By George W. Mantor
RISMEDIA, July 7, 2009-In 1992, after 14 years at other brokerages, I became obsessed with the notion that my community needed another real estate company. Maybe that thought has crossed your mind at some point.
There are a lot of choices and decisions you’ll need to make, and the choices you make will be driven by your vision. You will also need to analyze the market to determine if your vision can be profitably operated.
In my vision, I saw the brokerage office more as a regional hub where technology would fill the void created by physical distance. My goal was to build a compact office meeting the needs of agents who were working distant markets
When I analyzed my market place, I realized that there were way too many offices. My marketplace averages around 3,000 resale closings per month. A handful of top producer teams account for a significant number of these, and yet, we have had as many as 120 national brand offices in the market at one time.
Add to that the regional powerhouses, the single office multiple agent companies, the mom and pops, the lone rangers, and brokerage ownership poses the same obstacle as real estate sales. I don’t care how strong the brand, if you put a Quizno’s, Togo’s, Subway, and a Sub-marina all on the same block, none will survive.
As recently as the mid 1980s, you could open a typical strip-mall, single bay of 1200 square feet for about $10,000 and operate it for $12,000 – $15,000 per month. The industry continued to believe that you needed to house sales people in their own cubicles. According to the National Association of Realtors, an agent needed a minimum of 60 square feet of space in order to be productive. Offices kept on getting larger and larger, yet most were half empty.
As the trend toward home offices continues, the role of the bricks and mortar office is also evolving. As a result, so is the role of the broker.
Among the reasons that agents strike out on their own is the feeling that the broker keeps too much for too little, a desire to recruit train and mentor others, or frustration with either the management or bureaucracy of the firm.
Whatever your motivation, you have many options to from which to choose. Over a sixteen year period, I owned and operated both a RE/MAX franchise and the first Keller Williams in California. More recently, I have been an independent.
Will you be a lone ranger or leading a posse? If you intend to simply act as broker for your own business, you’ll have different needs than someone planning to open a multiple agent, full service office.
In fact, you aren’t really in the same business. Being a broker on your own transactions is different than recruiting, training, motivating, and supervising agents.
Building a multi-agent office offers some different approaches: will you be building your own brand or leveraging an existing brand by acquiring a franchise?
Will you be a boutique or maybe a virtual office with agents working from home?
No matter what you decide, you will be making commitments and taking risks.
Here are some points to ponder before you get too far:
- What is your vision? Do you see yourself continuing to perform the functions of a salesperson, building a data base and marketing for referrals, or do you see yourself sitting in the back office, stacking the blizzard of deposit checks pouring in from the flurry of activity of your three hundred crack salespeople?
- Whose brand will you leverage? Are you already an established name with a steady stream of referrals, or did you just carpet bag into town from points unknown?
- What is your business model? Before you can do a pro forma to see if your plan can produce a profit, you have to decide what kind of company you intend to be.
- Does the model fit the market?
- If you intend to maintain a bricks and mortar office, things like location, size, parking, signage and terms will need to be addressed.
- Do you have a niche or a unique market strategy?
If your primary reason for starting your own company is to increase the profitability of your personal business, you might be just as well off staying where you are. If you believe your remuneration is unfair, talk to your existing broker about ways to increase your earnings. The increased expenses and risk associated with becoming a broker of record are frequently underestimated.
If, on the other hand, you want to leverage your ability and energy by developing a sales force, you must take into account the far greater risks and expenses, as well as, the very real possibility that your brokerage will be unable to capture the necessary market share to be profitable.
If you haven’t had the experience of recruiting and leading a sales force, you might want to apply for some management positions that would allow you to gain that experience.
Franchises offer a somewhat established brand and a package of tools that they assume a broker or an agent might want. The brand strength varies from community to community. It is really more of a recruiting tool than a customer creator, and the tools tend to be expensive in terms of what you get.
In my own experience, participating in franchises proved to be more of an impediment to growth and profitability than a help. Despite the assertion that a franchise will help you make a profit, the truth is that they have determined what the profit potential is and take it right off the top in the form of franchise fees. I also had representatives of the franchise company conspiring with others to takeover my “protected” territory.
However, if you do see benefit in franchise ownership, the very issue of protected territory becomes key to your success. By selling more franchises than the territory can support, franchisors force their own brokers to eat each other. While that helps build their brand for the recruiting wars and increases their profitability, it does not reflect concern about the financial risks their brokers are taking on their behalf. Proceed with extreme caution.
Finally, there is the question of does your vision fit the marketplace? During the boom of the recent past, a company burst on the scene with a discount model called “I PAY ONE.” The implication is obvious even if the name is inaccurate.
Initially I PAY ONE listed properties for four percent, offering the cooperating broker three percent for producing a buyer and one percent going to them. But, as bidding wars developed, they decided to offer the buyer’s broker a scant one dollar.
Then, as the market tanked, I PAY ONE was the first to fail. When you need expertise in a tough market, you have to pay for it. There isn’t really a market for a company called “I PAY SIX”.
Going it alone offers many opportunities, but also carries risk commensurate with the size of your vision. If you are determined to strike out on your own, do your homework. Like a lot of things, it looks easier than it is.
George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.
Mantor can be reached at GWMantor@aol.com.
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