Making the switch

Real estate networks offer multiple benefits to the principals and agents that join them. But what are their main reasons for joining – and for switching – networks? And are more industry professionals taking the independent route? In another industry first, Real Estate Business surveyed the industry to reveal what drives the choices principals and agents make when deciding which business to join.

BRAND IS a powerful business-generation tool, so it’s little wonder principals and agents invest hours in assessing how their brand stacks up against those of the competition.

Yet as important as brand can be in generating business, it is just one factor among many that principals weigh up when looking to join a real estate network or become an independent. Training support, information technology, human resources, marketing and advertising are also key considerations.

Just how important these factors are to principals and industry professionals was the core focus of an industry-first survey conducted by Real Estate Business.

The survey coincides with the continuing battle between independents – with the freedom they’re perceived to offer – and franchise groups, with the ready-made support and infrastructure they can provide.

“The going has really changed for franchising,” says Mark Sinclair, CEO of Perth-based Realestimations, a company that provides business brokering and support services to the industry.

“The vanilla franchise models are being challenged. There are two main reasons for this occurring: One, franchisees are questioning the value proposition that’s being offered. Second is the advent of independent agents being able to source cheaper technology, training and networking opportunities for themselves.

“Ten years ago, the big real estate brands were the ones that could offer access to the best technology, training and systems. That’s now changed, with independents now able to gain access to cutting edge technology and systems directly,” he continues.

“Moreover, the future franchisee is questioning whether they’re getting good value for money.

“The value of the ‘big brand’ is being challenged. Many prospective franchisees don’t believe a big brand necessarily open doors now.”

Other responses to the Real Estate Business survey reflected this view.

“The franchise business model is outdated,” said one respondent. “The internet has eliminated the contact between the consumer and the office. It is now direct to the property. The franchise office is only successful if the office is performing with staff of good reputation. There are an increasing number of suburbs/towns that the independents are dominating. The franchise offer is now not competitive.”

As Mr Sinclair points out, however, it’s easy to complain when things aren’t going well, adding that many franchisors do – quite rightly in many cases – counter the ‘value’ argument by pointing to the amount of support they provide.

“Franchisors do deliver some amazing systems, including business development modules, staff development modules and community-marketing modules, among other items,” he says.

“Not enough franchisees pick the eyes out of what they pay for. More should be asking the question, ‘How can I maximize what I get for my franchisee payment?’.”

Some are just too quick to blame the franchisor, according to Stanley Crook, a real estate agency broker and agency business adviser/consultant based in Queensland.

“As the market has turned downwards, and instead of looking ‘inwards’ on how to control costs and regain or retain market share, [franchisees] start to blame the franchisor/group for their failure and not themselves.”

The Real Estate Business Switching Networks survey was conducted online during May and early June. It attracted 225 respondents, with a majority – more than 81 per cent – licensees and/or principals. These are the main decision makers when it comes to switching networks or companies, giving the results added gravitas and relevance.

Another 12 per cent of respondents were agents, who like principals, are as eager to test the waters elsewhere if it looks likely they would achieve more sales and greater success long-term. This has been enhanced by the advent of Effective Business Units (EBUs) – businesses within an agency business that usually incorporate a top performing agent and one or two sales support personnel.

They too want to work for an agency or group that will support their growth ambitions.  

The split between respondents who were with real estate networks or cooperatives (52 per cent) and independents (48 per cent) was fairly even, and based on anecdotal industry statistics, this split mirrors the industry’s makeup.

Moreover, there was also a good spread of respondents from across the country. A majority came from NSW (29 per cent), followed by Queensland (23 per cent), Victoria (20 per cent), Western Australia (18 per cent), South Australia (six per cent), Tasmania (two per cent) and Northern Territory (one per cent). One per cent was ‘unspecified’.

How often do principals and/or agents review their network agreement and/or their independent status?  

According to the survey, almost one in four (24.2 per cent) said they did so every 12 months, while 43.0 per cent said they did so every few years.

Just over one in four (25.1 per cent) said they planned to review their current arrangement in the next 12 months, a significant number. This number alone ensures real estate franchise groups in particular will be kept on their toes.  

According to Mark Sinclair, this is a sound approach.

“Franchisees should review their arrangement/contract at least once each year, with a view to ensuring that they’re maximising the relationship,” he says, but adds that it is detrimental to the industry if franchisors and/or franchisees look to move before their contract is due to expire. Apart from being illegal, this practice is highly unsettling.

“This churn is more common in NSW and Queensland,” the WA-based business broker says. “That’s not to say they can’t approach them at the near the end of the contract though.”

According to Stanley Crook, not enough principals review their current arrangements, although they may have at least one valid reason why they don’t.

“Concern that word about the possibility of making a change may get out or back to their franchisor stops many from making the first move,” he says.

Based on the Switching Networks survey, however, industry churn is relatively common, with more than 70 per cent of respondents reporting they had been approached by a competitor in the past 12 months. While this doesn’t automatically mean agents will switch networks, it does highlight the fluid nature of the industry, and just how important it is for networks to ensure they’re offering a strong service and support package.

In the case of those who were approached, most advances were made via the company’s business or franchise development manager (66 per cent), although 20 per cent came directly from senior management at head office.

This suggests senior management take the issue of recruiting quality staff/principals very seriously, something that doesn’t surprise Jeanette Hockney, director at specialist real estate recruitment firm Buckmaster Hawkey.

“It’s such a candidate-short market out there at the moment, it’s becoming more and more difficult to find good people,” she says, “so we’re trying to talk to clients about not only how to get the good people but actually to keep them.”

The main reason for changing real estate companies, according to the survey, centred on brand. If the company was weak in this department, then more than 16 per cent of respondents would see this as a justifiable reason for leaving. This reason was followed by not enough head office support at 13.8 per cent; the level of the franchise fee (12.1 per cent); lack of marketing/advertising support (8.9 per cent); and insufficient training and education support (7.1 per cent).

The power of brand – as outlined in the May 2012 issue of Real Estate Business – is one thing that all real estate agencies agree upon.
Siimon Reynolds, a world-famous business mentor and advertising guru who walks, talks and lives brand, recently emphasised how important a brand is to the success of a company.

“Developing a powerful brand can have an amazing impact on your business,” he wrote in Australian Business Solutions. “You can charge much more for your products, you can introduce new products easily and you will always have a line of potential customers wanting to do business with you.

“Branding is not hard, no matter what those branding ‘gurus’ may tell you. It is about choosing a compelling, simple positioning and reflecting it in everything you do.”

Head office support also attracted plenty of negativity, as one respondent pointed out: “[The] last time I have heard from my franchisor was in March 2011 and I have called them.”

“The directors of the franchise have never been in my office. When I came across there were 42 franchised offices; today there is my office and what they call head office. It’s frustrating.”

Mr Sinclair says the regularity of franchisor visits is a key area of concern for franchisees.

“Many franchisees see this as a public relations exercise, not as a true business review meeting,” he says, based on feedback from some of his clients.

“Good franchisors take this side of their business very seriously, as they seek to build a true business relationship model with their franchisees.”
Few respondents were shy in complaining directly about franchise fees, and as one pointed out, “It is hard enough to survive in this climate without having to pay a premium on top of hard-earned income.”

In Stanley Crook’s experience, this is the number one reason principals leave a real estate group.

“Unless it’s a marketing group where the monthly costs are fixed, [for] those trading under one of the major groups cost would be the number one factor – perceived or otherwise – in considering moving. Fees on sales, property management, marketing, software support are the others.

“[Moreover], promises are not kept,” he adds.  

As Mark Sinclair points out, however, some franchisees aren’t looking hard enough at their contracts to make sure they’re getting what they’re entitled to.

While only five per cent of respondents mentioned poor IT and technology as the main reason they would leave a group, numerous respondents and industry commentators emphasised how technology – and more specifically the internet – has empowered them to the point where opening an independent agency is no longer a recipe for isolation or backwardness.

Given these considerations, it is little surprise that when respondents rated the attributes they would consider when making a switch, the most important item they were seeking was a strong IT and technology platform.

Just over 70.7 per cent of respondents listed this as very important when considering another company.

This result matches the findings of a recent survey undertaken by Buckmaster Hawkey, which focused on how agency staff rated real estate companies.

The research, conducted across a broad range of Melbourne-based industry staff in May, found outdated IT equipment and poorly designed offices are more important than salary when it came to deciding whether to leave a company.

“It was interesting for us to see the role that systems and IT played,” Buckmaster Hawkey’s Jeanette Hockney says.

“A relatively low salary or a poor office culture can set the stage, but outdated IT and phone equipment convinces many that their employer doesn’t really value them.

“If [the agency] doesn’t have the latest and greatest technology and systems … it’s becoming a more popular reason as to why to move on.”

A close second was head office support, with 68.5 per cent of respondents saying this would be very important when considering whether to switch or join a network.

This was followed by brand (67.4 per cent); training and education (64.5 per cent); marketing/advertising support (64.4 per cent); and franchise fee (60.9 per cent).

This list is similar to the attributes Stanley Crook believes most principals look for in a new company.

But the industry is changing and franchise groups are now no longer the only option when it comes to accessing cutting-edge technology and business support.

Mr Crook points out that, when selling a property at least, each agency – network and independent – is on an equal footing when it comes to using the internet.

“ and are frequently used by a buyer searching for a property in their price range or suburb,” he says. “Brand becomes a second search engine only when a buyer cannot find what they are looking for.
Online listings via the internet have meant that anyone with a presence on the web can become visible enough to sell or buy homes.

“However, it should be noted that when it comes to a seller considering listing/selling, they want to list with an agency that is seen to be active in their area, has a high profile, is well known and that is able to refer them to other states or locations trading under that brand,” he continues.

“Independents can and do extremely well in either the boutique-style real estate agency practices or in semi-rural towns or districts where that business has traded for a long time.

“Independent real estate agents have gained a lot of momentum in the industry over the last few years, and I expect this growth to continue.”

Mr Sinclair agrees, adding that if real estate franchising is to grow, there needs to be a much greater understanding of the relationship between franchisee and franchisor.

“It must be more focused on building a business relationship, understanding how to add value, more flexible – particularly if the relationship breaks down – and [it should include] how the brand awareness should grow the business.”

If franchisors don’t adapt, fleet of foot independents could steal more market share, Mr Sinclair believes.

“What’s changed is the quality of marketing now being done by smaller agencies,” he adds. “This marketing is definitely working and on the rise.

Moreover, there’s evidence of growth in smaller, boutique-style agencies that are offering different franchise models.

“They are growing because of more flexible business franchise/licensing models and are focusing on establishing great working relationships rather than seeing their clients as ‘pins in a map’.”

But, as a number of survey respondents pointed out, it’s not easy to manage everything on your own.

“We recently changed [to a franchise] and are looking forward to a strong market presence,” one respondent said. “The support, training, technology etc the franchise has for owners far outweigh the reasons to stay as an independent.”

Another respondent agreed: “Our biggest challenge as an independent agency is the investment needed in ongoing branding, technology and systems.

Getting attention was something with which one independent struggled. “Local media give very little importance to independents in comparison to the bigger franchises,” the respondent said. “We used to be [with a national franchise group] and were bought out by an independent. I speak from experience.”

As rent rolls become more important to principals in soft sales markets, so too does the focus on the revenue these deliver. But they’re not cheap.

Paul Brooks, of Brisbane-based Real Estate Dynamics (RED), who helps principals buy and sell rent rolls, says there is a reluctance by franchisees to pay fees on property management as, in the current market, many business owners are spending huge amounts of money buying rent rolls. In many cases they are then required to pay a franchise fee for something they’ve just bought.

Mr Sinclair agrees that property management is an area of concern for franchisees.

“Many don’t want to pay a royalty on the rent roll that they bring to a new franchise – they feel that they built the rent roll with no help from the [new] franchisor,” he says.

Another key trend identified through comments both from survey respondents and the various industry professionals to which Real Estate Business spoke was the role the principal plays in determining whether a business is successful.

As one respondent pointed out, “Branding is important, but how the principal presents themselves, their team, their marketing and how they are perceived by others in the marketplace are far more important.”

And according to another, “People drive the business, not the sign above the door.”

On the question of whether independents are performing better than franchises,  Mr Brooks says the answer has more to do with the principal and how they are running a particular office rather than the brand above the door.

A strong principal working for an independent will almost always beat any other brand – big or small – in their local area and if they’re running a well-organised and disciplined agency, he says.

“It always comes back to that person, and how they’re steering the ship. That’s where it starts and ends.”

According to Mr Brooks, it’s important franchisors upskill their franchisees in how to run a business.

The industry veteran, who spent 20 years working for a franchise group and was recently named Business Broker of the Year by the Real Estate Institute of Australia (REIA), has witnessed firsthand what happens to an agency that’s been poorly managed.

“In my experience, franchisors need to get across the skills for franchisees to be better businesspeople, to take them from being good salespeople to being sales managers, principals and true leaders,” he says.

Principals often fail because they don’t understand how to run a business; to read profit and loss statements; to set relevant KPIs; to manage and recruit quality staff.

“It’s the main reason why franchisees fail,” he says. “The focus should be on developing the principal.”

Mr Brooks acknowledges that the industry hasn’t helped in this regard, with less experienced sales agents now able to become principals after the completion of a course. In years gone by, agents could only become principals with a minimum of five years’ sales experience.

It’s a point that one respondent agreed with wholeheartedly and noted that “the aim should be to service the franchisees … growing the franchisees’ revenue should be the priority.

“If that is done, then they will grow through [the] strength of their network partners.

“Not putting an office on every corner, competing with each other, or selling desk fees, or hitting the rent roll for extra fees!”

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