The majority of real estate transaction is made with the help of real estate brokers and agents. It is hard to imagine any real estate deal without their assistance because they significantly facilitate the process of assisting whether to buyers or sellers. Most of the people prefer to trust deal worries to professionals rather than handle them by themselves.
It is easy to get employed as the real estate agent, but it is also easy to open own brokerage agency. The requirements are whether to get the license as the brokerage agent or hire the experienced agent with the license effective for a certain period to manage operations on behalf of you with a high level of expertise.
However, there are several other requirements for opening your own Real Estate Brokerage, which is proposed for your acquaintance below together with 10 steps to be made to become a Real Estate Brokerage owner.
1 Step: Work with Yourself
You may ask yourself whether you really like the sphere you are going to penetrate with your own business and whether you are going to spend a lot of time and effort to handle it, because any idea, which is planned for success requires time, strength and efforts. In case you need some more details you may scroll the article and we’ll tell you more about such ownership and benefits of operating in this sphere.
2 Step: Make a Plan
The planning is the essential thing to be done before starting any business. It helps to stress the main directions for development and define areas for further research to be done. The main questions to be answered during planning at the beginning of the business are:
- Which costs will appear at the start?
- What are fixed and variable operational expenses?
- By whom the target market is represented?
- When the breakeven point will be achieved and further development will be possible?
- What could be the name and the concept of your business?
Below you may find several hints, which may help you to answer questions above.
Which Costs Will Appear At The Start?
One of the main costs to be incurred at the start is the cost of the license, which may vary depending on the state you are planning to work. When you’ll get the license you might need to have the office, expenses for marketing and advertising to attract customers and spend some money on insurance.
We checked the average prices and can provide you with approximate numbers which may be spent for each of the categories listed above:
- The License cost for broker’s activity – appx. $1500;
- Leasing of the office – appx. $4000 incl. payment for the first month;
- Communication expenses – appx. $250 monthly;
- Marketing and advertising – appx. $2000 monthly;
- Signboard for office – appx. $2000;
- Salary expenses which depend on a number of hired agents.
The average time required to become profitable is approximately 12 months, so future brokerage agency owners should plan expenses and be prepared for them accordingly and do not feel disappointed in case there were no deals in the first few months.
The average yearly spend is close to $ 50 000 without taking into account personnel expenses. So starting a business it would be a great idea to ensure you have respective capital or have respective support from investors or partners.
Regular expenses for office, where operate up to 5 agents and 1 administrator will include:
- Personnel expenses – $5000 per month at a minimum plus commissions from the deals;
- Rent of the office – $2000 monthly;
- Marketing and advertisement – $2000 monthly;
- Utility costs – $250 monthly;
- Insurance costs – $200 monthly.
The range of potential customers is wide and doesn’t limit to specific categories. The industry nature requires interaction and high client-services provision on a constant basis, so you should be ready to spend several months with a client in order to find something according to his/her criteria and close the deal.
The image of the ideal seller considers the desire to close the deal quickly without additional complications, while the image of ideal buyers comes down to motivation to purchase the property with certain specified criteria for cash or through the financial institution financing.
The ideal buyer will also be flexible in case some of the criteria cannot be met, while the ideal seller will be ready to make concessions with a potential buyer. These qualities evidence the agreeableness trait, which is so desirable to meet in both as it increases chances for successful dealing. Otherwise, the time spent on uncompromising clients can be spent for nothing.
What Are Profit’s Components?
The profit of the brokerage agency is represented by the commission gained from participation in a deal as the buyer’s representative, seller’s representative or representative of both parties (in case of respective agreement from each side). Another option is to act as an administrator and transaction controller handling documents issues without taking any of the sides of the deal.
The profit distribution between an agency and an agent depends on the conditions described in respective agreements and can be represented by 50:50, 60:40 or any other rations agreed by parties.
What Could Be the Size of Commission?
The amount of commission that can be charged from customers varied depending on the property for sale category. For cases when the subject for sale is a typical house for single-family it can reach 6% while dealing with the more expensive subjects may bring up to 2% of the property’s price.
In case broker for selling and broker for listing are 2 different persons the commission should be divided by them into equal amounts, although it could be often the same person. The received commission should be also shared with the agency in amount starting from 10% of the commission and up to 50% of the commission, depending on conditions of their cooperation and on the involvement of the agency on agent’s work.
What Are Profits?
The profit directly depends on the price of houses sold. Actually, there is no dependence on whether the agent sells the house from a cheap segment or luxury apartments, the volume of the work to be performed is equal, although dealing with the expensive segment may be much more beneficial.
The average broker earnings number may start from $100 000 net per year, while a successful broker can easily earn even a million dollars net annually.
Additional Sources for Profit Increase
The additional sources of earning may include additional items in a price list, like for example property management, so the portfolio of proposed services will become a wider and additional source of profit will appear.
How to Choose a Name?
Considering the role of online marketing we suggest to check the selected name among registered domains and secure it as soon as possible, so you will have a recognizable name and it will be simpler to find you on the Internet.
3 Step: Create an Entity
There are plenty of options to register a legal entity for operating according to the legislation: LLC, Corporations, DBA. Although the most preferable option is registering the LLC, so in case of suits the liability will be limited by property owned by an entity and no personal liability will appear. It is very comfortable to apply registered agent’s services, to make the registration process smooth, stay in compliance with legislation requirements and protect confidential data.
Actually creating an LLC used to be an easy task for small entities and in case of any complication, there are specific business formation services to apply to and make the process simpler.
4 Step: Taxes
Before starting a business your entity should be registered as a tax liable subject for state taxes and federal as well. All you need to do is to apply for EIN, which doesn’t require any fees or charges and can be easily achieved by the IRS website.
5 Step: Finances
To protect personal assets and lead business properly it is required to open specific banking and credit account for respective entity. All revenue, commissions and other cash flows should go exceptionally via specific entity’s accounts.
Mixing private accounts with business may lead to unpleasant consequences and losses in case of suits. Open a bank account for business allows to:
- Protect personal assets from suits by separating them on the legal level;
- It makes tax accounting and reporting easier.
Opening a credit line/credit card for business allows to:
- Separate personal and business expenses making analytics and reporting easier;
- Create a positive credit history, which can be helpful for future development and respective investment attraction.
6 Step: Accounting
It is important to have a track record of a variety of your expenses and sources of incoming cash flow, which together can give a comprehensive understanding of financial performance and areas of improvement. Additionally, it simplifies the tax accounting.
7 Step: Check for Permissions
Some states’ local legislation requires obtaining not only the license for brokerage but some additional permissions too. In case of missing, something listed above it can cause huge penalties and can be the reason for shutting down the business.
Tips: in spite of possible differences in local regulations the license should be obtained at any part of the country. The license requires real estate agents experience for a certain time, appropriate education, and successfully passed respective exams. Thus real estate brokers can act as real estate agents, but agents cannot be brokers. The real estate agents require supervision from real estate brokers in their operational activities.
8 Step: Insurance
Some states have a legal requirement for having insurance by any business, which applies hired employees services, thus it becomes a necessary part of safe functioning compliant with local regulations.
9 Step: Branding
The brand defines the position on the market and help customer to identify you among other competitors at the market. The strong brand defines your position on the market and respective inflows.
In order to create a positive brand image and promote your business, it is necessary to take care of customers and their reviews regarding cooperation with you, Referrals, which came after recommendation are usually the most significant part of the customers, who came for services. So as better you perform as more clients you’ll get, the more client’s criteria you can satisfy and have a respective proven record of that the better reputation you’ll have.
Another way of promotion is by applying advertising ordering publications in newspapers, mail distribution, and other traditional methods. Do not forget about digital tools, which include promo videos placed on the internet, websites, social media advertising, so more clients from different categories can be attracted.
A successful business also defined by the ratio of customers, which came back for other services to the same company over time. The main point is to make the service easy and less time consuming for the customer and show your sincere efforts to satisfy their demands. Personal signs of attention also matter, so we recommend to greet special clients with holidays or successful deals by sending greeting cards or fruit buckets. It is also highly recommended to request for feedback in order to show you care clients and seek for possible areas of services’ improvement.
10 Step: Use Technologies
The business websites became highly effective tools aimed to help customers get acquainted with the company, its mission, and the services provided. It serves as a base for decision making, so it is highly recommended to ensure your company is present on the web.
Are You Ready For This Kind Of Business?
If you like buildings, communicate with different people and see all positive and negative sides of property offered for a sale you should definitely try yourself in a real estate brokerage. Be noted that this kind of business requires much time for making researches on market conditions, objects offered and learning them for making the best presentations. Another side of this business spending a lot of time with potential customers showing them objects, which meet their criteria and presenting them from the best side.
In case you have appropriate experience of working as a real estate agent and ready to pass the exam for getting a broker’s license it is a good option to start own business. In case you don’t have much experience but have high interest and motivation spend some time for it, close a certain amount of deals and show required performance indicators to earn it.
Typical Working Day in Real Estate Brokerage
The typical day of operating and supervising brokers are different, the first one has different tasks from day to day and it is difficult to predict a typical day, while duties of supervising broker come down to:
- Controlling of agent’s activity;
- Promoting services and business;
- Assisting with paperwork;
- Giving consultancies, recommendations;
- Providing help during the deal conclusion.
At the same time broker may act in the role of an agent by providing services of listing/buyer’s agent. The listing agent is responsible for property’s marketing, vetting buyers, and presenting the property to potential clients. The buyer’s agent is responsible for finding perfect houses meeting the client’s criteria and preparation of officially documented offers.
Skills Which Are Required for Success In Real Estate Sphere
We have been talked a lot about the importance of the licenses, which can be obtained only by successful agents who:
- Have worked as an agent for a long time under the supervision of a real estate broker;
- Have been completed special education courses which are defined by state legislation;
- Have been passed exams successfully;
The agent with a license is a successful agent, who has good chances for opening successful real estate brokerage.
The interpersonal skills may include:
- Communication and presentation skills;
- Being personable;
- Have high organizational skills;
- Know aspects of high-quality customer service;
- Knows how efficiently to keep records on transactions performed (for example using Cooper tool).
Real Estate Brokerage Perspectives
Any business connected to real estate can be expanded by adding to the covered area new locations. The best practice is to achieve success and a good reputation in a certain community and expand business to the nearest ones. Another option is to achieve success and good profitability indicators and propose the franchise for sale.
Joining a Franchise
Joining a franchise gives you the brand name, customer base and saves you time for promotion. It makes time for crossing breakeven shorter and also considers certain assistance during operation, making it easier for you. It means you shouldn’t start your business from scratch, although it also means higher costs at the beginning of the carrier.
There are some popular and effective practices, which help to develop business at the start and be more effective, like, for example, applying for external help. The following is popular and bring expected results to newcomers.
Finding a Mentor
The professional mentor can help to avoid common mistakes and can advise the most effective way to perform. You may connect one of the free business resources close to you for the respective help.
Assistance to Women
There are some resources aimed to help women starting their business, realizing how difficult it can be for females. Businesswomen can seek additional funding, useful events, guidelines, and business support applying special the communities, which could be easily found on the web.
There are also some useful things which would be nice to have if you starting your own real estate business like or developing existing:
- Huge database with clients;
- Good reputation and diversity of contacts with people from different spheres;
- Previous experience;
- Digitalization of the part of your business, having some deals online;
- Good planning tools;
- Good teammates.
Building a Team
A team of experienced agents who work on adequate conditions is a ley to profitable real estate brokerage. Thus the general rule is to attract as many agents, as it is possible to administrate and support because they are the main profit-makers for brokers. Although you should ensure you are able to properly support your agency network by answering calls for them, promoting them, participating in MLS, and other things.