how to start a brokerage firm

There’s plenty of research to back up the fact that most real estate agents hang things up after around two years in the business. What doesn’t get talked about enough is how to start a brokerage firm off on the right foot. If you start off a firm with the right plan in mind, you’ll be able to secure funding and keep things running for a long time.

Here are four steps to start your small business off right.

1. Get a License

While this might be an obvious one, be sure that you’re properly licensed in the area you want to operate. If you’ve recently moved or have considered operating across a state line from the one you actually live in, you might need to meet different requirements. Be sure you’re ready with pre-licensing courses and that you’ve taken the broker’s exam.

It takes several years of work experience to get a license in some states. Some states require you to hit a certain number of closed transactions before you can register. Make sure the state isn’t going to get in your way and that you’ve met all the necessary requirements.

Broker education might be just 45 hours of courses or it might be 900 hours of courses. This depends on where you live as well. The exams are also going to be state-specific, so if you relocate, get to know the lay of the land in the region so that you know what you’re talking about.

You’ll need to know all about risk management, tax issues, marketing, and all kinds of legal topics. If you have a handle on these issues, you should be able to pass the exam and get licensed easily.

2. Do You Want Franchise or Independence?

When you’ve gotten your broker’s license, consider the types that you could open up. 

Choosing a franchise means that you’re still somewhat independent, but that you’re working with a bit of a head start. If you’re okay with restrictions imposed by a larger brand and handing over some of your commissions, it shouldn’t matter much. While that percentage isn’t nominal, it means that you won’t have to dig around for clients and properties.

An independent brokerage means that you’re building your brand from day one. This will be capital that you can’t buy and that you won’t be able to build up while you’re working under the umbrella of a franchise. It’s a much steeper hill to climb but the rewards last a whole lot longer. 

Look at franchises before you sign with one. There could be recurring fees, dues, transaction fees, and other types of costs. The benefits of having your marketing taken care of for you and operations already set up can mean a lot to a broker just starting out.

Independent brokerage costs far less but puts a lot on your shoulders. Brand recognition is challenging, as is establishing client relationships. However, if you can manage it, you could be much better rewarded in the long run. 

3. Set Up Your Legal Structure

Every business has some kind of legal structure underpinning it. This structure determines your financial liability, how taxes will be paid, and the ownership details. 

Running a partnership, sole proprietorship, C corporation, S-corp, or LLC all require different things from you.

A partnership puts you in a shared relationship with someone who can help lift your assets or drag you down. Running a sole proprietorship means that you can control the company. If you get an investor to help you out, they might want to be partners, which can be a hard line to walk for more independent brokers. 

A C-corp lets you sell private shares as you grow if you need that investor funding. An S-corp gives you the chance to have shareholders but keeps you from the buying and selling taxes of a C-corp.

An LLC allows you to separate tax and financial burdens from your personal assets. This is great for small businesses running on tight margins. It keeps you out of bankruptcy and from dealing with major issues if you get sued. 

The lawsuit will be against the company and not against your personal assets.

4. Outline Your Expenses

Before you try to get your brokerage funded, make sure you know what you’ll do with that money. Any savvy investor will want to see your startup costs and know what things will cost on an ongoing basis. They might be willing to invest more than once but they want to know how long it’ll take to see a return.

Those initial startup costs are going to include all of your marketing materials. You’ll need a website and lots of branded materials. You’ll need signs, business cards, and to pay for ads.

Make sure you have all of your office and utility costs calculated. From month to month, you don’t want to be dipping in your pockets to keep the lights on.

You also need to ensure that your licensing doesn’t lapse. You’ll need a business and brokerage license renewed on a regular basis.  

Eliminate non-essential costs but realistically evaluate the real costs of everything else. By underestimating your costs, you set yourself up for failure later.

Include this as part of your business plan and you should be able to get started quickly!

Learning How to Start a Brokerage Firm is the Easy Part  

Figuring out how to start a brokerage firm isn’t all that hard. What’s challenging is setting things up in a way that ensures growth. Plenty of clients break up with their brokers after not too long because they don’t implement the right customer service tactics to keep them happy.

Follow these best practices to ensure you keep everyone happy.