How to sell my real estate brokerage? It can be an intimidating question.
You’ve gotten into the real estate business.
You’ve executed your business plan, and now it’s time that you sell.
Selling a real estate brokerage can be complicated.
So be ready to roll up your sleeves one more time.
You will need some time to prepare to sell your real estate firm.
The more time you have to prepare for your transition, the better, but a few years is probably enough.
Finding another real estate broker who is compatible with the way you operate your business is critical.
Of course, you’re going to need to work on a valuation for your real estate brokerage.
Marketing is also a crucial component of the puzzle. If your clients know you by your first name (rather than a “group” name), that’s something to think about.
For starters, you should start joint marketing with your name and the name of the agent who will be taking over.
Consider this: If you’ve been conducting business as your first and last name throughout your whole career, the cash flow stops with you.
That’s wonderful if you’re actively working in the business and connecting with your customers.
However, what happens if you sell it?
What happens if you leave everything in your name and a long-time client has a problem with a transaction? You wouldn’t want to be bombarded with phone calls once you’re on your permanent vacation.
Plus, you don’t want someone else tarnishing your impeccable reputation, which you’ve worked hard to earn over the years.
By the way, once you sell, go ahead and bookmark these articles, as you’ll want to read next!
6 Great Alternative Investments
Ok, so let’s get into the details…
How To Sell My Real Estate Brokerage Business?
Well, let’s start with…
The Matter of Valuation
Although they can be challenging, there are two factors to consider when valuing your real estate company: price and conditions.
Price
Clients account for the majority of the value in your company.
Your database, as well as a bit of goodwill, are the most valuable assets in your brokerage.
When folks can no longer interact with you directly, there will almost certainly be some fallout.
After all, the amount someone is prepared to pay for your firm is predicated on the potential for future transactions.
Therefore you want to make sure those transactions are protected if at all possible.
Conditions
When you sell your real estate company, the buyer may pay cash upfront, make monthly payments, or both.
A popular structure is a down payment plus a commission percentage for the next few years.
You should expect a substantially lower overall price if it’s an all-cash offer.
You can expect a larger total price if you’re game to accept payments for years into the future.
It’s all about risk vs. reward.
There is no such thing as a “one-size-fits-all” solution. Therefore being open to unique alternatives is beneficial.
You should also consider all of the “what if” scenarios.
- One of you dies before the term of your contract expires…
- The buyer’s broker goes out of business before the business is fully paid off…
- The buyer decides to scratch your business plan and leave the real estate industry…
There’s no way to account for all possible snafus.
But you can evaluate the most likely circumstances and make plans appropriately.
[And once you sell that real estate business, you’ll need to get wise with that cash! In addition to those investing articles above, here are the personal finance rules I share with those in my network. Or just watch below!]
Ok, so what are buyers looking for in a brokerage model?
What Potential Buyers Look for in a Real Estate Brokerage
A lot of real estate brokerages aren’t suitable investments. One of the main reasons is that the success of many firms is dependent on the owner.
Potential purchasers are concerned that if that owner leaves, the business will suffer.
Purchasers are hunting for assets that can be transferred.
They’re on the lookout for real estate businesses that are dependent on the success of the agents rather than the owner.
That means business owners must be able to demonstrate an effective business plan.
What’s your brokerage model?
The brokerage needs a system for attracting, training, and keeping agents.
Residential firms should use marketing systems to identify and secure listings and attract potential homebuyers.
In addition, potential broker owners want to see a recognizable brand.
This includes a successful track record and possibly a niche where the organization can continue concentrating its efforts.
A company that deals in vacation homes for a particular area for three decades is more appealing than one that has done a little bit of everything for those 30 years.
[Who knows, maybe you’ll want to get into Airbnb investing after you sell…]
Where To Start Once The Decision Has Been Made
It’s crucial to remember that selling a business is a lengthy process. It could take years to be in a position to sell a business.
It, of course, depends on the structure and health of the company.
Here are some things to consider:
- Do you have standard operating procedures? (SOPs?) All of your company processes should be documented.
- Can your business run on auto-pilot? Remove yourself from your company’s day-to-day operations.
- Ensure that your financial records are accurate, precise, and up to date.
- Create a strategy for the next five years in your business plan.
- At least three years of steady economic performance is required.
Ok, so what are some things you can do wrong when trying to sell?
The Common Mistakes When Selling A Business
A common mistake made by brokerage owners who have entered into an agreement to sell is allowing their brokerage to falter.
You must continue to operate your business as usual.
I have watched countless deals blow up months before closing because of a slowdown in sales.
Seasonal changes in real estate brokerages are to be expected.
However, allowing the business to dwindle while focusing on the sale or your next project can reduce your profits.
Ideally, real estate agents advise their clients to keep emotions out of a transaction.
[many of them make the same mistake when selling their own agency].
Emotions are running high – these are big decisions – it’s only natural!
Stay calm until the deal is closed.
Other Things To Consider When Selling A Real Estate Brokerage
Because you want to control the situation, potential purchasers should sign a confidentiality agreement (an NDA) before learning the sale details.
You want your agents and workers to know about the transaction so you can respond to their questions.
Furthermore, selling your brokerage takes a significant amount of time. You’ll need to develop sales presentations, locate possible buyers, respond to their inquiries, and negotiate a letter of intent and acquisition.
These are complicated transactions and it will take hundreds of hours of work.
It’s beneficial to have an experienced professional helping both parties through the process. In a way, it’s precisely what you do for your customers when they’re dealing with intricate real estate deals.
So you might want to search for a business broker in your area and have some discussions with them.
Also, keep in mind that leaving your business behind would be difficult. You’ve put in a lot of effort to make it a success. You’ve made promises to people who work with you.
The emotional component of selling the brokerage is significant because of all of this labor and these relationships.
How To Find Potential Buyers
These types of transactions, like most sales transactions, are frequently the result of personal connections.
Potential buyers could come from within your company.
Maybe you have an agent that’s looking to start something new and launch their own business.
If your firm doesn’t have any takers, cast a wider net. Make a list of other local brokers and rate them in order of possible interest in your company.
It would be wise to make choices based on your knowledge of their operations. If that fails, make contact with non-real estate friends in the business community.
You can also advertise your company for sale on business exchange markets.
Tips on How To Vet Potential Buyers
The majority of small-business owners are concerned about two things: getting paid and protecting their legacy.
Ask buyers to describe their financial capabilities and detail how they will finance the deal.
They should also be able to disclose their sources of capital to ensure that they can fund the deal.
It’s more challenging to predict how people will treat your company if you’re no longer involved. You hope they’ll build on your work, but nothing is guaranteed.
You can do a background check and inquire about references.
However, because protecting your legacy is a subjective matter, you’ll have to trust your instincts. You’ve managed to keep a successful business for this long.
Who Can Walk You Through This Process?
The best place to start is with trusted advisors familiar with your brokerage.
I’m talking about folks like your attorney, CPA, or banker.
You can also contact local business brokers and mergers & acquisitions advisors.
In my area, a few examples are Sunbelt Business Brokers and Transworld Business Advisors.
Buyers are primarily interested in future cash flow, so keep that in mind.
The more confident they are in future cash flow, the closer you are to doing a deal!
Buyers are more inclined to spend more for a business if they can plainly identify growth potential.
So, be sure to share your business plan with them and how they can take the real estate brokerage to the next level.
Final Thoughts
Take your time when negotiating the sale of your company. Examine the proposals you receive before accepting them, and if necessary, make a counteroffer.
Ensure that your staff learns about the business sale from you rather than from someone else.
Whether you tell them before or after you sell, some of your employees may decide to seek work elsewhere.
That’s also just the way the real estate business world work – so no worries.
Just be aware and prepared for this impact on your company’s sales.
Consider this your last leg of the race.
You’ll be off to the beach in no time. Good luck!
FAQ
Are there other creative ideas for selling my real estate brokerage?
You could actually plan to move your team over to a cloud brokerage like eXp. I have heard of many broker owners doing this as a way to ‘sell’ their brokerage.
How do you value a real estate brokerage?
The short answer is that it’s tough. We dive into valuing real estate brokerages in this article.
