A Step-By-Step Guide To Starting A Brokerage Firm
Do you want to become a broker-dealer? If yes, you can make this dream profession into reality either by joining an existing firm or starting your own firm. But for you to achieve the latter, it needs a lot of legwork. Fortunately, it has the potential to flourish and prosper in a huge way.
Starting a brokerage firm comes with significant rewards and risks. Consider it as a theoretical play wherein you are investing in a startup. But this investment is literally yourself as well as the people around you, instead of a management team you barely know.
It may sound like a simple decision. Even so, remember that you’re doing all the jobs, particularly in the early phase of the business. For a little help, here’s a quick guide to starting a real estate brokerage firm. Take a read!
Get a License
Before you make a business plan and seek financing, first, you’ll need to get a license as a broker. And for you to do so, ensure that you have all the requirements of becoming a realtor in your state.
Moreover, most states need a few years of experience as a realtor to become a broker. What’s more, it may require you a certain number of completed transactions.
That said, review the requirements imposed in your state, which are usually posted on the local government’s website. Additionally, finish pre-licensing broker education classes. Although requirements for this can differ by state, they can often be fulfilled even when you are working full-time as an agent.
Once you’ve completed the classes, take the broker licensing exam, which may vary in each state. But in general, it covers questions such as legal, finance, marketing, appraisals, broker tax issues, and risk management topics.
Plus, they typically consist of at least 200 questions. You need to reach a score of at least 70%, though pass rates differ. Passing the exam proves that you can meet the needs of your future clients and ask them about their financial circumstances correctly. Thus, it’s no wonder why they ask so many questions.
Independent Or Franchise
When you have secured or acquired your license, pick between the two kinds of brokerage firms you can start, namely, an independent brokerage or a franchise. The latter offers you the upper hand because you will be using a known marketing, branding, and agency name.
More often than not, franchise brokerages seem favorable since they include name recognition, predetermined commission structure, and training for agents. However, the costs can be as towering as $300,000, which don’t include many recurring fees, like renewal fees, transaction fees, transfer fees, annual dues, and monthly management fees.
On the other hand, an independent brokerage firm provides you more freedom and control over your business. As such, you have the freedom to create your own strategy, marketing, and branding.
The drawback is that it comes with tons of responsibilities. Thus, those who choose to start an independent brokerage will need to learn best practices, build up new client relationships, and establish brand recognition.
Decide the Legal Structure of Your Business
The legal structure of your business determines your ownership, taxation, and financial liability. For the most part, there are five legal structures for a real estate business. And these are the following:
- Limited Liability Company
- S Corporation
- C Corporation
- Sole Proprietorship
If you are unsure which to choose, then it’d be wise to consult other brokers about each structure and its benefits.
Prior to getting the funds for your business, list all the possible expenses, and find out recurring costs. Some of the initial startup costs that brokers may face are building a new website, getting licenses, creating branded printed materials, and NRA membership.
On the other hand, the ongoing expenses would be the utilities and rent, advertising, equipment, furniture, office supplies, and insurance.
Write the Business Plan
You need to make a summary of your services, identify your business model, competitors, and your buyer, to write a business plan. Also, you need to include your ideal target audience. An effective plan is one that you can map out yourself. However, think of using software such as LivePlan to assist you with the bases.
Once the previous steps are complete, gather all your documents, and then register your brokerage business with the Secretary of State. The registration fee may differ by state. Although filing registration paperwork can be simple, it’s crucial to register your business correctly.
When you’re starting a brokerage firm, and after you must have registered your business, launch and advertise it by sharing business info with press outlets, attending network functions, and starting your advertising. Also, don’t forget to re-evaluate your business plan to reassess your business strategy and operations. It is ideal to check your business plan quarterly to adjust projections, goals, and finances based on the production of the last quarter. Additionally, keep a record of what does not work and what works, and make use of the brainpower of the people around you to fix problems.