Explanation

This risk was not identified in the FDD package. While the system is large, the data in Item 20 shows a net decrease in total outlets over the last three years, which suggests the system is contracting rather than experiencing the strains of excessively rapid growth. A franchisor expanding too quickly may strain its ability to provide adequate support and training to all its new franchisees, potentially harming the brand and individual unit performance. You should still evaluate their support capacity.

Potential Mitigations

• Asking current franchisees about the quality and timeliness of the support they receive from the franchisor is a valuable due diligence step.
• It is wise to have your business advisor evaluate the franchisor's support staff-to-franchisee ratio based on the information in Item 2.
• Your attorney can help you inquire about the franchisor’s plans for scaling support services in the future.

Explanation

This risk was not identified in the FDD package. RE/MAX, LLC has been operating and franchising since 1974, as disclosed in Item 1. It is a large, mature, and globally recognized brand, not an emerging or unproven system. This extensive history provides a long track record of performance, though it does not eliminate other business risks. For a new system, the business model may be unproven and the brand may lack recognition, increasing the risk of failure.

Potential Mitigations

• A business advisor can help you analyze the long-term trends of any mature franchise system, including its adaptation to market changes.
• It is prudent to ask long-tenured franchisees about the evolution of the brand and the franchisor's support over time.
• Your attorney should still review the entire FDD for any risks that might be associated with a mature system, such as market saturation.

Explanation

This risk was not identified in the FDD package. The core business of real estate brokerage is a long-established industry with sustained consumer demand, not a business model based on a recent or fleeting trend. While the real estate market is cyclical, the fundamental service is not considered a fad. A fad-based business carries the risk that consumer interest could decline sharply, potentially leaving you with a worthless business and ongoing contractual obligations to the franchisor.

Potential Mitigations

• A business advisor can help you assess the long-term viability and cyclical nature of any industry you consider entering.
• Understanding the franchisor's strategies for technology and marketing innovation is important for any long-term investment.
• Your accountant can help model financial performance through various economic cycles.

Explanation

This risk was not identified in the FDD package. Item 2 details the business experience of the franchisor's key executives. The management team is composed of individuals with extensive and long-term experience within both the real estate industry and the RE/MAX system specifically. A lack of relevant management experience in franchising or the specific industry can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• It is still wise to conduct independent research on the background and reputation of key executives with your business advisor.
• Discussing the management team's accessibility and effectiveness with current franchisees provides valuable insight.
• Your attorney can help you understand the roles and responsibilities of the key personnel listed in Item 2.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent companies, including the ultimate public parent, RE/MAX Holdings, Inc. The audited financial statements provided in Exhibit C are consolidated for RE/MAX, LLC and its subsidiaries. The FDD appears to meet the requirement to disclose parent companies and provide their financials when necessary. Failing to disclose a parent or its financials when required can obscure the true financial health and control structure of a franchise system.

Potential Mitigations

• Your accountant should always verify that the financial statements provided match the entity you are contracting with and its parent.
• It is a good practice for your attorney to review the corporate structure described in Item 1 to ensure full transparency.
• Confirming that any guarantees from a parent company are properly documented is a crucial step for a business advisor.

Explanation

Item 1 describes a history of re-acquiring regional franchise rights from independent subfranchisors, such as RE/MAX of New York in 2016. While presented as strategic acquisitions, this history indicates the system was previously managed by different entities in various regions. This could mean that some long-term franchisees have experience under different leadership, and there could be legacy issues or practices inherited from these predecessors that affect the system.

Potential Mitigations

• Inquiring with long-term franchisees in your region about their experiences under both predecessor and current corporate management can be insightful.
• Your business advisor should help you investigate if there are any lingering integration issues from past acquisitions.
• Your attorney should confirm if any obligations from predecessor agreements could potentially affect your franchise.