A top franchise choice for many first-time franchisees is the real estate franchise. Perhaps this can be attributed to the fact that most of those prospective franchisees are homeowners or investors and they’re experienced in real estate. Before investing in a real estate franchise, you should be confident that it’s the kind of business you’ve been looking up to starting.
The best way forward would be to contact a real estate franchisee lawyer to advise you on the legalities and intricacies involved in the business. A real estate franchise lawyer will help you understand the different types of real estate franchises and whether you’re cut for that business. So, what is are real estate franchises? Are they lucrative?
Real Estate Franchise Explained
Real estate franchises operate just like your ordinary franchise business model, where businesses–whether individuals or companies, licenses prospective investors to trade under their trademark in a designated jurisdiction. A real estate franchise is formed when an investor is allowed to sell franchises using the business name of a successful real estate dealer.
Investing in the real estate sector promises a positive ROI and that’s why there’s no shortage of investors who are looking to own real estate brokerage franchises, manage, and operate. Before appending your signature on the dotted line, it is important to know that the deal involves two parts; purchasing part ownership of an existing business, and acquiring exclusive rights from the franchisor.
What You Should Know When Buying a Real Estate Franchise
The following are some common tips for buying a real estate franchise:
1. Re-Imaging and Brand Obligations
Prospective buyers should establish whether the opened units meet the franchisor’s brand standards. Otherwise, the franchisor can request an investor to re-image the business if it doesn’t meet brand standards. The buyer should understand the terms of engagement, including what’s required and each party’s obligations like who should pay for the reimagining and compliance costs.
2. Right to First Refusal
Rights to first refusal prevent franchisees from selling their business interest to third parties without giving the franchisor a shot at buying–under the same terms and conditions.
Most franchise agreements expressly prohibit the transfer or sale of business interests without the approval of the main owner of the business–the franchisor.
3. Franchise Fees
The franchisee acquires certain exclusive rights to a franchise after paying the franchise fee. Franchise agreements indicate the amount to be paid for a transfer to be initiated. The parties must agree on who should cater for the transfer fee.
4. The Franchise Agreement
An active franchise agreement typically terminates once the franchisee transfers their interest to third parties. Most franchisors draft a new agreement instead of using the original one. The buyer must review both agreements to understand what changed and how the change impacts their prospects, although they (buyers) may not be in a position to negotiate the terms of a franchise agreement.
5. Lease and Franchise Term
The remaining term, according to a franchise agreement, and the remaining term of an active lease are mostly inconsistent. For instance, the franchise term could be 10 years term, but the lease has only 2 years remaining, the buyer should request the lease to be extended to match the franchise term.
Types of Real Estate Franchises
Real estate franchises are of two types; brokers or dealers. The main difference between these two real estate franchising models is their target clientele. Brokerages typically interact mostly with customers whereas dealerships interact mostly with potential buyers.
Services Offered by Real Estate Franchisees
Real estate franchisees can provide many services, such as assisting investors to buy or sell properties, helping clients with paperwork, negotiating on behalf of clients, and closing deals. However, real estate franchises are more involved in providing the following services:
1. Property Management
Property management involves keeping properties in good condition on behalf of the owner for a fee. This service ensures tenants have safe and habitable dwellings or when a property has sensitive and costly equipment, such as generators, elevators, and water heating & A.C systems.
Tenants will likely report mechanical problems if a caretaker is available than when they’re not available. Property maintenance can also include maintenance, cleaning, pest control, among other activities.
2. Property Viewing
Property viewing allows prospective buyers to see and have a feel of what they intend to buy before committing themselves. The viewing also authenticates the written details while revealing any inconsistencies between what was portrayed and the reality. Other advantages of property viewing include evaluating the physical structure, potential hazards, besides helping to estimate valuation.
Real estate franchises are not hard to establish as long as your approach is right and you’ve done due diligence. Once you identify what can work for you, and you have the passion contact a real estate franchisee lawyer for legal counsel. Also, read a Step-by-Step Guide to Buying Your First Home.