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Q: real estate broker ( Answered 3 out of 5 stars,   3 Comments )
Subject: real estate broker
Category: Business and Money > Small Businesses
Asked by: smalltree-ga
List Price: $20.00
Posted: 13 Oct 2006 10:17 PDT
Expires: 12 Nov 2006 09:17 PST
Question ID: 773230
I just got my real estate broker license.  I have been a sales person
with a franchise.  I am thinking about going independent for a while
but fear the burden of admistration.  Come to think of it, I am
getting very little added value from my franchise, I pay for my own
training, do my own lead generation, promotion, etc.  I do have their
E&O coverage.  I would like to work with a less costly model by not
having to pay an annual fee and 40% of my commission income.  I need
some insight of the following 3 questions:

1) pros and cons between going independent and affliated with a franchise. 
2) Besides E&O what else is required to become an independent broker,
LLC or license, etc.?  I already have most of the necessary operation
gears, namely business cards, website, domain, email, cell phone, gps,
computer, asf.
3) For E&O and your outlined requirement, any specific recommendation
and how to get the process going?

My ultimate goal is to do 20 to 30 transactions with adequate
advice/support infrastucture lined up, adequate business liability
protection, able to provide my customers with consistent quality
services without having to deal with hiring and training, yet still
able to maintain a sane personal life.  I hope I can be closer to this
goal with your help. Thanks!
Subject: Re: real estate broker
Answered By: keystroke-ga on 24 Oct 2006 11:06 PDT
Rated:3 out of 5 stars
Hello smalltree,

Thank you for your question.

There are many different aspects to it.

First of all, there is the issue of franchising vs. acting
independently.  When you join a franchise, you get that prestigious
name and the years of experience of that company packaged along with
it. Customers might trust you more because you're backed by ________
that they've heard of for years and know is a reputable, national
company.  (This can work the other way as well: if the company is
involved in a scandal of some sort, so will your business!) Different
franchises also have their own, proven methods of selling and business
practices that they can share with you and that might improve your
sales.  Even a person with no experience who opens a franchise is not
harmed by it, because they gain the reputation and experience of the
franchise for their business.  A large advantage that a franchise
would have in real estate is the ability to do much advertising and
marketing; advertising is expensive, and as an independent owner you
might not be able to afford it.  You gain even when a "competitor" who
also is of the same franchise advertises, because that's also your
name they're advertising. You could even join with another local
realtor that is under the same banner and combine your advertising. 
The franchise would have professionals/experts there for you if you
ever need any help or advice, which could be a big advantage.  The
franchisor also participates in more research and development than a
person would be able to by themselves, and so your business might be
able to have newer skills/technologies available to it.

However, there are certainly disadvantages. You'll have to share
profits and pay high fees to get that name brand, and you might have
to take orders from "higher-ups."  You might not like sharing the
spotlight and time with another organization. You won't be able to be
as creative as you could be without the yoke of a franchise.  You
won't have as much risk as you would by going with only yourself, but
you will still have risks.  You can't expect instant success with a
franchise and will have to work hard to establish a reputation, just
as you would have to by yourself.  Running a franchise could also be a
large paperwork burden, with requirements for reporting to

There's no reason you can't be successful as an independent. 

The Galvanization of the Independent Broker
by Blanche Evans

According to this article, of the top 500 brokers surveyed,
independent brokers were tops in more than 40 markets nationwide. You
can gain an edge by looking at the needs of locals more than the "big

Technology is also extremely important. With up-to-date technology,
you can compete with the franchises.

Realtor Magazine

Here are advantages and disadvantages of both:

"Which Should You Choose - A National Or Local Firm?"

Large Nationals


    * Name recognition

    * Marketing strength

    * Relocation business

    * Current technology

    * Structured training programs 


    * Large offices, will the manger/broker have the time necessary to
devote to you?

    * Franchise fees

    * Non-local ownership 

Smaller, Locally Owned Firms


    * More personal attention from the manager/broker

    * May have a niche in the local market

    * Smaller offices with fewer agents 


    * Lack of marketing strength

    * Difficulty in keeping pace with technology advances

    * No training program

    * Dependent on "on-the-job" training 


To supplement the franchising debate, here is an academic study which
concluded that franchisees made less (after paying all their fees)
than a comparable independent would.

"Franchising in Residential Brokerage", 2006

"Franchises are found to generate additional revenue for franchisees.
However, net margins defined as the difference between revenues
received and expenses paid (including franchise royalties) are lower
for firms with franchises. The findings indicate that franchisors
appear to extract the excess rents from the franchisee."

There are a myriad of further resources to be found here:

Field Guide to Franchising vs. Independent


As for your second question, you'll have to let me know what state
you're in so I can look into that for you. I suspect all states will
have different laws concerning this. Will you have employees?

No matter what state, you will most likely want to incorporate as
either an LLC or a corporation, which can provide limited protection
in some states as seen here:

Realty Times-- "Brokers Have More Legal Liability Than They May Think"


Your E&O insurance could be tricky, depending on what state we're
talking about. California, in particular, has a bad market. It could
be one of your biggest expenses (but remember that it would also be
tax-deductible as a necessary business expense). An important reminder
if you're changing insurance providers is that in order to be covered
for past mistakes you may have made (say, two years ago), you need to
be continuously covered. Make sure you start a new policy before you
ditch the old one.

If you've had good fortune with an insurance provider in the past,
stay with them. If not, find an independent insurance agent who is
familiar with real estate insurance and see what they offer in terms
of different companies' policies. Some companies offer per-transaction
coverage, which could be good for a new company starting out.

California Real Estate-- "Are You Covered?"

"REALTORS® should always check to see if insurance providers,
regardless of how they label themselves, have any track record of not
being able to fully meet their obligations. The broker and
representative for the insurance carrier should be asked to provide a
full written history of any problems encountered by any of the service
providers that comprise their team. A refusal to provide this
information is a red flag. In addition, if the provider misrepresents
its past, then there is a possible claim against that entity for

When asking about the history of the insurance provider, it?s
important that you inquire about the history of prior incarnations.
There are some entities that have had significant problems, but simply
set up another ?tent? to carry on with their business.

With respect to the insurance carrier, REALTORS® should request the
Best Rating for the insurance company. Best is a trusted entity that
provides a rating system for the financial condition and operating
performance of insurance carriers. The ratings begin at A++ and go
down from there. Any rating below an A- should be viewed as a risky

That page also includes a list of things to look at regarding each
insurer, including premiums, policy limits, policy terms and

This is also a helpful page from the Massachusetts Association of Realtors:


Advantages & Challenges of Franchising
Anonymous. Franchising World. Washington: Jun 2005.Vol.37, Iss. 6;  pg. 36, 2 pgs

"FOR BROKERS: Franchise affiliation"

What Franchise Is Right for You?

California Real Estate Magazine-- The Rising Cost of Doing Business

"What Real Estate Licensees Should Know..."

Field Guide to
Errors & Omissions Insurance

Search terms:
independent vs franchise real estate broker
e&o independent real estate

If you need any additional clarification before rating, let me know
and I'll be glad to assist you.


Request for Answer Clarification by smalltree-ga on 29 Oct 2006 23:57 PST
Hi Keystroke: thanks for the comprehensive answer.  a couple of areas
need some more clarification...

I am in california, I need to know exactly what is/are required 'by
law' to operate as an independent real estate broker without any
employee.  What else will be needed if I add 1 or 2 employees later? 
You mentioned LLC vs. corporation, what's the difference, and how do I
establish one such entity?

With limited budget, insuring E&O on transaction basis sounds more
cost effective.  Can you list a couple A rating E&O carriers who will
sell such coverage in California?

Thanks again!
smalltree-ga rated this answer:3 out of 5 stars
I was given the impression that keystroke may have confused between a
broker license and a salesperson license.  I am a licensed broker
which requires 2 years or an extensive board exam.  I am at a point to
re-evaluate if I should stay on with a franchise brokerage or break
off to be an independent realtor (having a broker license does not
require you to hang your license with a brokerage) to save operating
cost.  I resorted to google answer because I hoped google answer would
provide more in-depth and get to the bottom of my question. 
Keystroke's answer would be valuable to a newly licensed salesperson
and new to the industry.  I am a practicing realtor for years so the
information did not provide more in-depth which I was looking for.  I
am a little disappointed at the fact that I will need to find the
answer on my by investing more research time on the subject.

Thanks for trying to help.

Subject: Re: real estate broker
From: acorn-ga on 19 Oct 2006 16:55 PDT
What state are you in?

Subject: Re: real estate broker
From: myoarin-ga on 24 Oct 2006 14:35 PDT
That was great information, Keystroke.

When considering the comparisons of the success/income of franchisees
vs independents, I think that it should be pointed out that these are
comparing the results of groups of individuals that are pre-sorted by
those persons' choice of being a franchisee or staying (or going)
Some will feel more comfortable representing a well-known franchise
name and need that support; others will choose to take the risks of
being independent, for various reasons perhaps:
some won't like working for anyone in any way; others may start up as
independents and be successful enough to never look back; and there
may be some who start as franchisees, gain experience and local market
recognition, and then decided that they can go independent and save
the overhead and support of a franchise.

Personally, I tend to think that independents earn more because they
are the persons they are:  willing to take the risks  - and willing to
work that extra bit.

The numbers alone cannot say what is best for an individual; personal
experience and inclination, degree of dedication (time input) are
Subject: Re: real estate broker
From: myoarin-ga on 30 Oct 2006 02:50 PST
Hi Smalltree,

You might contact the people at this site:

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