Real estate franchising grows — but not without indie brokers

Takeaways:

• The percentage of independent firms dipped this year from last, but the large national franchisors didn’t necessarily pick up the slack.
• Many large independent brokerages operate their own franchise networks.
• The percentage of agents at franchise and independent firms increased from 2014 to 2015.

After surfing a rising wave over the last decade, independent brokerages lost ground to franchisors in 2015.

That’s according to this year’s National Association of Realtors Profile of Real Estate Firms, which shows that 81 percent of all firms are independent, a 1 percent dip from 2014.

Although the indie boom may have crested, large national brands haven’t necessarily picked up the slack — because unaffiliated brokerages are playing the franchise game, too, especially large ones.

Six of the the nation’s 11 largest independent brokers by number of transaction sides in 2014 have franchise wings, for example. (That’s not including the nation’s largest brokerage, NRT LLC, which is wedded to the franchise brands run by parent company Realogy.)

Many of the firms’ franchise operations aren’t new. Howard Hanna, for example, began bringing on affiliates in 1994.

Others are greener.

Realty One Group, which has seen blazing growth since launching as a brokerage in 2005, rolled out a franchise operation in 2012 that now has 2,500 affiliated agents.

The most notable new franchise player is HomeServices of America, the nation’s second-largest brokerage. It entered the franchise game in 2012 when it purchased a controlling interest in the Prudential Real Estate and Real Living Real Estate brands from Brookfield Asset Management.

HomeServices rolled out its flagship brand, Berkshire Hathaway HomeServices, in 2013. By absorbing many former affiliates of the vanishing Prudential Real Estate brand, the network has grown to more than 35,000 agents in just two years. It’s preparing for an overseas launch in 2016.

Appeal of a regional franchisor

Upstate New York brokerage Houlihan Lawrence began franchising in January and now has 200 agents in three affiliates.

The Rye Brook, New York-based firm sees franchising as an affordable path to growth, Houlihan Lawrence managing principal Christopher Meyers said. The firm can test out new adjacent markets without investing tons of capital, he added.

Like other large independents with a big regional presence that franchise, Houlihan Lawrence has the local brand clout, the back-end systems, and the organized and successful business model to facilitate an affiliate network.

Those elements also appeal to smaller independents who want to grow with a larger local brand.

For example, Jeff Kelly’s 75-agent firm, Kelly Associates, had grown big enough in Darien, Connecticut, that it needed access to systems that a bigger firm had already developed using money and manpower.

He chose to affiliate with Houlihan Lawrence in January because it’s “a known local brand.” He didn’t want to be part of a big franchise network.

He and Meyers are friends, he said. Although he was sad to see his firm’s name go, “I don’t think of it as franchising.”

Top franchise brands run by large, regional independent brokerages*

Sources: Crye-Leike Realtors, F.C. Tucker, HomeSmart International, Houlihan Lawrence, Howard Hanna Real Estate Services, John L. Scott Real Estate, Realty One Group, Real Estate One, Weichert Realtors

Large national brands are growing, too

Many of the nation’s largest franchise brands saw their agent ranks swell from 2013 to 2015, according to Realtor Magazine’s Residential Franchise Reports for those years.

Keller Williams Realty’s growth led the way over that time period. With nearly 30 percent growth, its U.S. agent count has crested 100,000.

Re/Max and Better Homes and Gardens Real Estate grew 10.2 percent and 17 percent, respectively, over that span.

The flood of agents entering the industry with the healing housing market has not just benefited franchisors.

The proportion of agents at independent brokerages and franchisors both increased by 1 percentage point this year over last year, according to NAR’s 2014 and 2015 Member Profiles.

Fifty-five percent of all agents work at unaffiliated firms; 42 percent work at franchised companies. The balance work at firms classified in the NAR reports as “other.”

Top national franchisors

Source: Realtor Magazine 2015, 2013 Residential Franchise Reports *HomeServices of America has a controlling interest in BHHS, which launched the second half of 2013.

Email Paul Hagey.