Many men and women who become real estate agents do so, in part, because they have a desire to run their own business. By controlling their own marketing, client care, and other aspects of their operations, real estate agents are able to work as, essentially, small business owners. If, however, your goals are bigger and you are looking to run a larger business, consider starting up your own brokerage.
Why start a brokerage of your own?
There are many reasons why you might choose to start your own brokerage. These include:
A desire to increase your profit potential
By starting your own brokerage, you are able to grow your operations, leverage the time and talent of other agents, and add additional revenue streams to increase your bottom line.
Dissatisfaction with the status quo
If you have new ideas and new perspectives on running a real estate brokerage, you will have more control over implementing those ideas in your own business.
Proven systems and processes to share
If you’ve been particularly successful as a real estate agent, you may have developed your own way of doing things that you’d like to share with newer agents. Put your skills and knowledge to work and help contribute to the future of the profession.
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Which should you choose: franchise or independent?
More than half of all real estate agents in the country work for independent brokerages. How do you know whether a big-box franchise or a lean, nimble indie is right for you?
Franchises provide guidance, branding, and support which can be invaluable when you are starting out. In many cases, they also give you access to technology and training and provide built-in name recognition. In exchange for these benefits, they charge hefty franchise fees which can be hard to handle until you get a healthy cash flow established.
Independent brokerages are able to make their own decisions in regard to location, branding, and operations. As the head of an independent brokerage, you’ll have the flexibility to run your business the way you want to. However, you’ll also be responsible for developing and financing your own tech platforms, training strategies, and marketing initiatives.
What are the typical start-up costs?
Starting up a real estate brokerage can come with a wide range of costs, from around $20,000 for a small independent firm to as much as $250,000 plus for a large franchise. The following are some of the start-up costs you’ll incur as a new brokerage owner:
1. Become a broker
If you haven’t already gotten your broker’s license, you’ll want to get the necessary education, sit for the exam, and pay any attendant fees to register as a broker.
2. Obtain legal and financial expertise
It will be important for you to consult an attorney and accountant or financial planner in order to ensure that your business is properly registered as an LLC, C-Corp, or S-Corp and that you have all of the insurance you need. If you plan to take on additional agents, you’ll need contracts and other agreements as well as any proprietary client agreements.
From a financial perspective, you’ll want to make sure you have a plan in place for tracking income and expenses and for properly setting aside and paying taxes. You’ll also want to run the numbers you’ll need to develop a business plan, especially if you plan to seek funding from investors or obtain a loan.
3. Find a location
You’ll need to decide whether you’re going to operate out of a home office or have a standalone business address. Whichever you choose, you’ll have operational expenses like furniture, utilities, technology, and office supplies.
4. Create marketing materials and platforms
You’ll need business cards, stationery, flyers, and promotional materials in addition to signage for the listings you represent. You’ll also need a variety of digital platforms including a website and social media accounts. You may also want to obtain a cloud-based transaction management platform to streamline workflow for you and your agents.
5. Register with the state
You’ll have to pay annually to register your business with the state and to ensure that you are up to date on all of the fees and governmental requirements of running a brokerage.
6. Recruit and onboard agents
If you’re bringing on additional agents, you’ll need to spend time and money on recruitment, incentives, processing, and training materials. Once you’ve taken on agents, you may need to bring in administrative help or hire someone for training, transaction coordination, or other functions. You’ll also have to pay errors and omissions insurance for each agent you take on.
How can you raise the capital you need?
As with any startup, there are a variety of ways to raise capital for your business.
You may be able to finance your startup either through savings or through tapping into your home’s equity. If you choose a lean independent model, you may be able to bootstrap much of your initial startup cost.
You may want to take on a partner to help with either the financing of the brokerage or the day-to-day operations or both. This can be a great model for spouses, friends, or colleagues who have been operating as a real estate team.
Small business loan
You may be able to obtain a small business loan to fund your startup. Look beyond banks to credit unions and the Small Business Administration (SBA) for sources of credit.
You may have friends, family members, or private investors who know you and your work and are willing to help finance your startup. If you have worked a great deal with real estate investors, you may also know private financiers who would be willing to help provide funding.