Better Homes and Gardens Real Estate’s franchise business is moving to a capped fee model, where franchisees pay a royalty fee capped at a set amount per annual agent sales. It’s the only Realogy franchise business that will be operating outside the 6 percent royalty fee.

Better Homes and Gardens Real Estate’s franchise business is offering franchisees a capped fee model, where franchisees pay a royalty fee capped at a set amount per annual agent sales. It’s the only Realogy franchise business that will be operating outside the 6 percent royalty fee.

Realogy CEO Ryan Schneider discussed the changes during a chat at the Keefe, Bruyette & Woods Real Estate Finance & Asset Management Conference on Thursday.

Realogy CEO Ryan Schneider

Realogy CEO Ryan Schneider | Credit: Kyle Espeleta/Inman

“We’re in the midst of changing our Better Homes and Gardens model from a traditional 6 percent headline price franchise fee, two percent marketing fund contribution, to actually what looks more like a capped fee model,” Schneider said. “We go to market with multiple franchise brands and they all have that same price structure, we actually don’t have a brand that competes with the capped fee franchise models out there.”

Following this article’s initial publication, Sherry Chris, the CEO of Better Homes and Gardens Real Estate told Inman on Monday that the move to offer franchisees a capped model comes as Better Homes and Gardens Real Estate looks to stay ahead of trends.

“Looking at the national market overall, one of the things that I noticed and we noticed is, it’s not a one-size-fits-all market,” Chris told Inman. “Geographically, models are different and the way business is done is slightly different.”

Effective as of January 2019, Better Homes and Gardens Real Estate franchises will have the option to switch to a fee of 5 percent of gross revenue — excluding gross revenue from property management services and certain other revenue — with an annual cap of $6,250 per affiliated sales agent, according to the company’s publicly filed franchise disclosure document.

Schneider and Chris both said Realogy began experimenting with it last year and Schneider said during the investor chat that the company liked the incremental growth it saw both in terms of franchise sales and agent growth.

Sherry Chris

Better Homes and Gardens Real Estate CEO Sherry Chris. Credit: Better Homes and Gardens Real Estate/Realogy

“It has not rolled out nationally, it is an offering that we are talking to various people about, but we’re not shifting our Better Homes and Gardens value proposition in any way,” Chris said. “We are a lifestyle brand, a full-service real estate brand that has a very strong service model, technology, marketing, we have exclusive access to a 200 million [person] consumer database through the magazine that we direct target market to.”

“We want to keep ahead of what not just the trends are, but what the individual market places are doing with a nod to the consumer because we are absolutely a consumer-focused brand,” Chris added.

Coming to market with a capped franchisee fee model will give Realogy an offering to compete with franchises that currently offer a capped model, like Keller Williams, Windermere Real Estate and EXIT Realty.

According to the most recent data available in the National Association of Realtors’ 2017 franchise report, at Keller Williams, the transaction fee is 6 percent of an office’s monthly gross revenue, capped at $3,000 per agent annually.

At Windermere, that the royalty fee is 5 percent GCI per transaction on the first $85,000 of residential sale commissions earned by each agent during each calendar year. At EXIT Realty, franchisees pay a transaction fee between $50–$225, capped annually at $2,700 per agent.

“Now we have an offering to target franchisees who want a capped fee model,” Schneider said.

Realogy first revealed the change in their year-end earnings report.

“One exception to this flat 6% royalty fee structure is our Better Homes and Gardens Real Estate franchise business, which launched a “capped fee model” on January 9, 2019 that applies to any new franchisee as well as preexisting franchisees who elect to switch from their current royalty fee structure to the capped fee model,” the report states. “Under this capped fee model, franchisees pay a royalty fee (generally equal to 5% of their commission income) capped at a set amount per independent sales agent per year, subject to our right to annually modify or increase the independent sales associate cap.”

Update: Updated after publication with additional comments and clarification on the rollout from Better Homes and Gardens CEO Sherry Chris. 

Email Patrick Kearns

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