How To Start A Real Estate Brokerage
Starting a real estate brokerage from scratch is no easy task. Take it from us! We have had many trial and errors over the years starting our real estate brokerage. I would not have traded it for anything, but more so wish I had some insight moving forward.
Below we will go into detail and share stories on starting your own real estate brokerage.
Jen. We need to meet. This is getting ridiculous!
My sister and partner Jen and I were fed up. We were doing a fair amount of sales for our last office with really no support or resources. In fact, we were paying an outside coaching company $1,000 a month to help us get to higher levels.
So why are we paying 20% to this company that really isn’t providing us any value? Well, it didn’t take long for us to change strategy. I kept thinking, why can’t we start our own company? What is stopping us? What are the pros and cons? What are the expenses associated?
We planned some but we also winged a lot of it.
I didn’t waste much time and immediately signed up for the real estate course to get my Broker’s license. In Florida, within 24 months of being a licensed real estate agent (within the last 5 years), you have the privilege to apply for and earn your Broker’s license.
So in 2006, I went for it. I wound up cruising through the classes, taking the state exam and finally passing it on my second attempt. PASS! We are ready to roll right?!
What do we do now?
I had no clue. I was 25 years old and no real idea on how to exactly set up a real estate company. How do we set up with the state? How do we switch our licenses over? How do we leave our current broker? There were many unanswered questions but we powered through it. Hopefully, this article assists in some outline and tips for you to follow. Because I didn’t have much of a clue.
Keep in mind this will vary from state to state. So talk to some real estate attorneys as well as governing bodies within your state to assist.
Set Up The Corporation – SunBiz
In the state of Florida, we use SunBiz to set up our corporations. We actually hired a real estate attorney initially. I was thinking, well he is a real estate attorney. He must know all the laws, etc. But this was not the case. We set up the company as Maxim Realtors LLC.
Do you see a problem with this? We didn’t. However, because we used the name REALTORS in our corporation name, we were technically infringing on their trademark. So we had to file with the state for a name change. Then alter the name with ALL of the other entities like DBPR, FREC, Local Real Estate Board, Bank Accounts etc. It was a simple mistake but took unnecessary hours from us to correct.
You will also want to hire a good accountant to work hand in hand in setting up your real estate company.
This was another mistake we made. All I know is for the first few years we paid a lot of money to the IRS. We had no real plan with our accountant to reduce our liability. We actually went through two accountants before hiring a superstar who knew what she was doing.
Once we hired Anita we had to alter the way our company was set up in order to reduce taxation. This is the beginning of your “team.” Just be sure your team knows what the heck they are doing.
Picking Your Company Name – Choose Wisely.
Take your time choosing the name of your company. See if there are any other names out there throughout the USA using the same name in real estate. We wound up trademarking “Maxim” for real estate services in the USA. So technically, any other companies with “Maxim” in the name, we could contest. So choose wisely, as the last thing you want to do is get into a legal battle.
Also, make it catchy and simple to remember. I see so many companies out there that just have a strange or even difficult name to say or spell. I think the more simple the better. Come up with a list of 10-20. Ask friends and family to choose their top 2-3 favorites. The name will be with you for a long time. This will be your image, logo, and everything you market with.
Also, I would suggest not necessarily using your personal name or last name unless it is really cool. The reason is, I would name it and build your company as if you are going to sell it one day. Which we did. 80% of it anyway… ** I have another article on Building Your Real Estate Company To Sell It.
E I N with the I R S
The next step was to set up our EIN # with the IRS. This was a simple task. Click this link and you can do it online in 5 minutes once you have registered your company name with your state. All commission dollars will run through the real estate brokerage and its EIN number. Remember, your real estate company is a living, breathing entity.
Quick Tip – Consider hiring a payroll company as well to pay you / your partners a set salary. This is what my sister and I did. I think it was like $50 a month and they took care of paying all the social security, Medicare, government entities, etc on our behalf. This also was good as it kept us budgeted and disciplined with our money.
Company Bank Accounts
Once you have your EIN # you can go to any local bank to set up a corporate bank account. I suggest setting up 3 accounts: Operating Account, Marketing Account and Reserve Account.
We had to upfront the money for both General Liability as well as Errors and Omissions Insurance. I still know of companies that do not carry any insurance. This like walking through a war zone with a bullseye on your head. It is a fairly low cost for the protection it adds. Especially if you recruit agents into your real estate brokerage.
D B P R
Once our corporation was set up, we had to file with the Department of Business and Professional Regulation. I had to file both the new real estate company as well as my personal broker’s license to qualify the company.
It took a few weeks to process and of course, we had some application errors that set us back some. BUT once they approved it, we were in business!
Office Space – Real Space or My Kitchen Table
We wound up securing an office within an office park. We made a mistake to purchase it in my estimation. By purchasing the office, it didn’t allow us to grow fast when we needed to adapt and expand.
We wound up outgrowing the space because we wanted to change our image and location(s).
To this day, we still own that office and lease it out to a couple attorneys. So, all in all, it isn’t a bad real estate investment.
Why Do You Want To Start Your Own Real Estate Brokerage?
For us initially, it was to be independent and make choices as we wanted.
However, soon to realize, there was a lot more to open up your own real estate brokerage especially if you recruit real estate agents.
In the beginning, we were planning on just staying small and continuing sales as normal. Jen, me and an office secretary. So things didn’t change that much for us. However, as we built up a reputation and dealing with more real estate agents on a regular basis, they were reaching out to us and inquiring if we were hiring.
This led us down the path of recruiting and managing real estate agents and ultimately less concentration on our real estate sales.
So I think it is imperative to really understand your why and plan out on paper what your intention is.
Brick and Mortar For Our Real Estate Brokerage
This is going to depend on your goal, target markets, etc. Let’s take for example our beach location on Bonita Beach. It is a 550 sq ft small beach office with decent walk-in traffic in season. Now that we are selling again, we have a high concentration in selling beach and waterfront homes/condos. This office makes a lot of sense for our geographic location.
Our Fort Myers location is in an office building and mainly used for meeting clients and agent training/seminars. If I had to do it over again, I would have chosen this location to be in more of a walk in traffic location as well.
If you are in general real estate with no real geographic target marketing, then you may decide to stay lean financially and work from home. OR… Consider getting an executive suite. Many times you can get a furnished suite very inexpensive, all-inclusive and many times have reserved/shared conference rooms.
Either way, be smart with your money. “Build it and they will come” doesn’t always work. Be sure you have the necessary business and revenue coming in before taking on an endeavor of actual office space. Also, write down exactly the recurring costs. (Rent, Electric, Water, Potable Water, Supplies, Internet, Phones, Employees)
Recruit Agents or Not
I would encourage you to do one or the other. If you are in sales and love sales, then stick with it. Maybe you have a partner who will develop the business of recruiting and training agents. Or maybe you just want to remain small size in terms of people and grow the heck out of your real estate sales. Either way FOCUS.
Just understand that recruiting and managing real estate agents is full time in itself. AND it isn’t fair to bring on agents who need help in which you cannot appropriately service. Also, keep in mind… All actions performed by the agents fall back on the broker. Your liability increases immediately and it is not the easiest to see every action of every agent in your company.
Independent or Franchise
We remained as an independent brokerage from 2006 to the present day. I had no real interest in buying into a franchise system. Call me hard headed or what but I knew we could be a success without it. There were a lot of trial and errors and at times having a franchisor there could have been beneficial.
There are many real estate franchises to choose from these days from ReMax, the Realogy family of brokerages, Sellstate, etc. All of them have upfront costs in many cases tens of thousands of dollars. Also, ongoing royalties and many rules associated with them.
I think there are many pros and cons with both independent and going the franchise route. I will go more in detail on another article on this site.
Thank you for reading this content. I will continue to provide more in detailed information on this site of our successes and failures in starting a real estate brokerage in order for you to hopefully learn from us to save money and time.
To your success!