Business Essentials: Big lessons for growing companies

RE/MAX uses high commission rates to put the customer first, so why can't it recruit more people? asks Kate Hilpern
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The Independent Online

"It's not that we've had no success here," says the com- pany's London regional director, Dirk Haro. "Since we opened our first British operation in 1999, we have grown to over 150 offices in the UK.

"But our dilemma is how to grow as fast as we have done in mainland Europe and the US."

RE/MAX believes the main obstacle is that its commission- based system, as well as its culture of working, is unfamiliar in this country and viewed as risky within the sector.

Mr Haro explains how the company differs from other estate agents, where the normal practice is for individual negotiators to take a small cut of the commission earned by their firm on a transaction.

"Let's face it - the industry has a bad reputation. The whole customer service aspect has been neglected for many years, which is not helped by the fact that agents only get an average of 10 per cent commission on a sale. Because our agents can make up to 80 per cent commission, customer service immediately becomes a priority for them."

RE/MAX is having no problem finding the franchisees who set up the offices. "We attract a lot of business people outside the industry willing to invest in our model," he says. "They see themselves more as business managers than as practising estate agents."

Rather, the problem lies in attracting the agents themselves to a system where they will be unsalaried associates who pay the franchisees 20 per cent from their commission income and a contribution to office overheads - a system similar to that used by barristers.

"While they are tempted by the potential to earn a lot more money, we are finding they are worried about not receiving a regular pay cheque because they are essentially self-employed," says Mr Haro.

Meanwhile, the housing market has quietened down. "There have been far fewer transactions lately and that hasn't helped us."

Getting people on board is not an issue in the US and many European countries, he points out. "We've enjoyed 32 years of continuous growth, with almost 6,000 offices worldwide and over 100,000 agents, and we have the dominant market share in many markets in the US. We are also successful in countries like Spain, Turkey, Portugal, the Netherlands, Switzerland and, locally, in Scotland."

He believes this is because of the entrepreneurial spirit among agents in these countries. "There is much more of a culture of wanting to be in control of your own business. That doesn't seem to exist in England," he says. "We have the same problem in Germany and France."

Mr Haro adds that the Americans put more emphasis on customer service. "I believe this ethos will come to the UK and that RE/MAX will be at the forefront of this inevitable change in the industry."

He feels sure that the self-confident, go-getting estate agents he is after are out there, but wants to know how to attract them to a new way of working.

What The Experts Say

Rosalind Renshaw, editor, The Negotiator (a fortnightly news magazine for estate agents)

"Franchising is an estate agency trend, and British brands have used it successfully with proprietor/ staff business models.

"RE/MAX thinks its sales-based approach is more attractive to experienced agents, but business has plummeted. People outside the industry may view selling houses as money for old rope, but agents know very different. RE/MAX must heed the changed market.

"A real problem is the UK's low commission: a negotiator may get 10 per cent per sale, but this is of the total 1.5 per cent agency fee - not the 8 per cent commanded in the US and continental Europe. Eighty per cent is little more attractive if sales are poor, you have no job security and you also contribute to office overheads.

"RE/MAX should provide agents with more diversified business opportunities. It should maximise its international community to the hilt and offer UK agents the chance to be pre-eminent in selling properties abroad - a growing market."

Stewart Masterton, business adviser, Business Link for London

"While RE/MAX has a presence in the UK, it is not a well-known high-street brand. As a consequence, housebuyers and sellers do not know its proposition in terms of success or customer service.

"RE/MAX will need to address this via highly targeted marketing, in order to attract business investors and experienced estate agents who may want to break out and start their own operation.

"As a franchisor, RE/MAX will need to show how it is prepared to support its franchisees. Commitment to building a strong brand will help assure potential estate agents that they have the backing of a credible, recognised company.

"In the current UK climate of fewer residential property sales, the loss of 20 per cent of fee income for agents will also need to be justified. Using research data, therefore, RE/MAX may need to adjust its business model to meet the dynamics of the UK market.

"Building area franchise groups through a single senior investor or franchisee may provide the required impetus."

Peter Bolton King, chief executive, the National Association of Estate Agents

"There are estate agents in this country with entrepreneurial flair, and the principle of being helped to run your own business is something that will appeal to many of them. The concept of a service-based approach is right as estate agency is principally a 'people business'.

"In the US and elsewhere, commissions of up to 8 per cent are available, shared between selling and buying agents. And the individual earning potential is higher than in the UK, with its average 1.5 per cent.

"Many franchisees and agents will have concerns that the market has historically been cyclical, boom and bust, rather than showing steady growth. In a poor market, a 'sales only' agency is often only marginally profitable at best, resulting in concerns about making ends meet.

"Perhaps franchisees need to be able to 'spread the risk' by introducing additional revenue streams. They must also encourage quality agents, membership of professional bodies and continuing training.

"The growing bureaucratic mountain of regulations and laws relating to running your own business will also deter some. Presumably, RE/MAX can offer help and support to reduce this stress?"