Realty ONE Group, a Las Vegas brokerage company that expects to post $4.5 billion in sales in the tri-state area of California, Nevada and Arizona in 2012, has opened its first franchise in Temecula with a seasoned real estate executive and a $1 buy-in.
Kuba Jewgieniew, chief executive, said the franchise that Temecula-area real estate broker Barbara Baker will operate as Realty ONE Group Southwest is the entry point for expansion into the San Diego, Inland and Los Angeles markets.
It's part of an assertive plan to expand the brand nationally and take the company to IPO-level status in 2013.
"I'm a big believer in monitored, organic growth," Jewgieniew said, noting that Temecula was the first pick for Realty ONE's first franchise because of the elevator ride the firm has had since it opened its affiliate office in Laguna Niguel two years ago.
The first year of operation in California, Realty ONE closed 99 transactions, he said. By the end of the second year, the California affiliate was managing six Orange County locations and closed 2,500 transactions.
Even as Baker launches the first outpost in Temecula, Realty ONE Southwest will be the pivot point for franchise deals that could be inked with real estate brokers in Rancho Cucamonga, Riverside and Ontario.
"We plan to open a minimum of 100 franchise locations across the U.S. by 2015," Jewgieniew said, adding the view that this growth strategy is attainable because of the unique way it's structured.
With the $1 buy-in, Realty ONE reserves the right to pick and choose the franchise the company wants to represent its brand. The franchisee puts up the payroll, the leases and assumes the bulk of the cost of doing business. "Rather than charge a $10,000 to $20,000 up-front fee, they keep the money to invest into their franchise," he said. "This way, as they make money, we make money. We're all in it for the long-term."
While guiding the franchise, the parent company collects a revenue share of the agent's monthly fee. If it's $100 a month, Realty ONE collects $25, Jewgieniew said. Each sale nets a set fee of $200. "We take $50; the franchisee keeps $150."
Baker said she was attracted to Realty ONE Affiliates by the professionalism of the organization, its rapid growth since it was founded in 2005 and the simplicity of the franchise fee.
"There are two business models, and one is rapidly going away," Baker said, describing a commission-split concept that gives the brokerage a set percentage of an agent's sales commission. The other business model, which this franchise system has adopted, is based on the purchase price of the property.
"We keep it simple," she said. "There are no hidden-fee surprises."
Agents will be charged a flat fee for full use of the office, copy machine, scanning, real estate training and an in-house escrow office. A set fee is paid to the brokerage house per $1,000 of the purchase price after a transaction closes, she said. Other systems sometimes reaped less than 65 percent take-home even when 80/20 splits were negotiated.
Baker believes this formula works best in tough times. "It's been a difficult market," she said. "The more an agent can take home with them, the better off we'll all be. That's where the growth comes in."
Rick Hudson, executive vice president of franchise development, said three regional vice president positions were also created to open franchises in 17 states -- from Texas to the Dakotas and all states west from California to Washington. John Garry will oversee Southern California, Arizona and New Mexico.
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