Are your work ethic and ability to motivate other real estate agents exceptionally? If so, you might just be the right person to start a real estate firm. To become a broker-owner, you’ll need to take many steps, such as completing state licensing requirements, developing a business plan, and implementing lead generation tactics. Let’s learn how to start a real estate brokerage firm.
The real estate brokerage industry has grown to $155 billion in revenue. But before you can cash in and create a brokerage, you’ll need to secure a license, build a business strategy, and figure out your budget.
To open a brokerage firm, you must be a licensed broker. Having a company plan and securing funds will need the hiring of employees. You’ll get a cut of their commissions if they make a sale for you. It’s feasible to develop a profitable brokerage from the ground up, even if it takes a lot of time and effort.
Now is the perfect time to open a real estate agency. And the good news is that it’s relatively simple, inexpensive, and fun. Having an office, fancy software, and large sums of cash are all things you would assume you need to start your own business. Starting small, remaining flexible, and effectively scaling your business is much easier and faster than you might think.
How to Start a Real Estate Brokerage Firm
Determine the legal form of your business.
When starting a real estate agency, you can choose from various company entities. Four of the most frequent are:
Single proprietorship: an enterprise owned and operated solely by one person, with no legal distinction between that person and their corporation. A general partnership is founded in the simplest form of partnership when two or more people engage in a business venture for profit. You aren’t needed to file anything with your local government.
A firm with limited liability: A limited liability corporation (LLC) is a business entity that allows taxation to be deducted at the shareholder level rather than at the corporate level.
Since corporations are independent legal entities, shareholders are protected from personal culpability for company debts and commitments.
You may be required to register your firm with the IRS and obtain an employee identification number depending on the type of business entity you choose to operate under (EIN). You can then open a business bank account to segregate your personal and professional assets with an EIN.
Acquire the necessary licenses and licenses to conduct business.
To work as a broker, you must be licensed and have a real estate license. Prepare for any certification exams that may be required in your area by checking the licensing criteria in your area. Don’t forget that your local authorities still require you to obtain the necessary licenses and permissions for all types of enterprises.
In addition, you’ll need insurance for your office space, business liabilities, and any new employees you hire. Working with an insurance professional is the best approach to ensuring you are properly insured, as insurance needs vary by state and business type.
Your state’s pre-licensing course in real estate should be completed. To sit for your state’s real estate exam, you’ll need to complete your pre-licensing course. It gives you the right to sell real estate.
To prepare for the exam, you need to know many things about real estate law, such as fair housing legislation and property ownership. In addition to the federal real estate rules that apply to all 50 states, every real estate pre-licensing course will include your state’s laws and regulations.
Pass the license exam for real estate agents.
According to the state you live in, the exam can take anywhere from 1.5 to 3.5 hours to complete. To pass in most states, you must answer 70% to 75% of the questions. Your pre-licensing classes will serve as good preparation for the state exam. Most states test national and state real estate principles and laws on multiple-choice tests.
Apply for a real estate license.
As soon as you pass your exam, you should apply for your real estate license with your state’s board of real estate commissioners. The application fees must be included if there are any. Your state may require all real estate license candidates to submit fingerprints for a criminal history check.
Make sure you find a real estate agent to work with.
The next step is to find a real estate broker to work for after passing your real estate exam, submitting your application to your state’s real estate department, and paying any applicable fees. To begin operating as a real estate agent (REA), you must have a licensed broker’s license. Research and careful consideration are needed before making this important decision.
Consider the advantages and disadvantages of working with a franchise brokerage versus a boutique brokerage, and decide accordingly.
Get a broker license.
You can obtain a real estate broker license in most states by following the same process:
There is a licensing requirement for real estate agents.
It would help if you met all of the requirements mentioned above before you can begin the process of applying for a license in your state.
Experience: Before applying for a broker’s license, most real estate agents need to have worked in the business for two to four years. Moreover, in some states, a real estate broker’s license is only granted to those who have completed a certain number of real estate transactions.
Education: Applicants for a broker’s license in every state are required to complete pre-licensing education, which can range from 45 to 90 hours.
Broker’s examination: To become a broker, you must pass a licensure exam. All states need brokers to take a more extensive exam than those required of real estate agents. There are courses available to help you learn the in-depth content of this exam, and you should prepare thoroughly.
Fees for the application and the application process: Apply for and pay the broker license application fee. Depending on where you live, the fees might range from $150 to $200.
Set up accounting and bookkeeping for your firm.
When starting a real estate business, you’ll need to set up an accounting and bookkeeping structure. It’s vital to maintain record of your company’s revenue for tax reasons as a business owner.
Business accounting is the process of recording, organizing, interpreting, and presenting financial data for your firm. By examining the financial condition, accountants assist company owners in making better decisions.
The act of gathering, arranging, storing, and obtaining financial data connected to your business is known as bookkeeping.
Accounting and accounting are intertwined.
Accountants use financial data for analysis, corporate strategy, and tax planning, whereas bookkeepers record and organize financial information.
Hire a bookkeeper as the first step.
Accountants and bookkeepers are not the same. Many business owners hire a bookkeeper to maintain their finances and prepare for the accountant’s work with these straightforward goals in mind.
Many people underestimate the value of hiring a bookkeeper to help with their day-to-day financial activities, balance their bank accounts, create simple reports, or otherwise aid them in maintaining their financial records. Bookkeepers are typically less expensive than CPAs.
Many real estate firms hire an hourly-paid outside accountant to regularly assist them in the office when handling all the entries, payments, invoices, and receivables. A small business owner’s time is precious, and having assistance with this part of running a company may be beneficial.
Make improvements to your accounting procedures every year.
Do not overlook the need to periodically assess your bookkeeping, accounting, and tax methods when starting a real estate business. You will fail to conduct an in-depth evaluation of the systems in place and the individuals in charge of those systems at your peril.
Your accounting practices should be as efficient and cost-effective as possible. Is your CPA knowledgeable enough about the real estate market to help you? Is your tax preparer competent enough to keep you (and your real estate investors) in compliance with the law? One final question: are there methods by which you can lower your costs while still keeping high-quality controls?
Take the time to reassess your overall accounting approach and look for ways to improve and reinforce it.
Become a taxpaying citizen
Before you can open for business, you’ll need to register for various state and federal taxes. You will need to have an EIN before you can file your taxes. It’s a breeze and completely free!
Depending on the type of business structure you pick, you may be able to choose from a variety of taxation alternatives. S corporation status could be advantageous to some LLCs (S Corp).
You can find small business tax information in these guides:
- Taxes for Limited Liability Companies
- LLC vs. Sole Proprietorship
- Corporation vs. LLC
- LLC vs. S Corp: Which is better?
- How to Form an S Corporation
Depending on the nature of your business, you may be subject to additional state taxes. Our state sales tax guides offer further information on state sales taxes and franchise fees.
Get a business credit card and bank account.
Personal asset protection necessitates the use of separate corporate checking and credit accounts. Property (your house, car, and other valuables) can be at risk if your business is sued since your personal and corporate finances are mingled together.
As a bonus, learning about how to build business credit can help you secure credit cards and another financing in your company’s name (rather than yours), lower interest rates, and more.
Open a bank account for your business.
This protects your assets by separating them from the company’s assets.
Additionally, it simplifies tax reporting and bookkeeping.
A Minimum Viable Brokerage is a good starting point
Running an independent brokerage is a company that requires careful planning and preparation. When starting, we recommend starting with a minimal viable brokerage. With this strategy, you’ll be able to get your business up and running with the bare minimum of expenditure and infrastructure.
As a result, you’ll reduce your risk by lowering the initial investment. You won’t have to spend money on expensive offices, unnecessary software, or expensive brand-building initiatives since you won’t need them.
You will earn faster commissions. With a minimal viable brokerage, you can begin working immediately. To get your cash flow going, you’ll focus on making your first sales.
Technology has opened up a wide range of possibilities for virtual brokerages. You’ll only need a website, some business cards, sale signs, and access to Excel to get started in this business.
If you don’t want to continue working this way, of course, you can (unless you choose to). Investing in the extras that will help you build your firm can begin after momentum.
Adopt a serious approach to financial planning
Financial predictions are essential before starting a company. As a result, this guarantees that you have realistic expectations about the amount of money you will need to operate and the number of sales you will need to produce to achieve this.
Consider the costs of getting your business up and running before moving on to other considerations. This can range in price from a few thousand dollars to tens of thousands of dollars. Everything relies on the business model you employ.
A virtual minimum possible brokerage costs the least with you acting as an agent. Insurance, registration, and needed equipment are just some of the costs you’ll have to deal with.
A brick-and-mortar location necessitates a significant investment of money. You must consider the cost of office space, furniture, and staff. Also, the method you plan to pay for these expenses. So, you may be able to start with the money you have. Small, Business Administration loans may also be an option.
Once you’ve started, the costs just go up from then on. You’ll have to pay for: advertising, utilities, personnel costs, rent, and commissions paid to agents.
Find the money you need.
The cost of launching a brokerage has already been mentioned. From $10,000 to $200,000 is what it takes to start an individual brokerage or a franchise brokerage. In most circumstances, this is the case. To make your brokerage aspirations a reality, you’ll need to raise some money.
Many new brokerages use SBA loans to boost their beginnings. Loans from your 401(k) account are used to open a brokerage account for you. Realtors can apply for the following two categories of SBA loans:
- In the CDC/504 Loan program
- The Program for 7(a) Loans
If you’re looking to get a business loan, you’ll need to conduct some research and choose the one best meets your goals.
Build your brokerage’s tech stack while promoting it.
Thirty-one percent of realtors spend more than $1,000 on marketing each year. Marketing is the finest approach to attract new clients to your firm, so it’s crucial to spend your money properly.
Start with outbound marketing such as business cards, signage, pamphlets, and flyers when you’re just starting started.
Remember that nearly half of all homebuyers located their new residence online before purchasing. Fortunately, brokers have access to many digital technologies that can significantly enhance the number of leads they receive each month.
Establish a Marketing Plan for Getting New Customers
Agents may have found organic means to generate leads and have a network of connections that they can rely on for referrals as part of their business model. If you’re working as a broker, you may give your agents additional leads to help them grow their businesses.
The purpose of lead-generating firms is to assist real estate agents in discovering possible sellers and purchasers that they would otherwise have missed. With solutions like Zillow Premier Agent, you can provide your agents the ability to appear next to listings. Automated CRM technologies let agents and brokers connect with potential buyers and sellers through BoldLeads.
Choose a Commission Plan.
Between 5% and 6% of a property’s sale price is commonly paid in real estate commissions. Afterward, the fee is split four ways between the buyer and seller’s brokers and agents.
The brokerage and agent can work out the best deal for both parties regarding the commission split. One of some alternative real estate commission schemes may work best for you. Here are a few of the most frequent compensation structures:
- An old-fashioned split of the commissions
- The broker and the agent share the conventional commission split.
- When the agent joins your brokerage, you will get the exact split. In most cases, the agent pays between 10% and 40% of their commissions to the broker. On the other hand, agents with no experience have less negotiating leverage and make less money.
A great and well-known design, because closing more agreements means more money for both the agent and you, it encourages agents to keep bringing in business.
Depending on the source of the lead, percentages can vary. Depending on the lead, the agent may get a larger share of the deal. The corporation gains more money if they start the transaction through a brokerage.
Who is the Intended Audience for this Product?
When it comes to real estate, practically everyone is eligible to be a buyer. Long-term relationships with clients are increasingly necessary for this dynamic sector if agents secure listings and buyers. Over an ideal seller, the process of securing a listing will likely include continual communication for several months.
On the other hand, the ideal buyer will either pay in full or have secured financing from a bank. Ideal purchasers will have a specific preference in terms of property kind.
Agreeableness is an often-overlooked attribute in vendors and purchasers. With a grumpy client, most real estate agents and brokers will tell you it’s not worth your time. Picky clients can compel brokers to work for six months without making any money since they aren’t willing to give up their time.
Become a licensed real estate broker (or hire a licensed real estate broker)
In the United States, a real estate broker is liable for all transactions while they get the license. This person is responsible for all aspects of the transaction, including legal compliance and the performance of the company’s real estate agent.
To create your brokerage, you must either obtain a license or hire someone else to do so.
The sooner you begin the process of obtaining a license, the more time you have to work on the project before you open. This will also save you money in the long run because you won’t have to hire someone instantly. Hiring is a must for those who cannot get their hands on a broker’s license.
Licensing in the United States depends on a state-by-state basis, which means that the specific criteria vary depending on where you wish to open business. If you want to become an agent, you’ll have to take a course that lasts anywhere from 40 to hundreds of hours.
To get your real estate license, some states require you to have a certain amount of experience as a real estate agent or have completed a certain number of transactions.
As a result, the licensing process can take a while to complete.
How much does it cost to launch a real estate brokerage firm??
You may have to pay a licensing charge depending on where you live. Having an office and you will need a marketing campaign. You will require insurance to be bonded and cover “errors and omissions” in contractual interactions.
The following are typical start-up expenses:
- The $1,500 fee for a Real Estate Broker’s License
- The $2,000 deposit for an office lease
- The first month’s rent is $2,000.00
- Every month, you’ll pay $250 for utilities, phone, and internet service
- Cost $2,000 for office signs
- Every month, we spend $2,000 on marketing costs
- Expenses for workers – (depends on the number of agents)
You’ll need to run the business at a loss for the first year to get your first deals and start earning your commission. For the first year, you’ll need to come up with $46,750, not including the money you’ll need to pay your staff or yourself. Many brokerages get financing from private investors, families, or their resources.
How much does it cost to run a real estate agency?
A modest office with five real estate agents and one administrative support personnel has monthly expenses of:
- Staff costs are $5,000 per month, plus a percentage of sales commissions.
- Cost of living – $2,000/month.
- Every month, I spend $2,000 on advertising
- The monthly utility bill is $250.
- $200 per month for insurance
- $9,450 a month in total
Frequently Asked Questions
Why would you want to establish your real estate brokerage firm?
There are several reasons why you might want to start your own real estate company, including the following
- Increased earning potential
- Additional sources of income
- Greater flexibility in implementing new concepts
- Greater control over the way you do things
- Possibility to take on new tasks and develop your career
What are some of the talents and experiences that will help you establish a successful real estate agency?
A licensed real estate agent must supervise real estate agents. Being friendly and outgoing is beneficial in obtaining listings of homes for sale and helping buyers locate a property to purchase. In addition, you will need exceptional organizational skills. In this industry, you must keep meticulous records.
How can I start financing my Real Estate Business?
You can get an SBA loan that allows you to use 401(k) funds to start a business, a typical bank loan, your own or a family member’s cash, or a combination of all three.
Is real estate a profitable business?
Yes; Annual sales have been rising for more than a decade. And, while 2021 and the threat of a global pandemic put significant stress on the real estate market, the end of 2021 saw a robust recovery in real estate sales across the country.
What are the start-up costs for a real estate company?
You have to pay for licensing, which varies by state. So, you will need a physical location and an ongoing marketing effort. You will need surety insurance and “errors and omissions” coverage in contractual dealings.
It pays to plan and research before starting as a real estate agent because it is a huge commitment. Proper planning begins when you’ve analyzed the competitors and established a budget. Registering a firm and deciding on a business model can take some time.
To start a business, especially a real estate agency, one must be willing to put in long hours and put in a lot of effort. Thanks to better websites and lead generation tools, it’s easier than ever for brokerages to run their marketing efforts without signing up for a franchise.
When it comes to launching your brokerage firm, these must-read books and top social media profiles by the best brokers are a great place to start.