Agents Decoded: Thinking about opening a brokerage? Start here.
For Jay Thompson, starting his own firm was a career highlight. He lays out the pros and cons, and the questions agents should ask when pondering this big move.
The direction of your business depends on decisions you make every day. Agents Decoded can help you by presenting the perspectives of seasoned pros who have been there, made mistakes, and found success.
There comes a time in every agent's career where they wonder, "Should I start my own brokerage?"
Often that thought is quickly dismissed — but sometimes it's followed by, "Hmmm. Well, why not?"
If you are at the "why not?" stage, there are many questions you need to ask (and answer) before you take any action. Opening a brokerage is a big step and requires significant upfront research.
While everyone's situation is different, here are some things to consider when deciding if opening your own firm makes sense for you.
Pros and cons
One of the first things I do when faced with any big decision is sit down and write a list of the pros and cons. If you're thinking about starting your own brokerage, that list might look something like this:
Pros:
Independence and autonomy: You answer to no one but yourself. You set the vision, values and culture for your firm.
Higher earning potential (maybe): No splits, desk fees, technology fees, etc. paid to another broker/franchise.
Flexibility and control: You have the freedom to set your own hours, work from anywhere and manage your business as you see fit.
Cons:
Increased responsibilities and liability: You'll need to handle all aspects of running a business, including financial and legal compliance. Broker/owners have far more legal liability than sales agents.
Startup costs and risks: You'll need to invest in office space, technology, public relations and marketing to get your firm up and running — and continuing to produce.
Competition and market fluctuations: You'll need to compete with established brokerages and navigate market fluctuations.
This is just the beginning. Keep your list handy and add to it as you progress through your thinking process. Usually adding a pro or con will generate more questions to consider.
Brokerage model
New brokerage models seem to be introduced on a weekly basis. One of the first decisions you'll need to make when opening a new firm is what will be the fundamentals of your brokerage model.
Are you going to have agents or be a sole proprietorship? If you'll have agents, will they be on traditional splits? "Zero percent"? Physical office space vs. virtual space (or some hybrid)? What about revenue or profit sharing?
These questions barely scratch the surface. You must explore much more deeply. For example, if you're going to add agents, how will you recruit them? Where will you find them? Will you incentivize agents to bring in new agents? Do you know how to recruit and hire, or will you need to find and hire an experienced recruiter?
What are your state's requirements on brokerage firm office space?
So many questions. They all come with complex answers, unique to you and your goals.
Legal structure
Determining a brokerage model is step one of many. Whatever direction your model goes, there's the matter of a legal structure for your business. Options include (but may not be limited to) sole proprietorship, partnership, limited liability company, S corporation or C corporation. Do you understand the reporting requirements and tax implications of each of these? Likely not, so you'll need to consult with an attorney and CPA.
Independent vs. franchise
Big decision point here. There are pros and cons to each (make another list!). If you really want full freedom to run your business as you see fit, you can't be saddled with the requirements any franchise will impose.
On the other hand, having a franchise gives you access to a technology stack, training materials, corporate support and an established brand. The value of these can only be decided by you.
One thing many people underestimate is the cost of starting a franchise office. Fortunately, these costs are often public. For example, Keller Williams lists these requirements for potential franchisees:
Minimum Cash Requirement: $150,000
Total Startup Investment: $183,230 - $336,980
Other franchises have similar fees. And these are startup costs. Don't forget ongoing royalty fees, tech fees, franchise renewal fees and more. Again, only you can decide if the cost of opening and maintaining a franchise is worth the benefits.
The bottom line
The decision to strike out on your own and open your dream brokerage is difficult, complicated and important. It's not as simple as getting your brokerage license and setting up shop. There are countless questions to research, answer and evaluate. The internet contains a wealth of sometimes helpful, sometimes contradictory information, so use it wisely, and importantly, tap into your network of trusted friends and advisors to help you through the decision-making process.
Opening, running and growing a brokerage was one of the highlights of my career and life. It can be incredibly rewarding and incredibly frustrating.
And it's something I recommend every agent consider and investigate.
Jay Thompson is a former real estate agent, broker-owner and industry outreach director. He is currently an industry consultant and sits on several boards. The views expressed in this column are solely those of the author.