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Title Company Franchise vs. Joint Venture

Title Company Franchise vs Joint Venture

For mortgage companies, real estate brokerages, and other players looking to create a title company, two business models are usually considered: a title company franchise or a joint venture. While both business models have proven effective, there are critical differences between the two that one should be aware of before final decisions are made. The following guide takes an in-depth look at the differences between title company franchises and joint ventures.

What are Title Company Franchises?

A title company franchise is a unique type of company involving a title agency providing another party with a license to conduct business using the same trade names, trademarks, and other aspects of the agency. If an agreement can be made to create a franchise between two parties, one party will be referred to as a franchisee. In comparison, the other party is named the franchisor.

The company that acts as the franchisor will be responsible for providing the franchisee with the brand’s services/products to sell. As for the franchisee, they are required to pay a specific royalty fee every month, which is made out to the franchisor. There are three core components of this business model, which include:

  • The franchisee can use the organization’s trademark;
  • The business model that the franchisee uses must be the same as the franchisor’s business model; and
  • The franchisor is tasked with providing the guidance and training the franchisee needs to run their business.

Along with the monthly royalty fee mentioned previously, the franchisee must also pay an initial fee to set up the franchise.

What Are Joint Ventures?

If you are interested in creating a title company via a joint venture, this business model involves two parties with similar business objectives deciding to create a joint investment agreement. This agreement creates a strategic alliance between the two entities, which is usually built for the purpose of reaching new markets. These markets could be local, regional, or national, depending on each company’s goals.

While the joint venture is being formed, the operational guidelines that each party must abide by will be mutually decided between these parties. Working towards the same goal makes it possible to achieve better results when involved in a joint venture.

Pros and Cons of Starting a Title Company Franchise

Before deciding whether to create a title company franchise or joint venture, compare the pros and cons of each business model. The primary benefits of starting a title company franchise business include:

  • This model has existed for some time and has proven to be effective with title companies;
  • The purchasing power that the franchisee gains access to means that money can be saved in specific areas;
  • The franchisor automatically gives franchisees ongoing support and training;
  • It is unlikely that one will have any competition from other brand franchisees in that area;
  • Benefits from the brand’s customer base and reputation; and
  • Franchisors are often willing to cover as much as 70% of the initial costs.

The downsides to creating a title company franchise business include:

  • The initial costs and royalty fees can be very high and may become impossible to pay;
  • While essentially owning the franchise, the franchisor can determine how the company will operate and what the business model will be; and
  • The franchisor will occasionally request comprehensive performance metrics affecting business strategies and independence.

Pros and Cons of Starting a Joint Venture

The primary benefits of starting a joint venture include:

  • Purchasing power will increase from having a partner;
  • Access to your partner’s pre-existing experience and resources;
  • Share costs and responsibilities associated with running the business;
  • It is possible to get access to new distribution channels and markets;
  • Entering a joint venture can help avoid some of the pitfalls associated with starting a small title company business; and
  • Business can grow more rapidly, which should increase overall profits by a considerable amount.

The downsides to creating a joint venture include:

  • The partners will need to have similar goals and objectives to reach long-term success, which is a difficult balance to strike;
  • Profits must be shared with business partners;
  • Management styles may clash; and
  • Extensive research must be performed before entering into a joint venture.

These business models are both viable when thinking of creating a title company. Once you have compared the advantages and disadvantages of each approach, you should better understand which option fits your style and matches well with the type of business you would like to create.

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