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Today’s Ask the Expert column features Arthur Darmanin, Chief Executive Officer with Sellstate Realty Systems Network, Inc.

Q: Why is my brokerage business not profitable?

A: The answer is simple, yet complicated. People in the brokerage business will tell you that the business is a numbers game. The idea is that the more agents you have, the more closings you’ll have, and the more money you’ll make. The concept is fairly simple.

The reality of the situation is a lot different. In order to be profitable, you must have closings, and to do that, not only do you need a lot of agents, but you also need productive agents. And that’s where it gets more difficult.

What many brokers fail to realize is that most agents will only join you if they’re convinced that they’ll close more deals or do just as well with you financially while having more free time.

So it boils down to your value proposition. Unfortunately, most brokers rely on offering higher commissions, and that’s where profits go out the window. I meet many brokers who are quick to brag about how many agents they have. Some offer 100 percent with a small (or no) monthly fee, and I’ve seen transaction fees for as little as $50 per side.

Top agents deserve high commissions because they’ll bring you a book of business, but not every agent is a top agent, nor will they all bring you a book of business. The worst mistake is that these deals are offered to anyone regardless of talent or experience.

Why are so many falling into this trap? What good is having 100 agents if you cannot afford to pay yourself?

I recently analyzed a brokerage that has over 120 agents. The gross revenues were under $100,000, and after office expenses, the net income was so low that the broker had no choice but to sell to supplement their income. Why have the headache, responsibility and liability if you can’t even pay yourself a decent wage? The scary part is, I’ve seen a lot worse.

Brokers are going into business unprepared, with false expectations. They fail to understand the principle that if you recruit on price, you’ll lose on price. There’s always someone more desperate than you out there that will give a better deal. It’s a race to bankruptcy.

The solution lies in your value proposition. What do you truly have to offer to entice good agents to join you? Do you provide technology, lead generation or training that’s structured with supporting material? Would you join a brokerage like yours?

If your value proposition isn’t good enough, you need to restructure your operation. Find out what tools agents need and provide them. If they aren’t affordable, consider joining someone or buying into a franchise that provides them as part of their value proposition. Do whatever is necessary to make your business model profitable.

To get yourself started, begin with a realistic business plan. What is it costing you to run your business? How much can you realistically expect per closing? How many agents do you need to have enough closings to break even? This exercise will help you start thinking the right way.

Once you have your plan in place, work on your value proposition. Remember, a good agent will only join you if they feel that you can provide them the support and tools to close more deals.

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