Franchising and Marketing Activities (Notes)

12 Months Ended

Dec. 31, 2020

Franchising and Marketing Activities [Abstract]

FRANCHISING AND MARKETING ACTIVITIES Franchise fee revenue includes domestic initial franchise fees and international area development fees of $7 million, $9 million and $6 million for each of the years ended December 31, 2020, 2019 and 2018, 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 $63 million, $50 million and $52 million for the years ended December 31, 2020, 2019 and 2018, 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 $306 million, $282 million and $295 million for the years ended December 31, 2020, 2019 and 2018, 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 $69 million, $90 million and $86 million for the years ended December 31, 2020, 2019 and 2018, respectively, which included marketing fees paid to Realogy Franchise Group from Realogy Brokerage Group of $10 million, $11 million and $11 million for the years ended December 31, 2020, 2019 and 2018, 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,
	2020	2019	2018
Franchised (domestic and international):
Century 21®	13,222	11,640	9,637
ERA®	2,318	2,301	2,331
Coldwell Banker®	2,263	2,323	2,380
Coldwell Banker Commercial®	168	159	171
Sotheby’s International Realty®	952	962	949
Better Homes and Gardens® Real Estate	389	391	362
Corcoran®	74	—	—
Total Franchised	19,386	17,776	15,830
Company owned:
Coldwell Banker®	605	634	672
Sotheby’s International Realty®	39	37	41
Corcoran®	29	42	42
Total Company Owned	673	713	755

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


	(Unaudited) For the Year Ended December 31,
	2020	2019	2018
Franchised (domestic and international):
Beginning balance	17,776	15,830	14,039
Additions	2,109	2,399	2,149
Terminations	(499)	(453)	(358)
Ending balance	19,386	17,776	15,830
Company owned:
Beginning balance	713	755	789
Additions	5	4	8
Closures	(45)	(46)	(42)
Ending balance	673	713	755

As of December 31, 2020, there were an insignificant number of franchise agreements that were executed for which offices are not yet operating. Additionally, as of December 31, 2020, 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. If the revenue performance thresholds are not met, franchisees may be required to repay a portion of the outstanding notes. The amount of such franchisee conversion notes were $155 million and $134 million at December 31, 2020 and 2019, 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 $32 million, $29 million and $29 million for the years ended December 31, 2020, 2019 and 2018, respectively.