As attractive as having your own brokerage firm might be, the sad fact is that many fail. To ensure that your business isn’t doomed from the start, avoid these mistakes when opening your own brokerage.

Whether you’re a rookie agent, a rising team leader or an established veteran broker, we can all benefit from sharpening our skills. Follow our “Back to Basics” series to learn fundamental strategies, tactics, philosophies and more from real estate pros across the industry.

With several years of improvement in the real estate industry, the number of Realtors in the United States has grown to over 1.3 million. Out of that, there will be a number of Realtors that dream of having their own brokerage firm.

Let’s be honest, most people get into the real estate business because they want independence. No more punching the clock or being told what to do and when to do it. And certainly no more pointy-haired bosses that should be featured in a Dilbert comic.

As attractive as having your own brokerage firm might be, the sad fact is that many fail. To ensure that your business isn’t doomed from the start, avoid the following mistakes when opening your own brokerage.

1. Choosing the wrong model 

You must first decide if an independent or franchise is the way to go. Base this decision on your business goals and desires. A franchise will be more expensive, but franchises offer many advantages, such as brand name recognition and many services.

On the downside, they can be a corporate form of the Dilbert comic.

If being your own boss and doing things your way was your goal, you might be better off being an independent brokerage.

2. Paying high fixed expenses

When just getting going, it is natural to want to be an instant success, and there are hundreds of vendors that will promise you that they can help you. They offer everything from lead generation, contact management, high search engine rankings, social page advertising and dozens of other “instant success” strategies.

The problem is that they all cost money and most require a minimum commitment of six months to a year, with automatic withdrawals from your checking account. In no time at all you can have thousands of dollars disappearing from your bank account every month.

Although this might not be a problem when you have a steady income, a few slow months or a downturn in the real estate market can turn this situation into a nightmare. To avoid this, you have to have a way of stopping the financial “bleeding.”

Your best bet is to avoid services that require a minimum time commitment or automatic renewals. If their services are as good as they say they are, you will happily renew each month.

3. Taking out high-cost business loans

Immediately after you form your brokerage, you will get numerous offers for loans with promises like, “Up to $250,000 in 24 hours!”

Don’t even think about it.

The interest rates are terrible, and the repayment schedule is on a daily or weekly basis, again, automatically withdrawn from your checking account.

If you need a business loan just to get started, you might want to wait on going out on your own. It’s better to have enough money to begin with.

4. Picking the wrong office location

The idea of your name and logo on a building and office door might sound great, but an office is another fixed expense.

Given the fact that few customers or agents even go to an office anymore, you might want to think twice. Many brokers have done quite well simply working out of their home. Check your state laws, and then decide.

If you plan on recruiting agents, you may also want to consider a virtual office. Unlike the brick-and-mortar office, you won’t be paying a fortune for a space that few people will use anyway.

5. Recruiting the wrong agents

To be blunt, the wrong real estate agents can suck you dry both emotionally and financially. Many lack actual business experience, so they don’t understand why you can’t pay them 95 percent (on the two deals a year they do), and also provide them with a wealth of services for free.

Although some firms seem to have a policy of hiring anyone who can vapor on a mirror, this doesn’t work well for a firm getting started. To be successful, a new firm wants to have a good reputation. The agents you take on will help determine your reputation, so choose wisely.

Indie broker Erica Ramus outlines the red flags you should look for when recruiting agents (click on the link) . She has also covered broker business planning as well as tips and tech advice for indie brokers.

Before going out on your own, check out the “Back to basics” series to learn fundamental strategies, tactics and philosophies from real estate pros across the industry

Jim Weix is a Broker Associate with The Keyes Company, Florida. He is best known as being the catalyst that brought about “MLS of Choice” nationally. Jim founded his own successful firm in 2002, which he sold to The Keyes Company in 2018.

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