Disenfranchised : New Owner Drops Century 21 Affiliation to Save 8% of Gross

Buddy Clark was no stranger to large organizations when he acquired Century 21/The Real Estaters in November. He had worked for a number of big companies and for the past four years had been director of western regional leasing operations for Southmark Corp.

So acquiring a real estate firm that was one of more than 6,000 members of the Century 21 residential real estate franchise presented no problems.

Then Clark began examining the books in earnest. He did not like what he saw.

The result is that the 30-year-old real estate firm, founded in 1960 at the height of Orange County’s initial development boom, is once again an independent after five years as part of the Century 21 organization.

But why break away from the world’s largest residential real estate operation, a monster franchise that can provide members with volumes of data, customer referrals from around the world and a national identity and reputation?

For Clark it was simple economics. He was paying 8% of his gross revenue to the franchise company and getting little in return. And his experience illustrates why some brokers leave when their franchise agreements are up for renewal.

The Real Estaters, which was started in 1960, was a well-known name with a decade of exposure in Costa Mesa and Newport Beach when Century 21 was just starting in 1970. In 1985, when former owner Terry McCardle signed the franchise agreement with Century 21, the established firm had two offices and about 75 agents,

“The Real Estaters affiliated because McCardle thought franchising would help him recruit more agents and would let him send new agents off to Century 21 for training because he didn’t want to be bothered with it,” Clark said.

But Clark, who acquired the firm in November, said a review of the books convinced him that remaining with the franchise now made no economic sense. In the year before he acquired the company, Clark said, The Real Estaters paid Century 21 about $200,000.

“And we didn’t use any of the services,” he said. “There is a place for franchises but not for an established firm like this.

“If I were new in town and just opening my doors, I’d run to a franchise to get the instant indentity and credibility the franchise name would give me. But a firm like this, with roots so deep in the community, didn’t need it.”

So for the past two months, the familiar gold and black Century 21/The Real Estaters sign has come down all over Costa Mesa and Newport Beach, replaced with the former red, white and black for sale signs of The Real Estaters.

To Clark, as to many fiercely independent business owners, reputation and local identity are the keys to success.

“A true franchise is like a McDonald’s, where customers know they’ll get the same quality wherever they go,” he said. “But that is not the case with a real estate franchise. The franchiser has very little control over the individual brokers. It makes a tremendous amount of information and training available to its members, but the broker has got to go out and seek it, and pay for it, otherwise it does not good.”

Monte Helme, vice president for public relations at Century 21 Real Estate Corp.’s international headquarters in Irvine, said it is not unusual for a large and aggressive franchisee to sever its ties with the organization.

“We are sorry to see them go but it happens,” he said.

Century 21 still has 6,000 offices in United States and continues growing, Helme said. “We began 20 years ago with just 17 offices.”

The franchiser’s appeal, he said, “is to smaller independent offices who are faced, and this was especially true in the very beginning in the early ‘70s, with competing with large independent offices and regional chains.”

And for every Clark, Helme said, Century 21 can recount “outstanding success stories of offices that have joined the system as small independents and grown.”

Among them is Century 21/Emery Realty in Fullerton. Broker Jim Emery had one agent working for him when he started as a Century 21 franchise nearly 20 years ago. “Now he has 11 offices and 712 sales people and is listed as the 40th largest real estate company in the United States,” and still is part of Century 21, Helme said.

But to Clark, it is not the franchise name that sells homes. “It is the agents,” he said. “If you sell your home through a franchise office in Illinois, you can’t be sure you’ll have equal service buying a home in California through a local office of the same franchise.”

Home buyers choose agents through recommendations of friends and colleagues and not through the name of an agency’s affiliation, Clark said. Our customers are coming to the agent, not to me or to Century 21. But Century 21 was getting about 8% of our gross,” he said.