The Real Deal ZA
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The Real Deal ZA

Are you competing against your own real estate brand?

This tweet from Glenn Sanford, eXp CEO caught my eye for obvious reasons:

I’ve seen reports of master franchises buying their own franchises and I’m wondering if this is part of a bigger strategy to benefit everyone in the brand, or simply a case of tweaking the model to be more efficient and keep up with the demands of local times?

I’ve also seen acquisitions on other levels. Holding companies buy out complete franchise brands and on a VC level, access to capital is used as a competitive advantage to acquire competitors to achieve exponential growth while not necessarily making any profits (think Compass).

On a lower level, conversations I have with agents and brokers reveal how they are competing against their brand, with a common pain point, no exclusive areas.

Whether this is good for the industry as a whole is irrelevant. What matters more is if the consumer receives a better service as a result. I’ve identified four possible ways agents and brokers can end up competing against their brand.

1. Company-owned franchises

As I’ve noted, some franchisors run a mix of their own company-owned and independent franchises. This begs the question, are these franchisees in competition with the franchisor?

Unless the franchise agreement says something different then, in theory, a franchisor can be in competition with its franchisees because there is nothing to stop a franchisor from operating company owned outlets/franchises itself. Source

Ouch. Especially if you are paying heavy license and royalty fees.

If you look at the following article you will see that acquiring independent regions is part of the strategy of one of the world’s leading and oldest franchises, with improved efficiency and scale touted as one of the main reasons:

source

Is this fair to current franchisees and will consumers benefit from this model?

2. Overlapping franchise areas

A common problem that surfaces in my discussions with brokers are that of overlapping franchise areas. So big, that some opted to cancel agreements or are currently doing some homework to exit.

In a lot of cases, exclusivity in a specific area is not guaranteed or is vaguely defined. With real estate becoming more virtual, and the location of the physical office playing less a prominent role, the problem is amplified even more if you consider the following:

People search for real estate companies and agents online.

In the case of a prominent brand, they would perhaps Google ‘Franchise ABC in Stellenbosch’ and not the specific office name. When there are multiple franchise offices in overlapping areas, it creates a problem if people Google the brand and not the specific brand office. Suddenly you are not enjoying the exclusivity of your online space for the area you’ve licensed. It gets even more interesting if these brands start to compete for local brand keywords through paid advertising.

Let’s dive in deeper, with problems exposed on the agent level.

A situation was pointed out to me where a seller opted for a listing valuation from various agents, including two from different but overlapping franchise offices. One of the agents ended up undercutting its own brand by reducing commission substantially to win the mandate.

As a result of overlapping areas, brokers cannot do effective quality control in a particular area. This includes the type of message that reaches consumers through local advertising and the specific agent they feel is qualified to service the area. One bad experience with a particular brand in a neighbourhood and the other franchise brand suffers as a consequence. There are countless other examples. These little problems compound over time and add to the frustration of brokers and agents of that brand until it reaches breaking point.

3. Super large offices

If agents don’t have exclusive areas, they end up competing against their fellow agents under the same brand. Martin Riley shared his view:

I have worked for a large brand with open areas, and although I enjoyed the open area part because it was less restrictive, I didn’t enjoy the in house politics of competing against my own colleagues. This was a focus for me when I started Club Real Estate, we put into place closed farming areas, this allows an agent to focus and specialize in an area, without the risk of competing with their own brand in that specific area, but only in terms of lead generation and marketing. If one of my agents has a client ( friend, family member or referral ), request that they sell their property in an area that falls within another colleague’s area, they can do this, but they are just restricted in terms of their lead generation. Best of both worlds and it works well.

Depending on the model, agents will either hold on to their buyers and sellers at all costs or share and work as a team. If you can get it right, the shared model can work in your favour, as noted by Sean McFarlane:

On the question of competing agents in one area from the same brand, it’s great! If I was only able to take 10% market share by myself but with another agent we’re able to take 20%, suddenly brand exposure is doubled and it makes conversations with potential sellers a little warmer. That feeds the engine and we should be able to grow further from there as we become the go to.

Likewise, having agents in adjacent areas fills the gaps and allows me to service clients moving from my area of focus to theirs.

Also, if they list in my area, I can support them with market insight and buyers — this goes both ways. Makes us all more successful.

What underpins this is a culture of sharing. We open our stock up immediately and work as a team.

So, depending on the culture and model of the office, a very large office can either work in your favour or against you. This is a critical point to evaluate if you are an agent looking to join a real estate company. Do you get area exclusivity or is there an open model where the focus is more on recruitment.

4. Conglomerates

Ever walked into a supermarket and been overwhelmed with overchoice? In reality, the chances of you spending your money on just 10 companies are pretty good when you look at who owns who:

It’s the same in other industries including real estate where many of the top brands are owned by holding companies. Most notably is Realogy, the largest holding company in the US who owns Century 21, ERA, Sotheby’s, Coldwell Banker and other brands:

On 12 May Realogy announced a name change to “Anywhere”, are they looking to move into a more consumer facing brand?

In South Africa, we have similar structures, most notably the Betterlife Group with ownership in RE/MAX, Tyson, Chas Everitt , Realnet and Fine & Country.

This can work well in the name of efficiency, you can offer the same platforms and service providers across your brands. Question is, does this create underlying problems for brokers and agents where profits essentially flow to the same holding company? Will those profits for instance be used to buy out more competitors (and keep them alive at your cost)? Are funds used to boost a particular brand where the ROI is better? Transparency is critical, even more so when holding companies own related services that are used by the rest of the industry. Real estate is a zero sum game. When your competitor is kept alive, there is less left for you on the table.

For the record, I don’t see consolidation in the real estate industry accelerating. Boutique independent agencies and teams are perfectly positioned to serve smaller areas and can generally operate at better efficiencies. Agencies today also have a choice of online tools that at this stage evolve faster than anything a single real estate company can offer. Why would I consolidate into your brand if I can get better tools out there and have access to the same online marketing platforms?

Summary

I’ve explored four possible ways agents and brokers can end up competing against their brand, some not so obvious.

Do some homework and make sure that the company you align with doesn’t end up competing against you. If it does, ask questions and try to understand if the competition is healthy. At the end of the day, you need to focus on the consumer and give yourself and your company the best possible chance to succeed. Your competitive edge may be to not compete against your own brand. Less office politics results in better focus. A focussed mindset wins business.

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