assessing the value proposition, carefully, is crucial to satisfaction and this is not easily achieved. There are vastly different approaches and while there are many benefits to be enjoyed, ultimately, it’s up to agents to make the most of their network and maximise these benefits. Success then, while far from guaranteed, is more likely many would argue.
Independence holds out the promise of total creative freedom, and, with strong leadership, entrepreneurial flair and an ability to attract talent, offers enormous promise, flexibility and financial reward. Capital saved on fees can, and must, be invested in the development of resources, publicity, training and brand integrity. A well defined management structure is essential, as is effective delegation of tasks and the development of skill sets and technologies that would be otherwise provided by a network, all of which come at a higher price.
Stewart Bunn is currently National Communications Manager – First National Real Estate. A licensed estate agent with in excess of 15 years experience in the real estate industry, Stewart has a diverse background that includes professional experience in sales, marketing, strategy, executive management, team building and network communications.