Are You Ready To Open Your Own Real Estate Brokerage?
A real estate broker represents sellers or buyers of real estate or real property. Relevant states license brokers to negotiate sales agreements and manage all the documentation necessary for closing real estate transactions.
If you’re an agent working under a licensed broker, there are many reasons to start a brokerage of your own. As a real estate brokerage owner, you will get opportunities to increase your profit potential, explore new business ideas, and enjoy the flexibility of running your own business operations. This guide will cover everything you need in order to plan, start, and grow a successful real estate brokerage business.
7 Steps To Starting Your Own Real Estate Brokerage
Get Your Real Estate Broker License
If you do not already have your broker license, this is the first step in opening a real estate brokerage. Notably, the requirements to become a broker will vary from state to state. In most states, you have to become a sales associate or salesperson first to gain experience before you are eligible for a broker license. As a salesperson, you typically work under a licensed broker who has agreed to supervise you. The states with a salesperson-broker structure typically impose the following licensing requirements to obtain a broker license:
- Must be 18 years of age
- Have 2 to 4 years of experience as a practicing salesperson
- Must have a high school diploma
- Take and pass the broker licensing exam
- Complete the required broker education
- Complete the broker license application and paid the mandatory licensing fees
Create a Real Estate Brokerage Business Plan
A recent study revealed that 64% of organizations who created a business plan grew their business compared to 43% of organizations that lacked one. An excellent real estate brokerage business plan is your first step to realizing your dreams as a successful managing broker. Having a well-defined business plan can help you align your business strategy and goals with your growth plan. An ideal business plan captures what you plan to do and how you plan to do it.
More importantly, an excellent business plan should convey your business goals, strategies, and the tactics you’ll take to achieve them, along with potential problems you may encounter along the way and how you plan to overcome them. It also provides a robust SWOT analysis (outlining your Strengths, Weaknesses, Opportunities, and Threats) and measurement strategies for your sales and marketing efforts. Additionally, the plan must capture the various roles and responsibilities of your team members. Other key areas to cover in your business plan include:
Choose a Name For Your New Brokerage: Choosing a name for your new real estate venture can be exciting. However, this process needs a lot of thought. A business name creates the first impression of your brand to your prospective clients. It also impacts whether they choose your real estate company or the competition. Choose a catchy, unique, and easy-to-remember business name that is relevant to your industry, and avoid strings of numbers and letters. Some tips and tricks when choosing a real estate name include:
- Include relevant keywords related to the industry
- Go for shorter names over long ones
- Combine two words together
- Use a noun + “Realty Services”
Financial Planning: Every business plan needs a cash flow projection. The financial planning aspect of a business plan covers everything from first-year expenses to projected revenues. Ensure your financial projections are practical and authentic for easy SWOT analysis and assessment of assets and liabilities within your business model. Besides, if you intend to use your business plan to source funding, inflating numbers and using inaccurate financial statements are typical red flags that scare away potential investors, partners, and lenders.
Keep in mind the following critical components of a successful financial plan for your business:
- Expense outlay: Includes start-up expenses or regular expenses and expected future expenses
- Statement of financial position: This is a statement that indicates your assets and liabilities. Assets and liabilities are the foundation of your business's balance sheet. Tracking these two variables helps maximize your business's potential value.
- Cash flow projections: You should predict your cash flow monthly, quarterly, and annually. Projecting your cash flows allows you to overcome any financial struggles or challenges.
Staffing Expectations: You should also indicate the expected number of agents, brokers, and other staff to handle your office administrative needs and day-to-day business.
Brokerage Model: When writing your business plan, it is crucial to indicate your preferred real estate brokerage model. Typically, there are at least three models to consider:
- Hybrid Brokerage Model: Hybrid brokerage model is a sales approach that substitutes commissions with flat fees and features a menu of a la carte services. This model also provides some of the services pioneered by the traditional model, such as advising on price and negotiating a sale. Hybrids often discount the listing commission from 3% to 1% to 2% or charge a flat listing fee with a commission rebate.
- Franchise Brokerage Model: A franchise brokerage firm is a part of a larger organization with a brand name. A broker who starts a franchise makes a contract with the franchisor and pays a fee in exchange for the right to do business under a brand name. In most cases, the franchisor requires you to follow specific marketing training and price negotiation guidelines. The franchisor will also provide access to training, information, technology, and other resources that you will need to succeed in your venture.
- Independent Brokerage Model: As an independent broker, you are responsible for running your small business, and you may have other brokers or agents working under you or in partnership with you. Being independent means you are not beholden to any company above you, and you won't have to pay any fees to a franchisor to use their brand name.
Competitor Analysis: An ideal business plan must also include a robust competitor analysis. Competition analysis involves assessing and analyzing the comparative strengths and weaknesses of your close competitors. The systematic competitive analysis enables your business to track trends that allow you to better adapt to your real estate market, competition, and customer base. The benefits of carrying out an objective competitive analysis within your business plan include gaining a better understanding of the market, better targeting of customers, customer acquisition, market potential forecasting, and competitor pricing.
Target Audience: It is also critical to shine a spotlight on your target market and how best to serve this niche. Narrowing down your services to a niche market helps you save time, effort, and money on marketing materials. Leverage a buyer persona tool to define your target market.
Register Your Real Estate Business
Once you have completed your business plan, your next step is to register a real estate investment LLC. An LLC for real estate is an established legal entity that enables you to conduct your brokerage firm's operations in a way that protects you from personal liability. The steps to register a real estate investment LLC may vary from one state to another. However, the most commonly required steps include:
- Step 1: Researching your state's regulations on forming an LLC
- Step 2: Running a search for your preferred business name to ensure it is not already in use
- Step 3: Filing the "Articles of Organization" document
- Step 4: Creating an Operating Agreement for your Limited Liability Company (LLC); this agreement states how your entity is organized and run
- Step 5: Publishing an intent to file through your local newspaper (some states don't require this step)
- Step 6: Get all necessary business permits and licenses; you should also obtain a tax identification number from the IRS
Find a Brokerage Location
The location of your new brokerage business is integral to its success. You may have the most exceptional products and services, but if your prospective clients struggle to access you, you won't make much revenue. You can decide to choose a brick-and-mortar office space, a virtual brokerage company, or a hybrid of both. Some of the things to consider when choosing the location of your brokerage business include cost, location of your listings, proximity to the market, infrastructure and accessibility, and competition. At The CE Shop, we recommend having your business on a B2B platform or online platform that allows you to gain access and work with any location across the globe.
Did You Know?
According to the National Association of REALTORS® (NAR), there are over 100,000 real estate brokerages operating in the United States. Notably, 68% percent of REALTORS® are licensed as sales agents, 20% hold broker licenses, and 13% hold broker associate licenses.
Start Building Your Brokerage's Team
As your business expands, you will definitely need help to keep things organized and on schedule. It is vital to build an excellent team for your brokerage start-up to help you break even and grow your small business. The benefits of a robust brokerage team include increased leads and income, specialization, and increased skill improvement. Typically, a real estate team provides your clients with two or more experienced real estate agents working on their behalf without paying more in commission. A client can contact any other team member for assistance if one particular agent isn't available. Team members also pitch in for each other and share the team spirit. Some of the positions to fill include Listing Manager, Transaction Coordinator, Marketing Director, and Administrative Manager.
You can source real estate agents for your team from:
- Networking and referrals
- Real estate industry affiliates and vendors
- Social media
- Real estate schools
- Career websites (Linkedin, Indeed, Glassdoor)
Create a Marketing & Lead Generation Plan
An effective marketing plan must include ways to identify and generate leads to convert to paying customers. Your marketing and lead generating plan should have the following components:
Goals: When creating a marketing plan, ensure you include a goal for the number of leads you want to reach over a given period. You should also include a goal to convert a percentage of leads to paying customers. The goals you set in your plan help track your marketing efforts' success as well as the number of leads you generate.
Describe the audience: In-depth knowledge of your target real estate market's demographics help create a successful marketing plan and develop a robust lead generator. After describing your audience, narrow down your target market to consumers most likely to buy.
Analysis of competition: Your marketing plan should include an analysis of your competitors. A good analysis helps create unique marketing messages that generate more leads. Assess your competitors’ pricing, services, and products, as well as the marketing messages they use to attract customers. You should also determine the kinds of media they are using to get leads, such as direct email, online campaigns, or advertising.
Create your marketing and lead generation tactics: The promotional section of your marketing plan must include ways to generate leads. Depending on your target market, some of the proven ways to generate leads for your brokerage firm include building partnerships with other businesses like insurance firms, using social media and video marketing strategies, creating a website and using a CRM, leveraging community services to establish a local presence, and leveraging positive customer reviews and testimonials.
Start Selling Listings!
Once you have covered all the steps outlined in this guide, it is time to start selling your listings. Remember, in the real estate industry, success doesn't come overnight. It may take some time before you get your first client. However, with an exceptional marketing strategy, you will soon record more sales.
How Much Does It Cost to Start a Real Estate Brokerage
The cost to start a real estate brokerage varies depending on the type of brokerage you want to start. Typically, you should budget for start-up costs of at least $10,000 if you are going for an independent real estate brokerage business. If you are considering opening a brokerage under a franchise, you are looking at $200,000 in start-up costs. Some of the elements making up your total costs include:
- Pre-Licensing real estate classes: $300+
- Real estate license application fee: $325+
- Real estate broker fees: $25–$500+/month
- Membership dues: $200+/year
- Marketing costs: $1,000+/year
- Real estate Continuing Education: $50–$300+/year
- Business expenses: Varies
Earning Potential As a Brokerage Owner
Available industry statistics reveal that the real estate industry is now worth $155 billion. According to a 2019 survey, the median income for broker-owners running their own brokerage firms ranged from $86,100 to $105,000 per year.
If you are considering opening your own brokerage to cash in on this growth, now is the best time to take the first step outlined in this guide. Be sure to check out our Agent Essentials page for more expert tips on how to grow your real estate business.