Rumor has it the Keller Williams will open a franchise in the Burlington area in the next few months. Brian Armstrong, former broker at Century 21 Jack Associates, has partnered with Adam and Sarah Hergenrother, formally of Re/Max North Professionals in Colchester to open Green Mountain Real Estate with the intent, as I understand it, to buy a Keller Williams franchise in February. I had spoken with the KW regional manager before opening Castle Porter Real Estate and learned a bit about their business model. I learned more from the Keller Williams website and a Stanford case study of the company.
The Keller Williams business model is an agent driven model that profits by the economies of scale. Keller Williams business model is structured so that individual franchises become profitable only after recruiting 40 agents on average. A market center will try to recruit as many agents as possible in the “launch period”– the first 18 months of a market center’s operation. So, while the average brokerage firm had 49 agents per office in 2006, KW offices–called market centers– had 174 agents. Consequently, even though the average sales production per agent is lower at Keller Williams market centers (in 2004 the average KW agent had 6.7 sides while the national average was 10.8), this is more than compensated by the higher transaction volume than its competitors.
Keller Williams calls principle brokers “team leaders,” and it is the team leader’s responsibility to jump start the launch period by recruiting five influential, high-earning agents who can recruit additional agents. In fact, Keller Williams does not give final approval to a new franchise until the franchise owner, called the ”operating principle,” and the team leader recruit these core agents. If there are not at least five agents that the international franchise approves of, it does not approve the franchise agreement.
To recruit agents, the Keller Williams franchise provides a recruitment incentive call “profit sharing” that rewards an agent who recruits a second agent with a small portion of the profits the second agent makes as well as the profits of any agents the second agent recruits, up to seven degrees of separation from the original agent. Consequently, because the operating principle and team leader are at the top of the pyramid, they have much incentive to recruit other agents as quickly as possible.
There are other franchise models with different agent compensation arrangements and many are represented here in Chittenden County. Re/Max for example, let’s agents keep most of their commission but charges a desk fee of $2,000/month. Century 21, Coldwell Banker, and others start agents of at a 50/50 split after taking 8% of the top of the commission and increase the agent split as agent performance increases.
I chose not to associate myself with any franchise simply because a franchise is primarily in the business to sell itself, not homes. This is apparent in the KW business model that needs a market center of at least 40 agents to survive and profit-sharing scheme which rewards agents for recruiting other agents who recruit other agents. Real estate is a local product–bought locally and sold locally–and a national franchise is, when you add the dollars and cents, not a necessary part of the equation. The money that goes back to the franchise could be put to better use in the pocket of the seller, who could have paid a lesser commission, the buyer, who could see money back at closing, or in the pocket of the agent who doesn’t need to pay the franchise fee.
Most of what I’ve discussed can be found on the Keller Williams website in a Stanford University Keller Williams case study.
Keller Williams comes to Vermont
Rumor has it the Keller Williams will open a franchise in the Burlington area in the next few months. Brian Armstrong, former broker at Century 21 Jack Associates, has partnered with Adam and Sarah Hergenrother, formally of Re/Max North Professionals in Colchester to open Green Mountain Real Estate with the intent, as I understand it, to buy a Keller Williams franchise in February. I had spoken with the KW regional manager before opening Castle Porter Real Estate and learned a bit about their business model. I learned more from the Keller Williams website and a Stanford case study of the company.
The Keller Williams business model is an agent driven model that profits by the economies of scale. Keller Williams business model is structured so that individual franchises become profitable only after recruiting 40 agents on average. A market center will try to recruit as many agents as possible in the “launch period”– the first 18 months of a market center’s operation. So, while the average brokerage firm had 49 agents per office in 2006, KW offices–called market centers– had 174 agents. Consequently, even though the average sales production per agent is lower at Keller Williams market centers (in 2004 the average KW agent had 6.7 sides while the national average was 10.8), this is more than compensated by the higher transaction volume than its competitors.
Keller Williams calls principle brokers “team leaders,” and it is the team leader’s responsibility to jump start the launch period by recruiting five influential, high-earning agents who can recruit additional agents. In fact, Keller Williams does not give final approval to a new franchise until the franchise owner, called the ”operating principle,” and the team leader recruit these core agents. If there are not at least five agents that the international franchise approves of, it does not approve the franchise agreement.
To recruit agents, the Keller Williams franchise provides a recruitment incentive call “profit sharing” that rewards an agent who recruits a second agent with a small portion of the profits the second agent makes as well as the profits of any agents the second agent recruits, up to seven degrees of separation from the original agent. Consequently, because the operating principle and team leader are at the top of the pyramid, they have much incentive to recruit other agents as quickly as possible.
There are other franchise models with different agent compensation arrangements and many are represented here in Chittenden County. Re/Max for example, let’s agents keep most of their commission but charges a desk fee of $2,000/month. Century 21, Coldwell Banker, and others start agents of at a 50/50 split after taking 8% of the top of the commission and increase the agent split as agent performance increases.
I chose not to associate myself with any franchise simply because a franchise is primarily in the business to sell itself, not homes. This is apparent in the KW business model that needs a market center of at least 40 agents to survive and profit-sharing scheme which rewards agents for recruiting other agents who recruit other agents. Real estate is a local product–bought locally and sold locally–and a national franchise is, when you add the dollars and cents, not a necessary part of the equation. The money that goes back to the franchise could be put to better use in the pocket of the seller, who could have paid a lesser commission, the buyer, who could see money back at closing, or in the pocket of the agent who doesn’t need to pay the franchise fee.
Most of what I’ve discussed can be found on the Keller Williams website in a Stanford University Keller Williams case study.
Read a Keller Williams sales script.