Stay with current commercial real estate brokerage or leave?

Question

Context: I am 30 years old and have been a commercial real estate agent for 2 years. I have a strong background in sales and joined a very reputable commercial firm that is owned by my best friend’s family. I am at a point now where I am looking for advice as to whether I should stay with the current company or go out on my own. I am not too interested in joining a competitor.

In 2017 I grossed over $460,000 in commissions and I received 55% ($253,000) as take-home pay. $91,000 of the gross commissions was a referral by the company’s CEO. $210,000 went to the house this year.

In 2018 I grossed $1,250,000 and I received 62% ($775,000) as take-home pay. $232,800 of the gross was internal referrals. $471,500 went to the house this year!

I am currently re-negotiating my split structure and the company will not go above 70% to me / 30% to them at $1,000,000 in gross commissions. The net to me breakdown is as follows:

55% - $0-$100k

60% - $100k-200k

65% - $200k-400k

70% - $400k-600k

75% - $600k+

I receive a 3.5% bonus on top of the 75% threshold once I hit $1.0M in gross commissions.

It’s important to note that the company pays for my admin, my office, computer, phone, marketing, etc. I have zero true out of pocket expenses.

Ultimately, the question is, at $1.0M in gross commissions, is paying the house $300,000 too much? I know I also have to look at the post-tax money aspect too… I am just having a very difficult time paying the house so much money for business that I am mostly generating!

What if I am able to go out on my own and do $1.0M in gross and my costs are only $50k-$100k? I could be leaving $200k+ per year on the table…

I also have to weigh the long term intangibles too though, I understand that…

Appreciate the advice!

Brian Ploszay · Answer

You are doing well.   You should shop your license around.  It is very common for commercial real estate companies to pay "sign on" bonuses to established, high earning, agents.  Also, your split is not attractive and most experienced agents do better.  That being said, if the marketing and leads are contributed by the firm, then their take is well earned.  That alone can be a reason to stay with the firm.

Byam Alexander · Answer

@Mark, first and foremost Kudos to you on the success you've experienced as a commercial broker.  I've been a commercial broker over 5 years and been self-sponsored managing broker for a little over a year.  Your question is one that frequently goes thru the mind of a commercial broker (especially during the good times ;).

I challenge you to consider looking at the house split as "a cost of doing business" versus them "giving them or them taking  X amount of dollars".  There is value in the costs the company covers on a monthly basis--admin, office, computer, phone, marketing, etc.  I'm not sure if you use Co-Star, but the a local subscription to that service is $650/mo or more.  You must answer the question "how much value is there in the company fronting these costs?"  Your current status is you can freely go about your role as an commercial broker without worrying about monthly overhead and clerical/admin functions.

Secondly, you also mentioned that the firm is reputable within your market.  The reputability of the firm has some intangible value as it helps you land clients and close deals.  I was a affiliated with a small boutique firm that wasn't well known within the market I actively served.  I approached a college friend about having an opportunity to be an exclusive agent for selling his industrial property; however, he decided to go with a more a firm known and reputable in the market.  I was disappointed because I had successfully delivered some other business services, but I reflected on the fact that the company (versus me as an individual) he chose was a better fit to dispose of the property according to his specifications.

In summary, the company you are with now is providing you a PLATFORM to generate and close business.  If you go out on your own you will need to invest time, talent, and resources to build your own platform to replicate some of the success you a currently experiencing.  The splits and performance bonuses quoted are fair and seem to promote a good balance of incentive for you to be successful and profitability for the company to offer its unique platform.  I renegotiated my split with the brokerage annually and strategically based on what was in my pipeline.

I hope perspective was helpful.  Feel free to reach out.

Recommended Read:

E-Myth by Michael E. Gerber

Roy Maynard · Answer

Which route did you go and why?

Mark Slutsky · Answer

Hi - I would like to re-open this thread and get updated thoughts / opinions now that almost 1 year has gone by. 2019 proved to be another successful for me. so far with already approx $1M in gross commission = $700k in net proceeds to me. However, I continue to consider leaving on almost a daily basis as I’m driving into the office, purely from a mathematical take home perspective.

1) I really like the people I work with and have a strong support system at the office. Reason to stay.

2) A number of the other agents bring me in on deals and I recognize that this would not be the case in the event I leave. Reason to stay.

3) There are a number of intangibles that are unknown to me. How much time will I be spending on administrative tasks vs. broker tasks if I went out on my own? potential reason to stay.

4) If I go out on my own, what’s my real total annual cost? Admin salary plus benefits, marketing, costar, office space, insurance, legal, printing costs, etc. $100k? More? Less? Opportunity costs. With that said, and a bunch other stuff, it purely comes down to dollar and cents for me and I’d like to get peoples opinion on the following.

At the current split level (70/30 @ $1M) = $700k pretax.   Net of taxes = $455k assuming 35% combined federal  and state tax bracket.

If I can run the business on my own for $100k = $1M gross - $100k costs = $900k net and $585k net of taxes assuming the same combined 35% federal and state taxes.

Does it make sense to leave and do this on my own for $130k??? Am I being penny wise / dollar foolish? If it costs me more than $100k a year this becomes more favorable to say and vice versa to leave.

$130k over 30 year career equals almost $4M.

I understand it’s the cost of doing business not actual costs, but I internally beat myself up that I’m “leaving this much money on the table” and not just leaving and running my own shop with an admin.

To help with everyone’s responses. My current firm is unwilling to go beyond the 70%/30% split at $1M. Anything above $1M gets paid out at 78.5%. I don’t care to go and work for Marcus, CBRE, etc. too much red tape in my opinion. Maybe I could go to Keller Williams and create my own brand there? Even if someone offered me 80/20% split it sounds shortsighted to leave over just a 10% bump pre tax? And I don’t think anyone is going to offer me a 90%/10% split and offer the same level of support with admin etc and zero out of pocket costs. But maybe someone knows about a company out there that will???

What’s everyone’s thoughts? I’d love to stay where I am and get these constant thoughts out of my head but I haven’t been able to get clear answers because I haven’t had anyone provide me with concrete advice...

Appreciate everyone’s insights! Happy to provide more details if needed. Thanks!

Mark Slutsky · Answer

Any more input? Really like the discussion here.

Brian Ploszay · Answer

@Mark Slutzky

Interview with them.  Show them your potential and ask them to throw you an offer.  For sure you will get a sign on bonus.  More importantly, you want to join a firm that will allow you to be even better.  So one that has a stronger marketing presence, stronger name, stronger reputation.   And more than all of that... stronger leads.

Mark Slutsky · Answer

@Byam Alexander - I wouldn’t say I’m absolutely set on leaving. It may be short sighted, especiallly when you look at after tax dollars... If I went out on my own and did $1M in gross commissions and my expenses were $100k, I would net approx $540k (post fed and state tax). If I stay with the current company and gross $1M and the firm gets $300k, my net would be $700k ($420k post fed and state tax). Does it make sense to leave over $120k in post tax money? That’s assuming production stays identical...

@Russell Brazil - what are your annual expenses that are driving higher than $50k?

@Brian Ploszay - what commission structure would you say is more favorable? 80/20 90/10 flat? I may be able to get an 80/20 flat split with a competitor in town, but I’m not sure I want to join a competitor... I also don’t know if I could get a sign on bonus yet since I’ve only been in the business for 2 years, yet producing at very high levels. Thoughts / advice?

Russell Brazil · Answer

Place dollar values on the value you get.

Office?

Marketing Cost?

Business Received From Marketing?

Business Received From Referral?

Administrative Assistant?

Technology?

Brand Awareness?

How much will you business drop off by going out on your own? How long will it take to grow your business from that drop off back to a million in gross commissions? On the residential side, the average initial business drop off in switching to another brokerage is about 20%, and going solo is about 33%.  Im not sure what that is in commercial...but Im sure if you ask around, someone must know the industry standard.

Whats the average profit margin for solo operators in your field? I think your estimation of $50-$100k is very very low. Im doing gross commissions of less than half what you are and Im spending more than $50k, and I have one of the highest profit margins that exist on the residential side.

Byam Alexander · Answer

@Mark, I had a few moments to digest your follow up comments.

Leave the terms your originally signed on for in the past.  Don't let those emotions taint what has to this point been a positive experience.

You've clearly laid out your rationale for moving on solo. Based on your responses it seems like you are aware of the challenges and cost of doing business as a solo, free agent.

If you haven't already (for some reason I sense you've done this already) draft a business plan for your solo operation including: projects, costs,pipeline projects, strategic alliance partners, etc.

Lastly, if and when you decide to move on I encourage you do it the right way.  Schedule a face to face with the person that brought you to the company and principal.  Let them know your plan to be a free agent. Thank them for giving you the opportunity. It might seem awkard or unnecessary, but you don't want to unnecessarily "burn bridges". Please be advised that initially the principals might be upset, angry, or respond negatively.  That's a normal reaction to someone that contributed to the success of the company.  Emotions will subside over time, but they will remember that you were upfront and professional about the matter. The firm you are currently with may be the firm you do some deals with in the future.  You want to be in the position that they'd be glad to work with you and vice versa.

Question: Do you hold a managing broker license? If no, you should take steps to secure that licensure and you'd be set to truly be a free agent--self sponored managing broker.

Stay with current commercial real estate brokerage or leave?

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