Commentary by George BarlowRISMEDIA, July 11, 2008-Growth and expansion is something brokers should always be thinking about. As the old saying goes, “If you’re not growing, you’re going out of business.” Steady growth is essential to the life line of any company, so just like children who need nourishment to grow, real estate brokerages need the everyday essentials to grow a healthy and wealthy business.
“Real estate brokers have long debated the different methods to grow and expand their brokerages, says Steve Goff, of RE/MAX Premier Group in Plano, Texas. Some say mergers and acquisitions are best, while others note the high expense of this method, choosing instead to grow by recruiting.
When developing a business plan and roadmap for expansion, one should first be aware of the following facts:
1. Acquiring a second and third office by merger is the quickest way to growth, but the up front costs are high. Many brokers do not have access to the cash needed for the acquisition, not to mention the expansion of staff and the increase in overhead with new office locations.
Growth by recruiting also has its problems. Additional agents require additional space, staff and office equipment-so this growth is also not cheap. I have seen brokers literally go bankrupt because they recruited too many agents too quickly. The expansion costs preceded the agent production and therefore the broker’s ability to pay the costs. And the alternative – waiting too long to provide the needed additional space, staff and equipment – defeats the recruiting efforts.
With either method of growth, capital is needed to cushion against expansion costs.
2. Neither method is free of risk. The broker who purchases another company is at risk of the newly acquired agents (independent contractors) leaving, resulting in having paid a lot of money for nothing. This risk can be mitigated by a purchase agreement in which the selling broker is paid over several years, with a variable purchase price corresponding to the number of agents who stay with the new broker or the company income those agents produce over time.
On the other hand, growth by recruiting risks profitability (production must outrun expansion costs) and unless the office starts with a strong core of productive agents, it might never grow.
“Each situation is unique,” Goff adds. “Market conditions, local competition, leadership and staff, facilities, training, company services, experience, size and reputation of broker, as well as the decision to franchise or be independent-all are factors in the method selected for expansion. In each case, a wise broker will seek good counsel and advice before rushing forward.”
In every real estate market segment across North America, brokers are looking closely at their market conditions and trying their best to stay competitive. Staying on the cutting-edge and aware of what’s going on is critical to their short and long-term success.
“Experience has led me to believe that mergers and acquisitions are the best way to expand a company,” says Goff. Markets across the nation are ripe for mergers and acquisitions right now. Brokers who have the appetite, the knowledge, and the ability to move on these opportunities will have a competitive edge.
This is usually the fastest way to grow a company and to create an environment of enthusiasm within your office(s).
George Barlow is an award-winning expert in franchise sales, responsible for affiliating a multitude of companies through conversions, mergers and acquisitions throughout his franchising career. In January, Barlow formed Executive Franchise Consulting with a focus on helping prospect companies navigate through the onerous details of finding the appropriate Real Estate Franchisor. He brings 15 years of national real estate sales experience to the company.
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