My last article covered the initial steps to starting your own real estate brokerage. Let’s continue with the next steps once you’ve created and registered your business, hired your staff and found your location.
There are a lot of hassles in operating your own brokerage. Obviously, the more salespeople you have, the more paperwork involved. Some of the regular but crucial duties are:
With every deal that gets to your desk, you have to handle the details. You have to start with making sure that you have all required documents. In order not to scratch your head each time to remember, you should have a “Transaction Checklist.” With recent changes in regulations, having some of the documents is crucial. In addition to document collection, you have to coordinate constantly with the lawyers of both sides for closing the deal out.
“Trade Record Sheets” are instrumental in directing your fund disbursements. Once the deal is closed, it is time to disburse the funds through proper channels, such as bank accounts, to different sources, such as brokerages. Understanding the funds disbursement procedure is at the core of brokerage process. If you don’t have a proper process in place, you are taking the risk of jeopardizing your brokerage license with the Real Estate Council of Ontario (RECO).
Reconciling accounts is at the heart of RECO’s requirement for real estate brokerages. A broker of record is required to reconcile all accounts on a monthly basis. Of course, there are many other paperwork requirements, but account reconciliation is the most important one. It is a crucial task, but it is the most daunting.
No one likes to do their monthly reconciliations. It is very time-consuming and needs a lot of patience. Brokers of record and managers are tempted to postpone this crucial and “boring” task. Accounts reconciliations are at the pinnacle of importance compared to all other details of all the accounts that you have to record and report. Your annual tax filings require accounting files, which is another topic in itself. Although there are many accounting software programs available, such as QuickBooks, that might make your life easier, all reports and reconciliations still need your involvement and signature.
Filing and record-keeping
Of course, a brokerage is required by both RECO and the Canada Revenue Agency (CRA) to keep records of all transactions. Brokerages are constantly referring to their paperwork long after closed transactions for many different reasons, not to mention RECO inspections, FINTRAC record requests and CRA audits.
It is important to have a filing system in place at the time of inception of your brokerage; color-coding has been proven to be one of the most effective methods of organizing files. With the rapid developments in technology and online storage, not only are a lot of hassles taken care of, but also one can access their transaction documents from anywhere, anytime.
Not only do you have to prepare plans and processes for your staff, but more importantly you have to make sure that you implement those processes. Planning is much easier compared to implementation, especially when it comes to your staff. You might have the best systems and online management software to handle all aspects of your brokerage, but it still needs your monitoring. No matter how reliable and trustworthy your staff is, you still need to be involved and engaged with them.
Industry and regulatory changes
Like any other industry, there are rules and regulations that govern the real estate industry. The rules are written in stone and still change, sometimes without notice. With recent rapid advancements in technology, the changes are more rapid than ever before. These changes can come from regulatory bodies within our industry or outside. Some of the organizations that can impact on your brokerage business are:
- Real Estate Council of Ontario (RECO).
- Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
- Canada Revenue Agency (CRA).
- Your local real estate board, such as the Toronto Real Estate Board (TREB).
You have to keep yourself up-to-date with the changes in your regulatory environment. Not only do you have to be aware of changes to regulations and compliance issues, but you have to make the necessary changes within your systems and office processes to show that you are following the rules.
Managing ongoing overhead and operating expenses
Perhaps none of the above concerns compare to the stress of the risk of money coming out of your pocket each and every month whether you are generating revenue or not. You not only have to pay your office rent but also your payroll and many other regular miscellaneous expenses, such as phone systems, Internet, after-hours answering services, equipment rental, supplies, etc. The worry about ongoing expenses against cyclical revenues is usually the greatest concern that stops most brokers from opening their own real estate brokerage.
Overcoming obstacles and implementing solutions
Real estate brokers operate in a “risk versus reward” economy. There is no hourly wage, only upfront expenses and time spent with a cyclical paycheck based solely on completed deals. When you decide you are worthy of the challenge of brokerage ownership, after having examined and solved the obstacles as described above, it’s time to take your real estate career to the next level.
The benefits of owning your brokerage, for the true entrepreneurs, outweigh the risks because the risk involved is minimal.
One of the solutions of keeping your ongoing expenses manageable, and on budget, is based on the current trend of the “sharing economy” and is similar to “business center office services.”
When you can hand over the majority of nonselling tasks to experienced and competent staff that you pay on a contingency or flat-fee basis, you can budget your expenses. This delegation allows you to always recognize your income potential with every deal that crosses your desk.
This model not only takes care of tasks and details but also cuts down the cost of office setup, renovation, furnishings and even administrative staff. With recent disruptions in our industry, now it is possible to open and manage your own brokerage without the hassle.
James Hussaini is the founder and president of Realty Point.