Taking the next step to grow your business is always a big turning point for any company. For producing real estate agents who want to grow, there might be no bigger turning point than when they decide they’re ready to operate their own brokerage.
The big question at this stage in the process is: Should you build your first brokerage from the ground up, or should you consider buying or acquiring a business that’s already launched?
There are benefits and drawbacks to each approach. When I’m working with clients who are trying to make this decision, here are the questions I encourage them to ask themselves.
Do you want to own a company or operate a business?
The main premise that many agents who want to grow don’t understand is that the joy they get from their careers does not come from working on the business, but in the business. However, working on your business as an entrepreneur is the only way you will ever build anything of significance.
Many agents who become top producers would be better off with someone else running their brokerage for them. There are exceptions to this rule, of course. Every big company in America began as a startup, and while some startups can be tremendously successful, the majority end in failure.
If your focus is not on operating a brokerage, but rather owning a piece of something that’s larger than your own production, then there are ways to maintain your own career and stake your claim of ownership in a real estate business without building a company from the ground up. (A good consultant can help walk you through those options.)
Who’s going to run the brokerage?
Operating a real estate brokerage is a full-time job. While owning a brokerage might seem attractive, brokers who still want to focus on their own sales careers are going to have to make sacrifices on one side of the fence or the other, which tends to be bad for both the brokerage and the agent’s individual sales.
Agents love a good brokerage manager, and that is the hardest position to fill. You need to find someone who understands real estate (and who enjoys it), and who can also read and evaluate a profit-and-loss statement. That’s a rare find, and it might be easier to buy a brokerage with a manager already in place and operating than to try to hire one for a company you’re creating.
What amount of capital do you have to spend?
The common understanding is that buying a real estate brokerage is expensive — and it can be, depending on your ownership stake and how the deal is set up.
However, launching a business is at least three times as expensive as you are estimating it is. You’ll need a lot more capital than you think you do in order to open your doors.
Many top-producing agents who want to grow might be better off building a powerful team under a brokerage, even one with a high split, especially if you can negotiate an agreement to keep 100% of your earnings after you reach a certain level.
Which brokerage might you want to acquire?
This is one area where it can get tricky, and one reason why many agents opt to build a brokerage instead of to buy one. Some of the best brokerages in your market are almost certainly not for sale, and well-run brokerages often have a succession plan in place with existing long-term agents.
Another important variable is culture. You want to make sure that you’re looking at companies that fit your own personality. Making sweeping cultural changes after purchasing a brokerage is a good way to lose a lot of money when your top-producing agents decide they can’t stand working there any longer.
Whether you decide to buy your first brokerage or build one from the ground up, one resource that can be infinitely beneficial for any agents who want to grow is advice from a seasoned consultant. We work with dozens (even hundreds) of clients who have similar questions, and we can help you make an objective decision that will help support your dreams for years to come.
Interested in learning more about brokerage acquisition? Join a special Acquiring More Profit webinar tomorrow to hear how it’s done.
