FDD Talk 2019: HouseMaster Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the HouseMaster franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a HouseMaster franchise, based on Item 7 of the company’s 2019 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a HouseMaster franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned HouseMaster outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of HouseMaster’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2017 and 2018 average, median, highest, and lowest gross sales for 3 different subsets of U.S. HouseMaster franchisees based on number of Owner-Occupied Homes (OOH) in the territory (or combined territories if they own multiple licenses) granted to the franchisee (less than 75,000 OOH, more than 75,000 OOH and less than 300,000 OOH, more than 300,000 OOH)

• 2017 and 2018 average, median, highest, and lowest inspection fees for different subsets of U.S. HouseMaster franchisees based on the region in which the franchisee’s territory is located (Northwest, Midwest, West, and South)

Section I – Background Information

23 Things You Need to Know About the HouseMaster Franchise

Partners with Xactware to Provide Repair Cost Estimates for Homebuyers

1.  In late December 2018, HouseMaster announced its partnership with Xactware, a leading technology provider for the property industry, to offer a new way for homebuyers to rapidly estimate home repair costs based on the results of their home inspection.

2.  During the home buying process, consumers typically need to ask sellers to either make repairs or reduce the price of the home, and investors or buyers interested in homes sold “as-is” need to consider the impact of repairs on their budget. Consumers can now turn to HouseMaster for a new way to get fast, reliable repair estimates – a service called Repair Estimate Reports.

3.  Kathleen Kuhn, president and CEO of HouseMaster, said, “Getting reliable quotes in a short amount of time is an incredible challenge for homebuyers and real estate investors. Repair Estimate Reports will speed up the transaction and provide consumers with greater peace of mind.”

4.  As part of a HouseMaster home inspection, consumers can now simply click “Create a Repair Estimate Report” on the HouseMaster website, enter the property information, and begin generating quotes on items to repair. Repair Estimate Reports builds estimates using cost information that has been researched and validated by Xactware. One repair estimate report is available with every inspection. Consumers can purchase additional reports on the company’s website for $29.

5.  Founded in 1986, Xactware is a Verisk business that specializes in technologies for the property insurance, remodeling, restoration, and mortgage and lending industries. Today, 23 of the top 25 property insurance companies in the United States and all 10 of the top 10 Canadian insurers use Xactware’s property insurance claims tools. HouseMaster’s Repair Estimate Reports is the most comprehensive personal estimator available because it’s the only one powered by Verisk’s decades of pricing data on neighborhoods across the U.S. and Canada.

6.  David Obert, vice president of property solutions for Xactware, said, “HouseMaster knows home inspections and homebuyers, and Xactware knows estimating, data, and software. Together, we’ve been able to create a tool that gives consumers access to the most in-depth and verified cost estimates in North America.”

Celebrates 40th Anniversary by Reflecting on How Far Company Has Come

7.  In April 2019, HouseMaster celebrated its 40th anniversary by reflecting on the evolution of the home inspection business, an industry its founder jumpstarted. In the early 1970s, the late Ken Austin, founder of HouseMaster, met a builder who was trying to get the concept of home inspections off the ground. Austin was looking to pursue his entrepreneurial dreams and thought the concept had merit, and the two became fast friends and partners.

8.  By 1979, Austin was ready to launch the first home inspection franchise and mainstream the concept. Forty years later, his original concept, HouseMaster, has over 322 locations in the U.S. and Canada (at the time of the press release), led by president and CEO Kathleen Kuhn, Austin’s daughter.

9.  Kuhn said, “We are very proud of achieving this milestone during National Home Inspection Month. For 40 years, we have committed ourselves to helping consumers make informed real estate decisions. We have evolved and seen the industry come into being. Today, we are committed to helping consumers use the information we provide to better navigate the sales process and help them as they transition from home buyers to homeowners.”

10.  Kuhn shared that when her father launched the company, only about 2 percent of all home purchases received an inspection prior to sale. In general, the information provided to consumers was limited. Today, inspection reports, such as those prepared by HouseMaster, are considered an essential part of home buying. Post-inspection reports provide highly detailed information, and HouseMaster’s include instant repair estimates.

11.  She added, “As our service expands, consumers now use the information and tools we provide to not only make a smart purchase decision, but also save money on major purchases, connect their utilities and maintain their homes. All of this comes in a digital format – in our home inspection platform.”

12.  Completed inspection reports today often come in a convenient digital format. In the case of HouseMaster, reports go into a special HouseMaster Cloud Account. This allows customers to simply view their inspection reports in the cloud and create a list of repairs to ask the seller to fix. With the click of a button, this information goes to the seller or their advisors.

13.  According to Kuhn, “So much has changed over the past 40 years. We’re grateful to celebrate April as National Home Inspection Month and our place as the first company to franchise the concept.”

14.  Here is a list of unique services that are now available from many leading home inspection companies, including HouseMaster, that weren’t available 40 years ago:

• Appliance recall information and ongoing alerts;
• Home management platforms to help manage home maintenance;
• Savings on key services and products commonly needed by a home buyer;
• Repair list generation tools to help buyers document their repair requests for the seller;
• Inspection guarantees to give home buyers peace of mind; and
• Repair estimates that let consumers generate localized cost estimates to help them either negotiate the repairs or budget for them.

Named a Top Multi-Unit Franchise and Low Cost Franchise by Franchise Business Review

15.  At the end of June 2019, HouseMaster was named a top franchise by Franchise Business Review in its 2019 Top Multi-Unit Franchises Report. Housemaster was also recognized by Franchise Business Review as a 2019 Top Low-Cost Franchise.

16.  HouseMaster, which celebrates its 40th anniversary of franchising this year, is known for its strong commitment to customer service. With more than 320 franchise areas across North America (at the time of the announcement), HouseMaster holds a Net Promoter Score of 92 (a customer satisfaction ranking higher than Apple and Ritz-Carlton). Franchise Business Review has named HouseMaster a top franchise brand since 2009.

17.  Kathleen Kuhn, president and CEO of HouseMaster, said, “We have worked extremely hard to create opportunities for our franchise owners to expand their business. This recognition from Franchise Business Review means a lot to us – it validates all the support we pour into helping our franchise owners turn their dreams into reality.”

18.  Franchise Business Review (FBR), a franchise market research firm that performs independent surveys of franchisee satisfaction, provides the only rankings of franchises based solely on actual franchisee satisfaction and performance. FBR publishes its rankings of top franchises in its annual Guide to Today’s Top Franchises, as well as in special reports throughout the year that rank the top franchises in specific sectors.

19.  HouseMaster was among nearly 250 brands that participated in Franchise Business Review’s research. HouseMaster franchisees were surveyed between September 2017 and February 2019 on 33 benchmark questions about their experience and satisfaction regarding critical areas of their franchise systems, including financial opportunity, leadership, training and support, operations and product development, core values (honesty and integrity of franchisor), general satisfaction, and the franchisee community.

20.  According to Eric Stites, managing director and CEO of Franchise Business Review, “There are many factors to consider when investing in any franchise business model: profitability, growth opportunity, long-term industry trends, brand innovation, company culture, training and ongoing support, and more. These factors are especially important if you are considering multi-unit franchise ownership. The award-winning companies identified on this year’s list of the Top Multi-Unit Franchises excel in these areas according to the people who know firsthand – their franchise owners.”

Company History

21.  HouseMaster was founded in 1979 by Ken Austin in Northern New Jersey as the first home inspection franchise in the United States. Austin had originally began working as an independent home inspector in 1971 and his experience would eventually lead him to creating HouseMaster. Not only was Austin an experienced home inspector, in 1976 he became a founding member of the American Society of Home Inspectors (ASHI), which is the first industry organization to set standards for home inspectors.

22.  During the 1980s, as the HouseMaster franchise grew, Austin and the company continued to establish formal procedures for the home inspection industry, including formalizing training procedures for home inspectors; starting The National Institute of Building Inspectors (NIBI) school; and introducing the concept of pre-inspections before home owners put their homes on the market or accept an offer. Since then, HouseMaster has continued to expand across the United States and Canada.

Entrepreneur’s Franchise 500

23.  HouseMaster ranked No. 382 on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of HouseMaster franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on HouseMaster’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  273
• Outlets at the End of the Year:  279
• Net Change:  +6

2017

• Outlets at the Start of the Year:  279
• Outlets at the End of the Year:  260
• Net Change:  -19

2018

• Outlets at the Start of the Year:  260
• Outlets at the End of the Year:  268
• Net Change:  +8

Company-Owned

2016

• Outlets at the Start of the Year:  8
• Outlets at the End of the Year:  5
• Net Change:  -3

2017

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  6
• Net Change:  +1

2018

• Outlets at the Start of the Year:  6
• Outlets at the End of the Year:  6
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

Part 1 – Statement of Average Gross Sales of U.S. Franchisees for the 12 Months Ending December 31, 2017 and December 31, 2018

• The following is a statement of average and median annual gross sales for the calendar years 2017 and 2018 for 3 different subsets of U.S. HouseMaster franchisees based on number of Owner-Occupied Homes (OOH) in the territory (or combined territories if they own multiple licenses) granted to the franchisee.

• This information was compiled from monthly gross sales reports submitted to HouseMaster by the franchisees. This statement has not been audited and HouseMaster has not undertaken to independently verify the accuracy of the information submitted to it by the franchisees.

• A total of 111 U.S. franchisees are included in this financial performance representation.

• The number of franchisees included in this financial performance representation does not correlate with the number of franchised units in the Item 20 tables, since this financial performance is based on franchise owners and not single franchised units and a number of HouseMaster’s franchisees own multiple franchise units which are reported together.

• The total number of OOH in all of a franchisee’s territory is used in determining where the franchisee is included in the chart below. Therefore, if a franchisee owns 3 units of 75,000 OOH, the franchisee is included in the chart below in the category of more than 75,000 but less than 300,000 OOH.

• The number of OOH in each franchisee’s territory varies and is based on the size of territory each franchisee decided to purchase. The information on OOH has been taken from US census figures for each franchisee and is not necessarily the same as of the date of signing of the Franchise Agreement by the franchisee and HouseMaster.

• Information on OOH in the charts includes OOH of existing franchisees that have a license for a Limited Area as well as franchisees in a Reciprocal Opportunity Franchise Territory or Designated Geographic Marketing Area.

• The averages and medians do not include revenue from (a) any franchisees operating less than two years, whether (i) the franchisee began operations after January 1, 2017 (for the 2017 numbers) or January 1, 2018 (for the 2018 numbers) and, therefore, did not operate for the full two-year period, or (ii) the franchisee’s franchise was terminated, expired, or transferred prior to December 31, 2017 (for the 2017 numbers) or December 31, 2018 (for the 2018 numbers) and therefore the franchisee did not operate for the full two-year period; and (b) any franchisees (i) from whom HouseMaster did not receive monthly sales reports, or (ii) for whom HouseMaster does not have complete OOH statistics, for all of the 24 months up through December 31, 2017 or 2018, respectively.

Franchisees With Less Than 75,000 OOH

2017