Franchising and Marketing Activities (Notes)

12 Months Ended

Dec. 31, 2019

Franchising and Marketing Activities [Abstract]

FRANCHISING AND MARKETING ACTIVITIES

Franchise fee revenue includes domestic initial franchise fees and international area development fees of $9 million, $6 million and $8 million for each of the years ended December 31, 2019, 2018 and 2017, respectively. The Company’s real estate franchisees may receive volume incentives on their royalty payments. Such annual incentives are based upon the amount of the franchisees commission income earned and paid to the Company during the calendar year. Each brand has several different annual incentive schedules currently in effect. Franchise fee revenue is recorded net of annual volume incentives provided to real estate franchisees of $50 million, $52 million and $62 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company’s wholly-owned real estate brokerage services segment, Realogy Brokerage Group, pays royalties to the Company’s franchise business; however, such amounts are eliminated in consolidation. Realogy Brokerage Group paid royalties to Realogy Franchise Group of $282 million, $295 million and $299 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Marketing fees are generally paid by the Company’s real estate franchisees and are generally calculated based on a specified percentage of gross closed commissions earned on real estate transactions, and may be subject to certain minimum and maximum payments. Brand marketing fund revenue was $90 million, $86 million and $87 million for the years ended December 31, 2019, 2018 and 2017, respectively, which included marketing fees paid to Realogy Franchise Group from Realogy Brokerage Group of $11 million, $11 million and $12 million for the years ended December 31, 2019, 2018 and 2017, respectively. As provided for in the franchise agreements and generally at the Company’s discretion, all of these fees are to be expended for marketing purposes.

The number of franchised and company owned offices in operation are as follows:


	(Unaudited) As of December 31,
	2019	2018	2017
Franchised (domestic and international):
Century 21^®	11,640	9,637	7,973
ERA^®	2,301	2,331	2,298
Coldwell Banker^®	2,323	2,380	2,330
Coldwell Banker Commercial^®	159	171	180
Sotheby’s International Realty^®	962	949	905
Better Homes and Gardens^® Real Estate	391	362	353
Total Franchised	17,776	15,830	14,039
Company owned:
Coldwell Banker^®	634	672	707
Sotheby’s International Realty^®	37	41	41
Corcoran^®/Other	42	42	41
Total Company Owned	713	755	789

The number of franchised and company owned offices (in the aggregate) changed as follows:


	(Unaudited) For the Year Ended December 31,
	2019	2018	2017
Franchised (domestic and international):
Beginning balance	15,830	14,039	13,314
Additions	2,399	2,149	1,137
Terminations	(453)	(358)	(412)
Ending balance	17,776	15,830	14,039
Company owned:
Beginning balance	755	789	789
Additions	4	8	20
Closures	(46)	(42)	(20)
Ending balance	713	755	789

As of December 31, 2019, there were an insignificant number of franchise agreements that were executed for which offices are not yet operating. Additionally, as of December 31, 2019, there were an insignificant number of franchise agreements pending termination.

In order to assist franchisees in converting to one of the Company’s brands or as an incentive to renew their franchise agreement, the Company may at its discretion, provide incentives, primarily in the form of conversion notes. Provided the franchisee meets certain minimum annual revenue thresholds during the term of the notes and is in compliance with the terms of the franchise agreement, the amount of the note is forgiven annually in equal ratable amounts generally over the life of the franchise agreement. Otherwise, related principal is due and payable to the Company. The amount of such franchisee conversion notes were $134 million and $131 million, at December 31, 2019 and 2018, respectively. These notes are principally classified within other non-current assets in the Company’s Consolidated Balance Sheets. The Company recorded a contra-revenue in the statement of operations related to the forgiveness and impairment of these notes and other sales incentives of $29 million, $29 million and $25 million for the years ended December 31, 2019, 2018 and 2017, respectively.