Despite all its benefits, what discourages top-performing real estate brokers from owning their own real estate brokerage?
In the same way that business ownership is not for everyone, brokerage ownership is not for every real estate agent. In addition to the desire to own a business, there are certain qualities that define a true entrepreneur. None of these qualities are as important as the internal courage to take calculated risks. If there is no risk at all, it will not be a lucrative business.
A businessperson is a risk taker with a “type A” personality, with exceptional leadership skills and the ability to guide others past the concerns of the business risk. That risk must be tempered with vision. A risk without a predetermined strategy in place is similar to playing soccer with no “goal posts.” A business leader has a planned outcome in mind before taking action. A businessperson’s leadership skills allow him or her to push, pull and prod others of the necessity of the vision and plan.
The above qualities alone will not take your business to success. In addition to risk-taking and leadership skills, you need managerial qualities to power your business. Those are the three traditional defining attributes of the business owner.
If you are lacking in any of these three areas, can you still become a broker? Or are you forever destined to be an agent, standing in the shadow of your broker of record?
There exist very successful entrepreneurs who break that traditional mold and have learned that by leveraging the skill sets of others in areas where their own skills are not strong, they can acquire the experience, education and drive to achieve success by utilizing a strong workforce that becomes the foundation of their business.
Successful and proven franchise models do exactly that. With defined goals that follow a tried-and-true business playbook, coupled with constant testing and improvements to processes, a franchisor provides franchisees with a system that only requires the business owner’s desire to succeed.
Franchisors are not only selling their brand names but also their ideas, systems — and, more significantly, their track record. Brokers can focus on revenue generation, the fuel that drives business, instead of testing and adapting a playbook as the market around them changes and evolves.
The franchisor has the ability at all times to see the bigger picture providing a valuable back-stop to business decisions that might otherwise cripple a singular business owner.
For those who are brave enough to consider opening your own real estate brokerage (my own market area is Ontario, Canada, so I also detail specifics required for Ontario Realtors), you will need to assess the following areas:
Business creation and registration
One of the hassles that deter real estate brokers from opening their own brokerage is the initial work involved in establishing a corporation and all the paperwork involved. There are a lot of important details when setting up your own real estate brokerage that need to be followed, and often in a specific order.
1. Brokerage application and registration paperwork
Filling Real Estate Council of Ontario (RECO) and Toronto Real Estate Board (TREB) forms requires a truly detail-oriented individual. In addition to forms, you have to coordinate other paperwork such as your police background check, transfer forms, bank account setup and signature cards, and so on. You need to be aware of each step of the process and constantly coordinate and follow up with different agencies and individuals. You will need to organize your action plan to get through the initial stages or assign someone who is detail-oriented enough to handle your registration paperwork on your behalf.
2. Incorporation and business registration
These two areas will require the services of experienced lawyers and accountants to guide you through the steps. From the choice of business name to the type of corporation your business will adopt, the decisions you make will be need to be coordinated with your brokerage application and registration. You will also need to register and open your Canada Revenue Agency accounts, provincial tax and employer accounts, and other government accounts for filing and reporting compliance.
3. Creating systems and processes
In order to operate your brokerage efficiently, you have to put processes in place, even if you are the only registrant or employee in the brokerage. There could be a wide range of processes that you want to establish ranging from office procedures to closing policies.
Some of the basic processes to be established are: transaction process, funds disbursement process, trade record sheet process and your recruitment process (if you are recruiting new team members). In addition to systemizing your processes, you might have to work on having an extensive office policy and office culture policy prepared. Planning ahead will save considerable time, effort and headaches when they are needed as your brokerage grows.
4. Searching for office space
After crunching your numbers and deciding to open your own brokerage, you have to figure out where you want to locate your office. If you are opening an independent brokerage, you are free as a bird. If you want to be part of one of the established franchise brands, you are restricted as to where you can open your doors. Your franchise brokerage boundaries are more limited in cities, as most territories are already taken in major urban centers.
Once the location of your brokerage is determined, you have to start searching for office space within your area. While searching for office space, you have to tackle issues such as type of property, size of space and parking access. The biggest issue about office space that most brokers do not feel comfortable about is the long-term lease commitment. Generally speaking, most office spaces are for a term of five years, which is a significant expense commitment, especially if it is a larger space. In addition, you need at least the first and last month’s rent deposit.
Some individuals run their brokerages out of their homes, which I absolutely do not recommend, as it might tarnish your image. You have to ask yourself: Does a home office instill confidence in my ability and success to my clients? I would confidently say that if you are planning to open your brokerage out of your home, you are probably better off staying at your current brokerage.
5. Office furniture and equipment
Now that you found your space, you have to start looking for furniture and equipment that fits and matches with your business’s personality. But before moving in the furniture, your office space might need renovation or at least cosmetic touch-up. You have to plan all these steps and, more importantly, reserve time and money to complete them. The cost of renovations and furnishing could easily run up into the tens of thousands of dollars, depending on the size of your office and your interior decorating choices and options.
6. Hiring administrative staff
Before your office door opens, you should probably hire someone to answer your phone calls, and you might also need to hire someone else to handle your transactions: a deal secretary. As you can already appreciate, you have to go through the process of interviewing, employee selection and training. You need to first internalize and digest the process of your office yourself, and then transfer it to your staff. This in itself can be daunting for some brokers.
This is just the beginning — next week, look for the second installment of the guide to launching your own brokerage.
James Hussaini is the founder and president of Realty Point.