Probably every real estate agent dreams about becoming a broker and starting a real estate brokerage. For many, it’s just a dream. Yet, others may want to pursue this new career. Our “How To Start 100% Commission Real Estate Brokerage” shows you how.
KEY TAKEAWAYS
- Learn how to start 100% commission real estate brokerage.
- Learn how to get your Real Estate Broker’s License.
- Know the importance of researching your brokerage competition.
- Learn how to figure out your budget for a brokerage.
- Learn how to prepare a Business Plan for your brokerage.
- Decide on what legal structure to use.
- How to register your brokerage with the IRS.
- Tips on how to build your team.
- Do You Want an Independent or Franchise Brokerage?
Follow These 8 Steps On How To Start 100% Commission Real Estate Brokerage
To put it simply, follow our 8 steps to get licensed as a broker and start your 100% commission real estate brokerage from scratch.
1. Get Your Broker’s License
Every state licenses real estate agents and brokers. Most require getting an agent’s license first and after a few years of practicing as an agent, you can take courses, especially for brokers, and take the broker’s exam.
While most people need to first get licensed as an agent, some states allow attorneys and other real estate-related professionals to take the broker’s license exam.
California allows licensed attorneys with experience in real estate law to take the broker’s exam without taking the required courses. To learn more about all the requirements to become a broker in California read this excellent 2021 article by Investopedia.
To find out how to become licensed as a broker in California, Florida, Illinois, New York, and Texas check out this recent article by The Close titled “How to Get Your Real Estate Broker License in 2022”.
Educate Yourself
Like getting your agent’s license, you must complete a minimum time taking pre-licensing courses or learning the real estate profession. Every state has different requirements.
After being an agent for a minimum time (this also varies for each state), you must complete the required broker’s courses before you can take the broker’s exam. These courses teach you about:
- Broker responsibilities;
- Financing;
- State laws broker requirements;
- Office operations;
- Regulations management;
- and more.
Luckily, several certified online courses are available for every state. Investopedia published an article about the “Best Online Real Estate Schools” including broker courses.
Get Experienced
Many states require a minimum of two years of practicing full-time as an agent besides the required courses. Some states require a minimum of completed transactions before taking the broker’s courses.
Pass the Broker’s Exam
The typical state broker’s exam goes beyond the basic real estate agent’s exam.
You will probably be asked about:
- Administration of brokerage topics;
- Management of brokerage principals; and
- State and federal real estate laws related to managing a brokerage.
Pay Your Broker’s License Fee
Every state charges a different broker’s license fee. Here is a list of licensing fees for all 50 states.
2. Research Your Competition
Like starting any new business, you must research your competitors. The Association of Real Estate License Law Officials claims that over 2 million real estate licensees are active in the U.S.
According to The National Association of Realtors (NAR), there are around 106,500 brokerages in the U.S.
With so many competitors, you must do significant research on your local competition.
What must you look for when researching your competition?
Here are two important facts about your competition:
What commission rates do they charge sellers and buyers? Not every brokerage charges the same rates. Some go as low as 1.5% for a listing commission and 2.5% for a buyer’s agent like Redfin. Others charge a flat fee.
Inman research says that 70% of buyers already found a listing they like online before contacting a broker for help. So, you need to know what typical buyers in your area expect to pay a buyer’s agent. Otherwise, you may lose your buyer to a competitor if you ask for too high a buyer’s agent fee.
3. Figure Out Your Budget
Every new business requires a budget. Otherwise, you will miscalculate the costs to startup and maintain your brokerage during the first year.
Here are important things to budget for:
Office as every brokerage needs the main office even if all the agents are remote;
Broker’s Website is fully packed with essential categories like:
- Home;
- About Us (designed to build trust);
- Sellers;
- Buyers;
- Blog (posts for recruiting new agents and educating buyers and sellers);
- News & Events;
- Featured Listings; and
- New Agent Recruiting Benefits.
Marketing Expenses will include all promotional items (brochures, business, cards, signs, ads, social media, email campaigns, etc.).
Wages for office employees like receptionists, secretaries, IT support, & marketing staff.
Office Overhead like electricity, internet, phone costs, supplies, furniture, equipment, and software.
These expenses add up quickly. Depending on your location, expect these expenses to run at least $10,000 per month. Therefore, you need cash to pay these expenses before your first agent pays associate fees.
4. Prepare a Business Plan for Your 100% Commission Brokerage
After knowing your competitors and budgeting costs, it’s time to prepare your business plan.
According to a study by QuickBooks that found 64% of companies preparing a business plan successfully grew their business in contrast to 43% who failed to create one.
How do You Prepare a Business Plan?
A basic business plan includes these important items:
- Define your Marketing Strategy;
- Create a Financial Plan;
- Implement Action Plans; and
- Evaluate and Revise Your Plan.
The Close explains the “9 Steps to Writing a Real Estate Business Plan with Templates”.
Also, Placester offers a “Step-by-Step Guide on Creating a Real Estate Business Plan”,
Creating a business plan requires effort and time. Look at it as your Masterplan for the next five years for your brokerage.
5. Decide Your Legal Structure
You have options in choosing which legal structure works better:
- Sole proprietor;
- Partnership;
- Corporation; or
- LLC.
Each of these four legal structures offers business and tax benefits or liabilities. Let’s explore some of these:
Sole Proprietor: Simple to create using your name as the broker. All profits and debts are solely for you. The same with liabilities if you get sued for negligence you caused or by your agents. Some states may require brokerages to operate under a formal legal structure like a corporation or LLC.
Partnership: Starting a brokerage with a partner means both of you are personally liable for the business.
Corporation: Putting your brokerage under a corporation legally separates the brokerage from you as an individual. Registering as a corporation puts the properties, contracts, profits, debts, taxes, and liabilities in the corporation’s name not you as an individual.
Limited Liability Company (LLC): Registering as an LLC limits your personal liability. Yet, LLCs get the flexibility and tax benefits that partnerships enjoy.
6. Registering Your Business
The IRS requires every business to register to pay federal taxes. After deciding on what legal entity you want, it must register with your state and with the IRS. The IRS makes it easy to obtain an employee identification number (EIN).
7. Build Your Team
Your business plan and budget decide how many employees and agents you will start with.
At the least, you will need:
- Administrative assistant;
- Agents;
- Listing specialist; and a
- Transaction coordinator.
How do you find them?
You can find new agents through the licensing schools certified by your state. Recent graduates who just passed their agent exam are looking for a brokerage.
Brokers found success hiring staff and new agents with the following online talent search sites:
- LinkedIn;
- Glassdoor;
- Indeed; and
- ZipRecruiter.
8. Do You Want an Independent or Franchise Brokerage?
What’s An Independent Brokerage?
When you create your brokerage by yourself you become independent. One benefit is that you are in total control of all aspects of your business.
A disadvantage is not having a brand name in the real estate industry that is already known and respected. It will take you years to build p your brand name from scratch.
Public trust will have to be built up over time with positive reviews and testimonies from happy clients. It requires a history of good client relationships.
Ask yourself, “Am I well-known and respected in the broker community and my prospects area?”
If the answer is a resounding “Yes”, then go ahead as an independent broker.
Yet, if your answer is “No”, you should start with the help that a large well-respected franchise can offer you.
What’s A Franchise Brokerage?
Starting as a franchise brokerage opens the door for training your agents, marketing strategies, a set commission structure, and very importantly, a recognized brand.
Of course, joining a franchise incurs a franchise fee that varies between franchises.
Want to Join the Best Brokerage in San Diego and 49th Best in the U.S.?
Big Block Realty offers franchising for brokerages located in California.
We are a fast-growing California franchise that originated in San Diego and recognized as the Best Brokerage in San Diego for 4 straight years (2018 – 2021) by the LocalBest.com site. With your help, we expect to win again in 2022!
49th Best Independent Real Estate Brokerage in the U.S. out of 106,000 real estate brokerages by The Wall Street Journal partnering with Real Trends Rankings.
Check out Screenshots of our awards in these two blog posts:
- “Big Block Realty Named in Top 100 RE Brokers in The United States”; and
- “Best 100% Commission Real Estate Broker San Diego 2022”
JOIN US as a new franchise in California! We offer your agents complete transparent 100% Commission Plans with no hidden fees.
We also include Free:
Steven Rich, MBA – Guest Blogger
HAVE ANY QUESTIONS?
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