Michael Davoren, Managing Director, RE/MAX Australia and RE/MAX New Zealand, comments:
If I were to produce a simplistic timeline for the evolution of the real estate service industry it would be along these lines: First we were all independents. Then came multi-office ownership, where a head office had multiple branches. Then came the franchising movement, which started in the US. In time, the co-ops appeared. Boutiques reinvented themselves as franchises. Then even more boutiques popped up, agencies that wanted to remain as they were within a unique market.
Reality is, there is room in the real estate industry for many models but the successful operators will be those who can provide consumers with the best service and outcomes.
I recently partook in The Great Debate at the REIQ Summit. The topic: Franchise versus the Independent.
On one side, a team sought to ratify, or at least rationalize, why going independent was the better choice. That was not my team!
Both the franchising model and the independent model have adopted elements of each other’s practices.
I believe that the great divide between franchise and independent is closing. Will the two models keep coming closer together?
They will not meet entirely. I’m more inclined to believe they will evolve in different directions, not necessarily away from each other, but possibly in parallel as they continue to adapt and evolve. As they do, they may seek to assimilate what they see as the other’s basic fundamentals for success.
Why was the introduction of franchising successful? It was a marriage of ownership and the brand. You could own your own business – as you did as an independent – but access all the brand services for a fee. Then for some franchise groups, the ‘brand’ was the Holy Grail, and people felt they had lost their ownership.
Franchising has come a long way and there is a plethora of different franchise offerings.
There are franchising models that have moved towards an independent structure through the flexibility they offer. RE/MAX, for example, was ‘born’ as franchising for independent-minded people.
The independents can now access a lot of services and resources that once only the franchises could give, so the question becomes ‘What value do you get from franchise offerings?’
Some real estate business owners seek an independent business model because they prefer total control and to build a business around their own name, but the danger there is in the lack of exit strategy. Remove yourself and your name and there may be nothing to sell.
A franchise structure has technology, systems, training etc. plus personal relationships and a common voice. It is hard for independents to have that complete capability. In addition, franchise groups tend to pioneer technology, research and implement new ways of doing business more effectively and efficiently for individual business owners, which meets the needs of a real estate industry that is in itself never static.
The ability to transition from one model to the other is not equal. It is easier to transition from independent to franchise model because this direction delivers an increase in everything from resources to brand awareness and marketplace. The reverse is effectively ‘start from scratch’; surely a much harder, slower business path.
There is a place for both business models in the industry. Both will continue to evolve. The two are not enemies; competitors yes, but not enemies. Both will continue to address the influence on our industry from non-industry players, the ‘enemies’ that may come from outside the industry.
And while the real estate consumer has a massive hand in evolution, the industry and its business models must be proactive and not just reactive to survive.
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