Should I open a brokerage or stay an agent?

Question

Charlie MacPherson · Answer

@Shane Smith After almost a year with Weichert, I made the call to open my own brokerage.

I came to the profession later in life, getting licensed at 58 years old.  At the time, I had over 30 years in sales and sales management, mostly in medical sales - and have been a serial entrepreneur.

The first reason I made the move was that I was the lack of training and availability of the broker to answer questions and give guidance.  I just about had to tackle her and hold her down to get answers, because she was so busy doing her own deals.  "It's on the web portal" doesn't constitute training!

I did well enough - after coming on board in June, I won "Top Listing Agent" for the year, out-listing seasoned agents who had a 6 month head start.

But I just couldn't take the "big company BS".

Mandatory 32 hours on the front desk doing unpaid secretarial work, hoping somebody would walk through the front door to buy a home.  (BTW - NOBODY does that in 2017.  They're looking at Zillow on their cell phones).  I did over 300 hours on the desk, with ZERO leads as a result.  Mandatory 2-3 hour broker caravan every Friday.  Mandatory office meetings every Friday, where the topic most often discussed was not leaving dirty dishes in the sink. Mandatory "rally" meetings, shouting stupid slogans and playing stupid games.  I imagine that this is what an Amway convention would be like.

So I started Clear Sailing Realty and retained a really good attorney to be our broker of record.

For me, it wasn't about the commission split, although I do a LOT better than I did at Weichert.  It was much more about the control of how agents are treated and eliminating the aforementioned "big company BS".

The most difficult thing I've found  is recruiting, even though I offer a 75% commission split, $1M E&O, CRM, agent websites, etc.

It turns out that most agents are happy where they are, and I suspect that a lot of their personal identity and branding is tied up with whatever company they're working for.  Moving to a new brokerage is akin to breaking up with a girlfriend.

I did have 10 agents at one point, but they were all part-timers with dreams of going full time soon.  That sounds good i you say it fast, but none could put the time into the business.  We tracked our phone calls as part of accountability tracking.  Some were routinely making less than 50 dials (not connects) per week.

I cleaned house and started over.

That said, there are other expenses.  I set my company up as a cloud brokerage, meaning that I don't have a Main St. office with the big plate glass window full of listings - but others may feel the need for that office space, with its $5,000/month overhead.  You'll need to spend several thousand on logo design, business card printing,  signs (For Sale, Open House, directionals, riders, etc).  You'll probably want to organize under an S-Corp or LLC, so there are legal expenses too.

Don't forget, owning your own brokerage means that you'll be exposed to liability from the activities of your agents.  A good E&O policy is a must.  I use Pearl and thankfully, have no claims so far.

Finally, if you go out on your own, you MUST be self-motivated.  There's nobody to hold you accountable for your activities or results.  When you don't feel like working, you have to make yourself do it anyway.

Whatever you decide, GOOD LUCK!

Darren Sager · Answer

@Shane Smith I know exactly how you feel because I felt the same way you did.  I started my career at Weichert, then left them for Keller Williams because it allowed me to make money in 2 ways vs. Weichert’s single way of just through my own efforts with sales. KW offered me a way to pay up to a certain amount and then I would “cap” for the remaining part of the year and earn basically 100% commission for the remaining time, resetting each year on an anniversary date.  They also allowed me to participate in “profit sharing” which meant if I helped the organization grow by bringing agents into KW (both at my office locally and other offices nationwide) I would receive a check based upon that agents sales as it related to the profits of the office they were working out of.  I grew my business quite successfully with KW however I found despite me liking the people that owned my office and my respect for Gary Keller as a person, I didn’t use my office much at all outside of getting my checks cleared and the occasional question to my broker.  I never went there.  And neither did any of my clients.  Nor did the majority of real estate agents who were working out of my office.  If you ever went there during the day it was a ghost town.  The leaders at the office did a good job in providing training for you to become an agent.  But was it worth the six figures in their share of commissions I had earned and paid to them since I started?  I don’t think so.  And I don’t think that anyone in this industry who is at a 50-50 split with their broker, or has an endless amount that they would pay into their brokerage every year, year after year, has a particularly good earning arrangement.

Last year I started considering starting up my own brokerage, like you’re doing now, and at the same time I investigated cloud based brokerages as I saw they had many advantages over traditional real estate brokerages, and that being a reduced overhead.  If I didn’t have to support my local office I could put more money in my pocket.  I didn’t want to give my sales side of the business by starting a brokerage, but I wanted the increased commission I would receive.  I didn’t want to hand hold other agents, but I did want to have the ability to make money off of others work like I did with the KW model.  I won’t say that getting a monthly bonus check from KW hasn’t been nice.  It has, but it was spotty at times.  The agents I brought in I’d receive different amounts on from different offices, or as KW likes to call them: Market Centers.  There were a times when I’d have multiple direct agents do basically the same volume of sales, yet I’d get paid drastically different amounts (almost a 100-1 ratio difference sometimes) and this didn’t sit well with me.

I’ve started a couple companies in the past and there are always expenses you don’t realize that pop up.  There are filings you need to do with the state and other gov’t agencies.  There are insurances you need to have, and liability you put yourself at risk for when you have your own company.  Should you miss a filing or something the fines can be out of control.  Should you have an E&O insurance claim your rates can go thru the roof.

What I found was that I still wanted the ability to run my real estate business but I wanted the benefits of higher take home amounts yet I didn’t necessarily want to run a brokerage and have the liability of such an entity.   What I came across in my investigation of cloud based brokerages was a hybrid model from EXP Realty which gave me the best of both worlds.  The company was founded by agents that had been through KW’s model, yet they eliminated the offices and all the franchises of that system to become streamlined and efficient.  They put together a system which enables me to act as a broker and own my own business, yet I don’t have the liability of being a broker or have the expenses that go along with it.  The cap (total commissions I have to pay them yearly) for me to get to working at 100% commissions is so low ($16K regardless of what state your license in or how many states you operate in) it doesn't make sense for me to open my own brokerage.   They also want everyone who comes into the company to earn ownership through stock, as they’re publicly traded.  I didn’t have to create any systems.  It’s all in place.  I can bring in agents like KW’s model and earn revenue share off their work, just like being a broker.  Yet I don’t have to hand hold them.  I can make money more ways with EXP than I ever could owning my own brokerage.   And I believe their model enables most agents to have the benefits of owning their own brokerage without the risk or loss of their real estate sales business they’ve built over time.  There's many more advantages I just can't get into in a single post.

Llewelyn A. · Answer

Hi Shane. Not sure if my experience is going to help much, but I just became a Broker in New York and started my own Brokerage, Work Hard Realty, LLC.

Prior, I was never a Salesperson and attained my Broker License from qualifying with my experience over 20 years as a Real Estate Investor.

I have a lot of experience in REI and hold 7 multi-family Investment Properties in Brooklyn, NY that I buy with Partners.

Prior to becoming a Broker, a few friends of my Partners, Family Members and others have been asking me to help them buy properties as they realized how successful I have become.

The properties that I bought and sold made me realize that I left some money on the table. Basically, since 1997, as a REI but not an Agent or Broker, I received NO commissions.

Properties in Brooklyn were not as high as they are post-2014. pre-2014, the properties I bought with my Partners were $1.2 Million and below. Since 2014, it moved up and now I'm buying properties in the $2 Million Range.

I'm currently in Contract to buy a property for $1.9 Million and the commission is 5% or $95k. If I were a Broker I would have received 1/2 the commission or $47.5k. Obviously, it makes a lot of sense for me to become a Broker.

However, I don't have Sales Experience. So I had started thinking that working for a Brokerage Firm for 2 years would help me build up that Experience.

I have a choice when I passed my Broker's Exam. I can either start a Brokerage or work as an "Associate Broker" for another Brokerage, basically a Broker who works as an Agent.

There were several things that made me decide to NOT work under a Brokerage but start my own.

1) Although I am a Broker, I'm still new to Sales. I would have to grind through a lot of junk leads before getting to the covetted Leads and Listings that the most experienced Agents get from their connections or from the Brokerage Firm as the Firm wants their best Closers to work on these more lucrative leads. One of my Partners who has less REIExperience just got his Salesperson's License and started working in a Brokerage firm. He had been given Rentals to do, but those rentals are not exclusive. It's a junk rental and he has to spend his own money on marketing the rental but his competition is much more experienced. I consider this being set up to fail. Unless a Brokerage is willing to give me quality leads, I'm not willing to work this way.

2) In the meantime that I'm building up my experience and raising the quality of my leads, I'm giving up commissions by splitting the commissions on the buyers that I already have as quality leads through my friends and Investment Partners. There's no point on doing that if I'm already a Broker. These commissions will be around $100k, split 50% to the Co-Broker and then split 50% to the Salesperson. So if I am that Salesperson, I get $25k and the Brokerage gets $25k. But that's a hell of a lot of money to give up for a person like me.

3) My previous profession was a highly paid programmer. IT is in my blood. I'm sure I can build up a very good Website myself and save on having an IT staff.

4) I am already Financially Free. My own Brokerage may cost me somewhere around $10k to $15k per year for all the services I will use as well budgets for Marketing. I fully intend to do everything Virtually, including the Office. Plenty of options here in NYC, especially with We Works Offices in very prestigeous locations. This is a budget I can fully absorb and it won't affect my life style.

5) Like the name of my Brokerage, Work Hard Realty.... I really do work hard. You will typically find me working 60 hours a week or more. It's just what I like to do. Why should I enrichen someone else with my work ethics? I may not be starting out as experienced as a normal Broker does, but I'm pretty sure I'll catch up VERY quickly. I also have the advantage of my 2 decades of REI experience that other Brokers just do not have.

6) My friends and Family understand my ambitions and goals. I had to explain to them that we only live once. If you want to reach lofty goals, some sacrifices would have to be made. So they don't expect me to come to every party or stay long. This is going to be important as the weekends will be the time for me to put in a lot of work with Open Houses, etc.

7) Some people reading this are going to say, "What's the point on making all this money if I don't spend it?" Building businesses is one of the pleasures in my life. It's not a chore, it's fun. The more business I do, the better I become at it, the more I enjoy doing it. Some people enjoy golfing, some playing Video games... for me... it's business.

8) I'm an underdog that rises to the challenge despite the disadvantages in life. If you were to pass me on the street, you would not think "Oh, what a successful presence this guy has!" You wouldn't really notice me. However, if I spoke, it would become obvious. One of my specialties is to understand the reality of the world's perceptions and overcome those disavantages, particularly with Technology which was why having an IT background became a really good asset for me. Judging the appearance of the typical Salespersons that I have seen in my time working for the top 10 Financial firms as an IT Specialist, I just don't fit in physically. I'm much more a Geek that has developed his business skills as well as his IT skills. I know that the only way I can beat a really good Salesperson is to develop a special way to do Sales. I think I have worked out that formula.

There are also arguments to have the same work ethics as an Agent, but generally, you will need to work in a team. The problem I have with this is that usually you will NOT be the team leader unless you have developed your skills to that level. That's fine, but that's not me. If I started out as a minor role on the team, I just won't be happy. I would rather start out at the top and learn everything I need to do and build up my own team with me at the Center. If I really need to have someone experienced beyond what I can learn, I'll hire a very successful Agent and give them a great split or deal. BUT, I would need to learn what they do differently than other Agents. In other words, it has to be a mutually beneficial relationship.

There is a lot more to making the decision and I am not sure how much of what I expressed in this posting helps. Hopefully you will see some of this as being useful but a lot depends on what you think about yourself and your personality.

Russell Brazil · Answer

You might want to consider starting a team to see if managing other agents is for you.

Charlie MacPherson · Answer

@Joel N. The biggest challenges revolved around reinventing the wheel on a daily basis.  Procedures, forms, marketing, recruiting, training, non-productive reps, strategizing, leadgen - the list goes on and on.

I picked C21 because I know the broker and have a ton of respect for her.  I also had faith that she could help me to build my business.  That's going OK.  Could be better, but OK.

For me it was a strategic move as much as anything else.  I know I can get a better split somewhere else, but my broker is doing a pretty good job of leadgen.  As a solo agent, I was spending $20,000/year on several different programs, none of them producing well.

She is able to spend more and is producing better results, including a program with Realtor.com that sends leads to ONE agent, rather than the normal four.  My read in the situation is that I'm doing more volume than on my own.  The split is lower, but my net is higher.

Recruiting seems to be a race to the bottom.  Brokerages seem to behave as a commodity - like a 5 pound bag of sugar.  Who cares what the label says?  It's a 5 pound bag of sugar.  Likewise,  agents don't seem to perceive a meaningful difference between brokerages,  aside of fees and splits - no matter what the various brand cheerleaders try to say.

There are brokerages who will do anything from 90/10 to 100% with per-transaction fees.  Very hard to recruit a producing agent and compete with that.  I was successful recruiting, but could only come up with new agents who require intensive oversight and lots of time.  And once they're trained, *poof* - off to a 90/10 brokerage.

So after 9 months with C21, my only real complaint is that the re-branding seems silly.  Why you mess with a decades-old image that you've spent millions on implanting in the mind of the public is beyond me.

Nathan Gesner · Answer

You have to calculate the risks vs. rewards. A large brokerage can bring you business through instant name recognition and better marketing. On the other hand, you may sell less but you get to keep 100% of what you earn. On the other hand,  you have additional expenses (office licensing fee and insurance, signs, web page, office space, secretary, etc.)

If you can make as much on your own - and possibly more - then I would tell you to go for it. If you have limited experience running an office or your own business, then maybe you would be better off staying put or shopping for a brokerage with lower splits.

Peter Tverdov · Answer

Bumping this post as I am coming up on 1 year of starting my own brokerage. What @Charlie MacPherson has said is spot on. My biggest challenge is recruiting. I pay as well as anyone in the state but a lot of agents will say, "who are you?". Some agents feel comfy with REMAX, Weichert etc on their business card. Which I don't understand because people aren't buying because of where you work, they're buying because of your reputation.

The new agents I really don't bother recruiting. 9 out of 10 flame out. They want their hands held (which I understand to a point but I didn't get one single training at my old firm, not one. I just learned on my own) and they frankly suck up a lot of your time with little to show for it.

I stick to attracting agents that are similar to me and the culture I am building. I do enjoy building a business so it's fun but I also understand there will come a point I either have to be the coach and stop playing (selling houses) or I need to hire a coach to train people as we grow.

I happen to own the building my office is out of, which helps a lot with overhead. Ours is really minimal. But the office build out was probably 50-60k for a 800 sqft office (it was down to the studs when my office opened)

Account Closed · Answer

Hi,I'm on a plan to start a business. I have been working in a firm for the last seven years. Now, I think it's better to leave my job and start one with my friends. Though I have enough knowledge in my industry, I don't have any idea about the IT management and techniques. So, before starting my business, I want to know in detail about the companies providing IT solutions.In my search, I came across a company offering SMB IT solutions(https://www.vendasta.com/blog/what-is-a-cloud-broker)and have a plan to consult them. They provide a cloud-based management system. Have you ever experienced their service? Or do you have any other suggestion? Awaiting reply! Thanks in advance!

Mike Cumbie · Answer

Hi @Shane Smith,

If you start a brokerage then your daily focus has to go from selling houses to assisting agents. Yes you still sell some and work your own deals but if you are doing your other job right, you are not doing nearly as much as you are doing now. So I guess it depends on what you want your focus to be.

Good Luck in whatever you decide!

Should I open a brokerage or stay an agent?

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