How to Start a Real Estate Brokerage
By Colin Ryan
Starting a real estate brokerage might be a dream, but what does it look like in reality?
The real estate brokerage industry is now worth $155 billion. But to cash in and open your own brokerage, you need to get a licence, build a business plan, and sort out a budget.
Only licensed brokers can start a brokerage. Once you’ve created a business plan and secured funding, you’ll need to start hiring agents. These agents then work with you, and you’ll take a share of their commissions on their sales.
It can be a ton of work, and it’s not easy, but it’s possible to build a successful brokerage from the ground up. Let’s take a detailed look at what it takes.
How much does it cost to open a real estate brokerage firm?
Real estate brokers who land in the top 10% in the country are making well over $160,000 a year after expenses. Plus, owners take a cut of their agent’s commissions.
But before you start seeing dollar signs, it’s important to remember that, just like any other startup, real estate brokerages take a lot of time and money to get off the ground. Figuring out if you’re financially capable of opening a brokerage firm needs to be the first step in the process.
Depending on the type of real estate brokerage you want to start, you’re looking at startup costs of at least $10,000. And that’s if you’re bootstrapping it and jumping in with the bare essentials.
Thinking about opening up a brokerage under a franchise? Costs can easily hit $200,000, and that doesn’t include the ongoing fees you’ll be liable for like license renewals.
Even if you have everything planned out to the finest detail, the first year (or two) owning a brokerage can be rocky. So, you must have a safety net to see you through, as well as enough financial backing to give your brokerage a shot at being successful.
To mitigate the risk of going bankrupt, you need to have enough savings in the bank to last you for at least a year without income.
11 Steps to Start a Successful Real Estate Brokerage
1. You must be Licensed
The overall process, cost, and qualifications for becoming a broker are different from state to state. That’s why it’s important to contact your local real estate bureau to see what steps you’ll need to take.
However, most steps for acquiring a brokerage licence are roughly the same in most states:
You need a real estate licence
First and foremost, to get a brokerage licence, you must have a real estate licence. This means passing your state’s licensing exam, paying any fees, and keeping your licence up to date.
You need education
Most states require brokers who are trying to gain a brokerage licence to complete a standard amount of pre-licensing education. The amount varies, but most states require at least 45 hours of studying before you can apply for a broker’s license.
You need experience
If you’re new to the real estate game, it’s unlikely you’ll be able to get a brokerage licence. Realtors are required to have at least two years of experience in the industry before they’re able to even apply for a license.
Check your state’s requirements, but some also need realtors to have signed off a certain number of transactions before they become eligible to apply for the licence.
You need to pass a broker’s exam
Next, there’s the broker’s exam. It’s an extended, in-depth version of the standard real estate agent’s exam every realtor must pass to start working in the real estate industry. Just like any exam, it’s essential to study and build your knowledge to pass the exam, so there are courses available to help you be as prepared as possible.
You need to pay a fee
Lastly, the fees. Once again, these are different in each state, but the costs for a broker license application range from $150 to $200.
Once you’ve got a licence, you need to decide what kind of brokerage to open.
2. Research your Competition
According to the Association of Real Estate License Law Officials, there are about two million active real estate licenses in the U.S. So, it’s important to research your competition to know exactly who (and what) you’re up against before you open a brokerage.
The most important factor you need to look for in your research? The commission rates of your competitors. And they vary dramatically. On one end, you might have brokerages like Redfin who offer up brokerage fees for 1.5% listing commission and 3% buyer commission. On the other end of the scale are players like Purple Bricks who charge flat-fee of around $3,000 to list a property.
But your other competitors are your clients themselves. Research from Inman says that more than 70% of buyers already have a listing in mind by the time they’ve contacted a realtor:
A client’s knowledge of the process behind buying a home has significantly improved. Not only are they shopping around more, but they’re also more aware of the fees and commissions they’ll be expected to pay. So make sure your brokerage is offering competitive rates.
3. Determine Your Budget
Running a brokerage is far from cheap, so budgeting for your operating expenses is crucial.
You must budget expenses for things like a broker website, licence fees, marketing costs, and wages for brokers (if you plan to hire any). Plus, you also need to factor in monthly expenses like fuel, internet costs, software, and phone expenses.
And it quickly adds up. The monthly expenses for your brokerage could look like this:
- Utilities – $250
- Office space – $2500
- Marketing – $1500
- Office expenses – $200
- Insurance – $300
- Staff (2 x brokers) expenses – $4,000 (plus commissions)
As you can see, expenses just to have your brokerage open could run at $8750 a month. It’s important to have these planned out carefully before you open so you know how much back-up cash to have at the start.
4. Write a Business Model & Business Plan
Now you know your competitors and your budgeting costs, it’s time to nail down the plans for the brokerage.
How you create a business plan will vary based on your vision, but there are core issues every brokerage needs to understand like:
- Defining Your Marketing Strategy
- Creating a Financial Plan
- Implementing Action Plans
- Evaluating and Revising Your Plan
Pro-tip: We’ve created a step-by-step guide on creating a real estate business plan, that shows how to build a perfect plan from start to finish:
But a business plan takes time and effort. It’s your masterplan for the next 1-5 years of your brokerage, and it can help you envision how successful your brokerage could be.
There is a unique issue when it comes to building a brokerage business plan: do you want to be a franchise or an independent brokerage?
What is a franchise brokerage?
Franchises are a way for you to open a brokerage that includes training for agents, a predetermined commission structure, and most importantly, a recognized brand. Not to mention, a lot of brokerages that offer franchises, like RE/MAX, come with public trust, and agent training programs.
But, starting a franchised brokerage doesn’t come cheap. Starting costs can be $200,000+, not including the fees you’ll be required to pay like management fees, transfer fees, and licence renewals.
What is an independent brokerage?
Well, it’s when you’re taking on the brokerage world by yourself. The advantages? Lower recurring fees (i.e. franchise costs) and more control over your brokerage. You get to build your own marketing campaigns, branding, and training programs.
However, if you haven’t already built up a name for yourself in the real estate industry, starting an independent brokerage can be tough.
It’s unlikely you’ll have public trust or a history of strong client relationships. But most of all, without a history in the real estate game, it’s unlikely you’ll have worked alongside successful brokers.
All of these attributes make independent brokerages successful, so think about whether you’ve got enough experience to make this business model work.
5. Determine Your Legal Structure
Are you planning on going solo? Opening up a brokerage with partners? Or forging your own corporation?
Determining your legal structure is the next important step of opening a brokerage. Figuring out your structure will ultimately decide the financial liability of your brokerage. There are four legal structures brokerages normally fall under:
- Corporation: Placing your brokerage under a corporation is a way to legally separate the brokerage from you as an individual. Registering your brokerage as a corporation means that you can own property, pay taxes, enter contracts under the corporation name.
- Sole proprietorship: If you want to keep things simple (or you don’t plan on hiring any brokers), a sole proprietorship could be a good option. Operating a brokerage under sole proprietorship means you will be solely responsible for any profits you make, along with any debts.
- Partnership: If you plan on having a partner in your brokerage, registering it as a partnership will mean you both hold personal liability for the business.
- Limited Liability Company (LLC): Registering your brokerage as an LLC means you and your partners will have limited personal liability. But, LLC companies still get certain tax and flexibility benefits that businesses registered as a partnership obtain.
6. Build Your Brand
Unless you’re opening a brokerage under a franchise, you’ll need to build your brand.
The basics must include:
- A name: Obviously. It’s how the public will recognize your brokerage. Will it be your name, or will you operate under a group? Whatever you decide, don’t overcomplicate naming your brokerage. If you’re not sure where to start, try using this Real Estate name generator to come up with some ideas.
- A logo: Which is almost as crucial to your brokerage’s branding as your name. You can either generate a logo yourself or hire a professional to really make your branding pop.
- A tagline: A memorable tagline is the last important part of your branding toolkit. It’s a way to sum up your brokerage in just a few words, so make them count.
An example of brokerage branding done right? Matt Beall’s brokerage Hawai’i Life.
The firm is positioned as a distinguished brokerage in Hawaii. The branding follows three core colors, and its tagline is catchy “Find your Hawai’i life”. Having a brokerage branded like this oozes professionalism and does another important thing: helps a client imagine what their dream home could look like if they hired Hawai’i Life for their realtor needs.
7. Register your business
Registering your business is a relatively straightforward process.
Once you’ve decided what legal entity your brokerage is going to operate under, register it with the IRS to obtain an employee identification number (EIN).
Next, it’s onto applying for your permits. Of course, these vary state by state, but the US Small Business Administration website is easy to navigate to figure out what permits you need. Then, if you’ve decided to operate as an LLC, you’ll need to file Articles of Incorporation to the Secretary of State’s Office. Once again, this depends on what state your brokerage will be operating in, so you can find the filing information on your state’s website.
Finally, if your brokerage will have multiple members, you’ll need to draft and sign an Operating Agreement. The agreement defines and cements the roles of everyone involved in the brokerage, and needs to be signed by each member.
Pro-tip: This is the step where you should open a business checking account for your brokerage. Keeping all of your brokerage’s finances separate from your personal accounts is vital to protect your assets. Not to mention, it helps to simplify your bookkeeping when tax time rolls around.
8. Find Funding
As we’ve already discussed, starting a brokerage isn’t cheap.
Depending on the type of brokerage you want to start (independent or franchise), your costs will run between $10,000 to $200,000. Which means in most cases, you’ll need to drum up some funding to make your brokerage dreams a reality.
SBA loans are used by a lot of new firms to get their brokerage off the ground. These loans take money from your 401k to allow you to open your own brokerage. The two types of SBA loans open to realtors are:
Each has its own pros and cons, so it’s essential to do your research and see which loan fits best with your business vision. You can take a quick questionnaire on sites like Fundera to see if you qualify for these types of SBA loans here.
And if you don’t qualify? You can still seek traditional business loans, or ask for personal loans from family members to bootstrap your brokerage.
9. Find an office space
The costs of leasing office space can add up—quick.
If you’re going solo, you might start your brokerage from a home office. But, if you plan on hiring brokers, you’ll need a space that accommodates multiple agents as well as a conference room to meet clients.
How much? Just take this 2,600/SF office space in San Francisco on LoopNet.
Running at a cool $46/SF a year, this space for 20 people will set your brokerage back $8500 a month.
You may be looking for a smaller building when you open your brokerage, but in any case, you’ll need at the very least:
- Privacy for clients and brokers
- Computers, office furniture, and phones
- Parking space and street access
- Training and conference areas
- Kitchen/toilet facilities
All of this adds up so crunch the numbers.
10. Build your team
Decided to hire a team to help build your brokerage?
How many people you hire in the early stages will depend on cash flow, but there are a few key positions you’ll need to fill first. These include a real estate agent, a listing specialist, a transaction agent, and last but not least, an admin assistant.
But where do you find them? There are loads of places you can start searching for top talent, but you can start by posting on sites like:
Pro-tip: Want to hire the best? We’ve written an in-depth eBook that shows you how to recruit (and retain) top talent for your real estate brokerage. It’s free!
11. Market your brokerage and build your tech stack
On average, 31% of REALTORS® spend over $1,000 per year on marketing expenses.
It’s important to spend that money wisely, as marketing is the best way to bring new clients into your brokerage.
Firstly, you’ll need to invest in outbound marketing when you’re getting started – business cards, signage, brochures, flyers, and mailers.
But don’t forget about your digital marketing costs – after all, 49% of all buyers first discovered the home they purchased online. Luckily, there are tons of digital tools available to brokers that can dramatically increase the number of leads coming through the doors each month.
Here are some of the tools you should have in your brokerage’s toolkit:
Lead generation software
Lead generation helps fill your sales funnel with targeted leads. This can be anything from targeted social media posts to custom landing pages for properties.
The problem for most brokers who use lead generation as a marketing strategy is that they don’t know how to capture the leads they’re trying so hard to get. The easiest way to overcome this is to use strategies like building custom landing pages to convert readers into leads.
Pro-tip: Once you start generating leads, you’ll need to decide which leads are worth pursuing. For example, using a lead scoring tool helps you determine which leads might be ready to buy, and which ones need a little more nurturing from your agents
An example of new leads and their score on Placester
Email marketing is one of the best ways to nurture leads and keep your brokerage at the top of mind. By investing in email marketing software, your brokerage can cut down on the time it spends on email marketing by using templates, dynamic fields, and incorporating your logo and branding.
Real estate SEO
Without Search Engine Optimization (SEO), it’s almost impossible for your brokerage’s website to get found online.
The core parts of your website’s SEO rely on editable page titles and meta descriptions, lightning fast load times, and integrated blogging.
Specialized brokerage websites can help your SEO without having to hire an agency to make site your site is appearing in search engine results.
Real estate CRM
A real estate CRM is a all-in-one portal you can use to track leads, manage sales, and close deals without letting anything fall through the cracks.
Adding a CRM to your tech stack will give you (and your agents if you have any) a comprehensive dashboard to track everything that’s going on at your brokerage.
For example, using Placester’s CRM, you can add tags to potential buyers based on how you met them and their lead characteristics.
Let’s say your lead is a couple searching for a home with good public transit links that you met at 123 Main Street Open House. All you need to do is add these tags to their profile in your CRM and you’ll be able to follow up with them better in the future.
Not to mention, a CRM gives you the tools to build drip marketing campaigns with less hassle. If you recently hosted an open house that attracted 30 potential buyers you have two options to keep in touch with them: contact them all one by one, or build an email campaign to do it for you automatically.
Using Placester, you can build drip campaigns by customizing emails from templates, and then choose when each email will be sent to your prospective buyer. Easy!
What’s a Brokerage’s Earning Potential?
A large part of your brokerage’s earning potential will depend on the commission structure.
Brokers earning the least in the U.S. are earning an average of $22,750 a year. However, brokers in the top 10% of earners make an average of $163,540 a year. A lot of this income depends on commissions, as well as the overall prices of the homes you’re selling.
As described in Investopedia, it’s just as easy to sell a $1 million property that’s priced correctly as it is to sell a $100,000 home. And, the paperwork for a broker for each of the sales will be fairly similar.
One part of the sale that won’t be similar? The commission your brokerage earns. Let’s say your brokerage commission is 2% of the sales price. The $1 million property will bag your brokerage $20,000. The $100,000 property? All that hard work will earn your business $2,000.
A brokerage’s earning potential depends on how you set the commission structure and value of the homes you’re selling. So, it’s important to increase your earning potential by utilizing lead generation techniques like custom websites and email marketing to drive more sales.
Ready to Launch Your Real Estate Brokerage?
Opening a real estate brokerage is a massive commitment, so it pays to do your planning and research.
Once you’ve scoped out the competition and set a budget, the real planning begins. Registering your business takes time, as well as deciding what business model is right for you.
With smarter websites and lead generation tools, it’s easier than ever for brokerages to take control of their own marketing campaigns without having to sign up to a franchise.
If you’re still looking for more inspiration behind starting your own business, check out these must-read brokerage books and the top social media accounts by the best brokers in the business.
Learn proven strategies for marketing your brokerage? Subscribe to the Placester Marketing Academy
Published on September 17, 2019