Breaking Out On Your Own

by MAR Staff | Dec 29, 2013
Maybe the entrepreneurial bug bit you, perhaps you’d like to keep a bigger portion of your commission checks, or maybe that vacant office space down the road is just begging for a “Your Name Here Realty” sign. It could be that you no longer want to answer to a boss, or even that you feel the urge to manage others to succeed in an industry you’ve worked in for decades. Whatever the driving force behind it is, a REALTOR®’s urge to get out from under his or her broker’s protective umbrella is both natural and compelling. Such moves can also be challenging and shouldn’t be taken lightly.
Here are some key points to keep in mind before cutting the ties with your current brokerage and hanging out your own shingle. By: Bridget McCrea
 
Maybe the entrepreneurial bug bit you, perhaps you’d like to keep a bigger portion of your commission checks, or maybe that vacant office space down the road is just begging for a “Your Name Here Realty” sign. It could be that you no longer want to answer to a boss, or even that you feel the urge to manage others to succeed in an industry you’ve worked in for decades. Whatever the driving force behind it is, a REALTOR®’s urge to get out from under his or her broker’s protective umbrella is both natural and compelling. Such moves can also be challenging and shouldn’t be taken lightly.
 
For Maureen Celata, the jump from RE/MAX agent to the owner of an independent real estate office came largely by necessity. “I split my time between being a recruiter and also listing and selling properties as a licensed agent,” says Celata, brokerowner at M. Celata Real Estate in Revere. While I was away on vacation in 2005, my broker held a meeting and got rid of my position.” From her vacation spot in Florida, Celata found office space in Revere and had a lease signed and in place before she even had a broker’s license. “I came home from vacation, got my license, and the rest is history,” says Celata, who faced some challenges during her firm’s whirlwind startup phase. To begin, she had to scramble to put a business plan together, learn the ins and outs of state escrow and licensing laws, take out the required insurance policies (such as E&O), find agents to join her, and start building a business pipeline comprised of buyers and sellers.
 
“I was an agent for 12 years so I knew what it took to run a ‘business within a business,’” Celata explains. “Taking that knowledge over into my own company wasn’t as challenging as learning how to make the rules of the office and basically serving as chief cook and bottle washer.” Wearing those multiple hats took some getting used to, says Celata, who used her own personal savings to fund her firm’s early stages. “There are a lot of things to cover,” she says. “You have to earn a living, grow your business, recruit agents (of which she now has 30 working from one office), and juggle a myriad of tasks. The challenges are many, but from my perspective the rewards are just as great – if not better.”
 
Major Considerations
 
As the real estate market continues down its slow-but-steady road to recovery, more agents are apt to start looking at what it would mean to break out on their own and start up a brokerage. According to Verl Workman, President of Corcoran Consulting & Coaching in O’Fallon, Ill., successful teams are particularly apt to take this route. “We’re seeing a lot of teams that want more flexibility to grow,” says Workman, “without the layers involved with larger brokerages.” Sometimes those aspirations pan out and sometimes they don’t, says Workman, who sees overhead, marketing, and brand-building as three of the most expensive aspects of running a company versus working for someone else.
 
“Most brokers run into challenges because they’re undercapitalized and/or because they haven’t planned everything out properly,” says Workman. “You have to go into this with your eyes open and willing to take on the financial aspect of running a company. These are the elements that the typical agent who is working for a broker isn’t concerned with.” And remember, says Workman, that even the most seasoned agents will likely experience a “dip” in business when starting their own companies – yet another reason to avoid the ndercapitalization trap.
 
For the agent that takes these and other issues into consideration before cutting ties with a broker, the independence, freedom, and monetary rewards associated with business ownership can be very rewarding. Workman says the telltale signs that it may be time to make this move tend to align with compensation and profits. “It usually happens when someone feels as if he or she has outgrown the services that the broker provides in relation to what that broker is being paid,” says Workman. “If you’re doing 200 transactions a year and paying your broker $100,000, that’s money that may be better spent running your own company.”
 
More Physical Space, Please
 
For teams, the urge to break away often comes when a broker’s physical space becomes too constrictive. A team comprised of a leader, listing partner, buyer’s agent, inside salesperson, and administrative assistant, for example, needs space to move and to grow. “A lot of brokerages just aren’t set up to handle those types of growing, entrepreneurial teams,” says Workman. “When pace starts to get tight, it could be a good indicator that it’s time to set up your own shop.”
 
In some cases, the need to break out on one’s own goes beyond compensation issues or lack of physical space. “Sometimes a broker’s vision and goals differ so much from yours that there’s dissention within the office,” says Walter S. Sanford, president at Sanford Systems and Strategies in Kankakee, Ill. In other instances, he says agents simply want to remove themselves from the day-to-day grind of the commission-based life. “Some may want a different business model that allows income from splits and fees in order to get away from the daily business of working one-on-one with buyers and sellers.”
 
Before that can happen, Sanford says agents should follow Celata’s lead by first finding a good location and then preparing a business plan and budget that addresses all of the costs and requirements of running a brokerage in Massachusetts. “Next, make a list of the marketing materials, phones, Internet access, and other needs that you and your agents will be using. Then, decide whether this is going to be a secret move versus a well-advertised move. This usually depends on the relationship between the broker/owner and the vacating agent,” says Sanford, “and on whether the broker has a reputation of allowing a vacating agent to keep his or her listings.”
 
Dotting the I’s, Crossing the T ’s
 
Opening your own brokerage is a big step and one that warrants some investment in both legal and financial advice well in advance. “A good accountant can set up your business and books the right way from the outset,” says Pat Zaby, principal at InTouch Systems in Dallas. Other key considerations include choice of legal entity (C-corporation, S-corp, or LLC?), insurance (E&O, liability, etc.), and leaddistribution arrangements within the office (will you compete with agents or will you hand over your leads to them?). These issues should all be worked out well in advance, says Zaby, to avoid problems once your new company is up and running.
 
And remember that while the move from agent to broker/owner may appear to be a natural progression within the real estate field, the two roles really are quite different. “All agents already run their own businesses and are responsible for the leads generated and the profits and everything else,” says Zaby. “What they’re not typically doing is paying for overhead, managing other agents, mentoring new recruits, contributing to retirement plans, and the myriad other things that brokers of record do. Those are the big differences to consider before striking out on your own.”