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5 top tips for prospective real estate franchisees

27 Jul 2016

Starting any new business is challenging. But by going the franchising route, you minimise the risk of failure, especially if you’re a franchisee in real estate.

The best franchise to choose would be one where the success of the franchise is determined by the success of the franchisees.

Harry Nicolaides, CEO of Century 21, says a real estate franchise is a cost-effective and affordable opportunity if you want to be your own boss, as compared to starting a new business from scratch or joining a franchise in the retail sector.

If you’ve been thinking about becoming a franchisee in real estate, Nicolaides offers some top tips…

1. Ask the right questions before making a decision

Do your homework with regards to any pending real estate franchising by asking the franchisor the following questions…

What is your history? 

This will determine whether the franchisor is successful, has been in it for the long term, offers a good product and is finding favour in the market. 

A small franchise is risky as it may not yet have a proven track record of finding favour with consumers. 

What is your fee structure and what do I get in return? 

Just getting the brand name is not enough. If you get systems that make your life easier, administration, training, marketing support and access to suppliers, you’ll be in a better financial position as these may carry a higher cost if you do them yourself. 

What are your prospects for growth? 

Even if the franchise is a market leader, it needs to be able to demonstrate growth, failing which, it is at risk. Growth is everything in business, no matter how successful you are at any point in time. 

What are the risks associated with the property industry?

You need to determine if the franchisor is realistic and knowledgeable about the property industry and not merely highlighting the positives only. This is otherwise referred to as a SWOT analysis.

2. Join a reputable brand

According to Nicolaides, a reputable brand will already have done the hard slog when it comes to marketing, and will be able to offer you intellectual capital such as systems and processes in the admin, reporting, performance and training benefits.

Importantly, he says it offers your business brand awareness that your target market can easily recognise from the day you open. A brand’s reputation among estate agents and consumers has an immense impact on your success, he says.

In addition, make sure that the brand is able to offer good benefit and reward schemes. This way, you are likely to retain and attract top agents.

3. Be wary of some franchising models

Franchising models that are only interested in selling their franchises for an upfront fee are dangerous. Once the sale has gone through, Nicolaides says they may offer you little additional support in terms of training, marketing, systems and processes.

“Look for franchises that are invested in their franchisees. A franchise that uses a model consisting of a reasonable sign-up fee but whose main income is based on future royalties from the franchisees is invested in its franchisee’s long-term health.”

In other words, the best franchise to choose would be one where the success of the franchise is determined by the success of the franchisees.

4. Have enough working capital in the bank

Nicolaides says it may take up to six months to receive your first income once you have established your property franchise. There are property listings to be done, property marketing, negotiations between buyers and sellers and then, once a deal is concluded, you may have to wait up to three months for the sale of a property to be completed - only then do the agents (and you) receive commission.

Therefore, he says you need to have enough working capital in the bank when you embark on opening your property franchise. In the retail sector, you start receiving a sales income from the day you open for trade, but in the property industry, it can be months until you see your first income. This is where most of the franchisees fall short.

In a company, no franchisee should be allowed to open their doors without enough working capital as this would be putting themselves and the brand at risk. How much money this is depends on a variety of factors, as opening a branch in an urban setting compared to a less developed area will have different cost implications.

5. You have to be in it for the long haul

In addition, Nicolaides says you have to invest in yourself and agents to ensure that they remain on top of their game. Firstly, he says you have to get your qualification from the Estate Agency Affairs Board (EAAB), which is a requisition to become an intern estate agent.

Thereafter, he says it can take up to two years for an intern to work his or her way up to a full status agent and finally, another year to work his or her way up to Principal status.

“Only Principals may own their own real estate office, so you have to be prepared to invest time and energy into making it work. Thereafter, real estate offices are territory bound, so the longer you’re in the same territory, the more you become that territory’s property specialist and preferred agent and ultimately, the more market share you will obtain.”

Nicolaides says if you have an entrepreneurial spirit, passion, drive and ambition, coupled with a top brand, you are destined for success. The property sales industry is exciting, interesting and desirable but most importantly, for financial success, it requires passion and professionalism, he says.
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