How many times have you thought about starting your own real estate brokerage? How many times have you searched Google for the best ways to start a real estate business without much money or capital?
Now is the right time to start your own real estate brokerage! It’s straightforward, affordable, and enjoyable.
While you may think that you need an office, a lot of expensive software, and vast sums of money, that’s not necessarily the case. The truth is, it’s faster and easier to start small, stay agile, and scale appropriately. You can use your home office and have a virtual brokerage.
#1 – Lay the Foundations
To get started, let’s take a look at what you need to do before starting your brokerage. There are a few critical steps that will set you up for success further down the line.
Get your real estate brokers license (or hire a licensed real estate broker). RE BROKERAGE can be your sponsoring broker.
In the U.S., a real estate broker is responsible for the transactions that process under their license. This person is accountable for everything related to the transaction including legal compliance and the company’s real estate agent’s performance.
If you want to open a brokerage, you either need to get a license yourself or hire someone to broker the transactions for you. With RE BROKERAGE, we sponsor YOUR company but we’re the broker – so you’re legally able to own a brokerage.
Licensing is administered at a state level in the U.S., so the exact requirements differ depending on where you plan to set up shop.
Some states also require you to have experience as a real estate agent or to have completed a specific number of transactions before applying for your license exam.
This means the licensing process can be a lengthy one. Understanding what’s required will help you put an accurate timeline on when you can start your business.
Set up your business
You must take steps to ensure you operate your business legally.
One of the first decisions to make is what kind of business structure you will use. Brokerages can operate as a sole proprietorship, LLC, partnership, or corporation.
Most people will choose to operate as a Limited Liability Company (LLC). An LLC is a simple business structure that helps remove personal liability, often provides better protection of your personal assets. You won’t require a board of directors or have to perform formalities like shareholder meetings.
Speak with a lawyer at this point to get professional advice about the pros and cons of each option. Then register your business with the state agencies where you do business.
You should also apply for a federal tax ID and consider taking out errors-and-omissions insurance to reduce risk exposure.
Franchise vs. Independent Brokerage
Another critical decision is to choose between opening a franchise brokerage or going it alone.
The former is often easier as providers typically have operating procedures set up for you to follow. You’ll also benefit from a recognizable brand name, so you won’t have to work as hard on marketing or building brand value. The downside of the franchise route is that you’ll lose independence and the ability to build your company with a specific vision.
You’ll also typically need some capital to open a franchise brokerage—possibly hundreds of thousands of dollars depending on the provider you choose.
You may also need to pay a percentage of revenue to the franchise operator. This franchise fee takes care of services like marketing and running the company.
Start with a Minimum Viable Brokerage
If you choose to run an independent brokerage, now is the time to start thinking about running your business.
Unless you have starting capital and experience, we recommend beginning with a minimum viable brokerage. This means you’ll launch with the minimum amount of investment and infrastructure in place. Doing so allows you to adapt quickly and scale appropriately.
The benefits of this are:
- You’ll keep initial costs to a minimum, reducing risk. You won’t spend money on expensive offices, software you don’t need, or costly brand-building campaigns.
- You’ll earn commissions faster. A minimum viable brokerage allows you to start working as soon as possible. You’ll focus on getting your first sales over the line to kickstart your cash flow.
Technology has provided enormous opportunities for brokerages to run virtually. The only tools and equipment you’ll need are a website, some business cards, for sale signs, and access to Excel.
Of course, you don’t have to continue operating like this (unless you choose to). Once you have momentum, you can begin to spend on the extras needed to grow your business.
Will You Do the Selling or Hire/Recruit Agents?
When you first start, you will probably perform the duties of both agent and office manager. You’ll find leads, market properties, organize tours, and facilitate transactions.
This is advantageous at the beginning of your journey. You get to keep all the profit and reinvest in your business. The downside is that doing everything yourself means growth will be slower.
At some point, you may want to hire agents to work for you. The more you have on your team, the more deals you can do and the more commissions you can produce.
At this point, your role will also become more administrative. Instead of only selling, you’ll focus on activities like:
- Recruitment
- Negotiating contracts
- Managing your workforce
- Tracking commission payments
- Generating leads
The decision to hire or not to hire is not easy. Consider your susceptibility to risk and reward, as well as practical details like the amount of cash you have available.
Take Financial Planning Seriously
Before setting up a business, you should create detailed financial projections. This ensures you have realistic expectations about how much cash you need to operate and how many sales you must make to earn this money.
First, consider start-up costs. This can be anything from a few thousand dollars to hundreds of thousands of dollars. It all depends on the type of business model you use.
A virtual minimum viable brokerage with you performing the role of agent requires the least amount of money.
The amount of cash you need quickly rises if you want to open a brick-and-mortar location. You will have to factor in the cost of office space, furnishing, and labor.
You’ll also need to consider how you will finance these costs.
You may have money saved up that you can use to get started. Or you may decide to apply for financing via a Small Business Administration loan.
Keep Your Personal and Business Expenses Separate
Be aware that at first, you may not earn enough to pay yourself a wage. Before starting, be sure to have at least a year’s worth of personal expenses saved up to cover you before your business becomes profitable.
Once you earn enough to pay yourself, don’t just dip into the company bank account when you need some cash. Pay yourself a salary every week or month like you would with any other employee. You can supplement this with bonuses if the business is going well and you want to earn more.
Recruit the Right Agents
When it’s time to hire agents, getting the right people is hugely important.
Top agents bring in more leads and close more transactions, but they also cost more than their peers. Find a balance you are comfortable with.
An alternative is to look for promising talent that is making a name at other agencies. People at this stage of their career may still be on less favorable commission terms, meaning they are easier to tempt to your company.
Recruiting real estate agents is an ongoing process that is likely to take up a significant amount of your time as you start to grow. Make sure you are always on the lookout for potential hires that will improve your brokerage.
Rewards Packages Matter
Perhaps the most crucial factor when recruiting is the commission structure that you offer. Look at other brokerages in your area to see what kind of commission and fees they pay agents and create a competitive compensation package based on this.
Consider how you can differentiate your business through factors like opportunities for growth, a better work/life balance, and technology that makes an agent’s job easier.
Keep Existing Agents Happy
Keeping your existing workforce happy is just as important as hiring new agents.
Ensure people are on plans suitable for their current performance level so that they are less likely to look elsewhere.
It would help if you also communicated with your agents about the things they like or dislike about their work. You may find that the things that frustrate your workforce are easily fixable. But you won’t be able to do so if you don’t know what those issues are.
#2 – Start Closing Real Estate Transactions
With your business entity setup, it’s time to put pen to paper on your first deal. Early deals are often the hardest as you may be starting from scratch in terms of leads, reputation, and client base—unless you have an existing network in your area.
As getting cash flow to cover your costs is an essential part of running a business, we recommend that new brokerage owners put all their focus on getting their initial deals over the line.
At first, this means doing anything you can to bring in leads for yourself or your agents.
If you have already established yourself in the industry, you may have a network of people you can rely on for referrals. This is an ideal scenario as people will trust you.
Attending business events is another good way to increase the size of your network and get more referrals.
But don’t limit yourself to professional connections. Ensure that everyone in your network knows you’ve started a brokerage business. Tell them you appreciate referrals if they know anyone who is considering selling their home.
An easy way to stay front of mind is to ask people you know if you can add them to an email list. Then use email marketing software to send out a weekly message about your business.
Even if the people on your list aren’t buying or selling houses themselves, they may know people who are. This can eventually lead to referrals.
Carve Your Niche
To be successful in a crowded market, you need to carve out a niche. Specializing in a single area means clients are more likely to come to you when selling a specific property type.
Some of the most common ways to choose a niche include:
- By geographical area: Start small and close to your base—you can expand as you recruit and bring on more agents.
- By property type: Family homes, luxury property, holiday homes, or manufactured homes.
- By customer type: Retirees, high-net-worth individuals, relocations.
- By financing type: FHA, VA, and cash-only are a few examples.
The key is to look at the market you want to operate in and discover its needs. Analyzing competitors will show you the types of property that sell where you live. Also, look at what you have prior experience and success in.
You also need to find a good balance between your niche. Being too broad can dilute your marketing efforts, and you won’t be able to differentiate yourself. Going too narrow may be a constraint, and you’ll struggle to find enough business to stay afloat.
When starting, it’s easiest to let supply define your niche. If you find you have many opportunities to sell residential homes in a particular area, embrace this in your positioning.
Customer Incentives
It’s essential to choose customer incentives that will suit your niche, business, and commission structure. You can offer many buyer and seller incentives to make your brokerage stand out, each with unique benefits and downsides.
#3 – Choose a Commission Structure
Real estate commission on a property sale could be between 5% and 6%. This fee is then split four ways between the buying and selling brokerage and agents.
While the overall percentage the client pays doesn’t change much, there is room for negotiation in how the brokerage splits the commission with the agent. There are a few different real estate commission plans that may suit your favored way of running your business.
Here are some of the most common commission structures:
Traditional Commission Split
A traditional commission split sees the total commission divided between the agent and the broker.
The exact split will be decided when the agent joins your brokerage. Usually, the agent pays between 10% and 40% of the amount they receive to the broker. Experienced agents with a proven track record have more bargaining power and earn more than those just starting.
This is an excellent and well-known structure. It encourages agents to keep bringing in deals, as the more transactions they close, the more they (and you) earn.
Sometimes percentages change depending on where the lead comes from. If the agent brings in the lead, they may receive a higher percentage of the deal. If it comes from the brokerage, the company can collect more money.
Commission Threshold
A commission threshold is similar to a traditional split. The difference is that the percentage the agent pays to the broker reduces once they pass a monthly sales target.
For example, the agent may keep 60% of their first three sales in a month. Then, after the third transaction, they earn 70%. Sometimes there is even a third level.
The benefit of this type of structure is that the agent stays motivated once they have brought in a significant sales volume—potentially increasing the amount you make as a broker.
This type of structure is also likely to attract quality agents who are confident in their ability to push sales over the line.
You can base the threshold on various factors. For example:
- The amount the agent has paid to a broker
- The number of transactions they completed
- The total value of the sales
Flat Fee Structure
In a flat fee structure, the agent keeps 100% of the commission but pays a regular flat fee to the brokerage.
This fee, often called a desk fee, is paid either every month or per transaction.
Monthly fees are paid whether or not the agent closes a deal during the period.
The benefit to the brokerage is that it receives a guaranteed income.
The downside is that it won’t earn as much from productive agents as a traditional commission model.
This type of structure typically attracts experienced agents who generate consistent revenue and close deals without much support. This type of person is confident they will make enough money to make the monthly fee worthwhile.
#4 – Choose a Business Model
Getting your business model right is essential. This section will explore the merits of both brick-and-mortar and virtual brokerages.
Brick and Mortar Office
Traditionally, brokerages operated from a dedicated physical office. This was a requirement as technology didn’t enable remote work.
Many brokerages still work like this, and for a good reason. Having an office gives employees a place to work, hold meetings, and communicate with others. All the equipment people need is right there in the office, and many agents expect you to have one.
Having a high-street presence can also improve your visibility in the area. It encourages people to drop in when they are interested in selling or buying a home. This may be essential if you deal with specific customer groups, as many people still prefer to visit a physical location.
If you choose to go down the franchise route, you will often be required to have an office as part of your agreement.
The biggest downside to the brick and mortar model is the cost required to run an office. It can be thousands of dollars each month. You’ll also have to choose an office of the correct size. Go too big, and you’ll spend more than you need. Too small, and you won’t be able to grow.
The reality is that even if you have an office, many agents will spend a significant part of their day out in the field.
Virtual Office
Technology has enabled more brokerages to go remote. Even those previously unconvinced about virtual brokerages’ merits were forced to change their minds in 2020 due to COVID-19.
Remote work during this period didn’t seem to harm the industry. Sales volume in 2020 stayed high and, while slightly down on 2019, was more than 2016, 2017, and 2018.
Running a virtual real estate brokerage has many benefits. You save significantly on the cost of office space. It’s also easier to scale up and add people to your team without worrying whether you have room for them.
It’s suitable for agents too, which may make recruiting easier. They get flexibility over where and how they work. Instead of commuting into the office, they can work at home and go straight to meet clients, potentially saving hours each day.
You Need the Right Technology to Make It Work
Technology means that many of the tools previously required to run a brokerage are now redundant.
Agents can scan documents on the go with their phone cameras, send them to you by email, and review documents on their computers. Perhaps most important, transaction management software keeps everything running smoothly.
The biggest downside is that agents won’t have space to meet clients. This is problematic on the occasions they want to meet in person.
But many brokerages are overcoming these difficulties. Moving to a remote capacity allows for a vast operation that runs virtually using cloud-based tools and a franchise structure. This will enable agents and employees anywhere to collaborate without the need for brick and mortar offices.
For many brokerages, starting with a remote operation and then renting some office space when required is a good idea.
Hybrid Model
In a hybrid model, most of the work takes place in the field. Agents still send documents remotely and communicate with the team online.
But you have a small office. This will typically have a limited number of meeting rooms or desks that agents can use when they need to.
You’ll save on property costs as you are renting a smaller space, but you’ll still get many of the benefits of an entire office.
Another option is to take advantage of coworking space if it is available in your city. These are open-plan offices shared with other companies.
The companies that manage these spaces often provide all you need to work, such as Wi-Fi, coffee machines, and more. You can also usually reserve meeting, presentation, or conference rooms when required.
It’s a good solution for firms with a small number of employees. The downside is that your employees will have to be comfortable sharing the space with other businesses.
Team Structure Business Model
Brokerages are typically viewed as competitive places. Agents control the whole sales process and take home the rewards.
A team brokerage is a little different. In this structure, agents intentionally operate more like a team—a small group of highly productive and focused real estate agents. Each one has a manager and plenty of support staff that helps bring in sales. Agent commission is much lower to cover the extra costs, but good teams can sell at a higher volume.
It’s also more attractive to clients who benefit from the more service-oriented focus of these businesses.
#5 – Marketing and Branding
Marketing and branding are critical when it comes to generating new leads and helping your business stand out. Here’s a guide to how to do each one well. First, let’s look at branding.
Branding
Creating a strong brand is essential to differentiate yourself from the competition and appeal to your target audience. But creating a strong brand isn’t easy. Here are some steps you can take.
Define Your Value Proposition
You need to decide on your main value proposition. This means defining something that you are good at and that will appeal to your persona. You’ll use your value proposition in your marketing.
Create a Name, Logo, and Tagline
Your brand name, logo, and tagline need to appeal to your target audience and communicate your unique value proposition.
At this point, you can hire professionals to help. This could be anything from a full branding agency to just commissioning a designer to create your logo.
Create a Marketing Plan
Now your branding is done, you can start to create a marketing plan. Here are some strategies to consider.
Build Your Online Presence
Brokers must have a robust online presence. A 2019 National Association of Realtors survey found that 44% of people started their property search online. Meanwhile, social media was the top tech tool for providing high-quality leads.
First, you’ll need a website so that buyers and sellers can find out more about your business and properties.
At this point, you’ll also need to claim your profiles on social media networks like Facebook, Instagram, and YouTube. These can be powerful ways to increase the reach of your brand and improve your brand visibility.
Search Engine Marketing
You need to show up on Google when people search for relevant terms. Here are three things you can do that will help.
Create a Google My Business Profile
The easiest way to appear on the search engines (without paying for ads) is to create a Google My Business profile. This is a short profile for your business that contains information such as opening hours, customer reviews, and your address.
This profile shows up on Google Maps and Google Search when people type in relevant keywords such as “Realtor near me” or “Realtor in [your area].” You can see how it looks in the screenshot below.
Buyers and sellers can browse these listings until they find one they like. All the information they need to contact you is already in the profile.
Optimize Your Website
If you’re willing to invest more in getting found on Google, you can implement a Search Engine Optimization (SEO) strategy.
SEO is a complex topic. It means optimizing pages on your website for keywords that you want to rank for on Google at its most basic level.
These keywords are typically terms that people who are looking for a realtor are likely to search for.
This could be:
- Your brand name.
- “Realtor in [your area].”
- “How to sell a home in [your area].”
- “What is the best realtor in [your area]?”
- “Where is the best place for families to live in [your area]?”
Optimize pages by adding keywords to your title and article, creating the type of page Google thinks searchers are looking for, and then attracting backlinks to the page.
The great thing about SEO is that if you do it right, you can get a steady stream of potential leads arriving at your website for free.
Whether you can rank will depend on the competition from other websites trying to show up for your term. If lots of authoritative sites already rank highly, it can be tough to breakthrough.
Search Engine Ads
The other way to show up on Google is to pay for search engine ads. You’ll choose keywords that you want to show up for and then create ads for these terms.
When someone searches for these keywords, Google might show your ad at the top of the search results.
These ads use a Pay Per Click (PPC) pricing model, which means you pay a small fee whenever someone clicks on your ad.
The good thing about PPC ads is that it is a quick way to generate leads. The downside is that costs can add up, and if your website isn’t optimized to convert leads well, you may be throwing money away.
Once you’ve found your keywords, you need to create an enticing ad and follow it up with an effective lead capture form. We like to create separate landing pages for each offer we promote. It may take time to set up in the beginning, but your conversion will go through the roof—which is super important when every click costs you money.
Other Forms of Marketing
Online isn’t the only type of marketing to consider. You can get the word out through:
- Print advertising
- Radio advertising
- Billboards
- Attending local events
- Flyers
- And more
Consider your buyer persona and where they are most likely to see you. A billboard in a popular spot with your target audience may be just as effective as a Google ad.
It’s time to start your real estate brokerage.
Starting a real estate brokerage is just the beginning of the road to success. But getting these crucial first steps right will set you up nicely for the future.
The most important thing to remember is that starting a brokerage doesn’t have to involve spending lots of money on offices, employees, and complex software. Stick with the basics you need to get your first sales and then grow from there.
