When considering opening his own indie brokerage, industry veteran Jay Thompson realized the only time he went to the office was for a sales meeting or to pick up a check. So why not eliminate the office rent overhead? That’s just what he did. He created a virtual brokerage over a decade ago. Here are a few tips that helped along the way.
Jay Thompson is a former brokerage owner who spent six years working for Zillow Group. He retired in August 2018 but can’t seem to leave the real estate industry behind. His weekly Inman column publishes every Wednesday.
About this time 14 years ago, the thoughts around forming my own independent brokerage began to circulate in my head.
The initial vision was to secure a space in the hip and trendy little downtown area of Gilbert, Arizona, a rapidly growing area east of Phoenix. Thompson’s Realty was going to be housed together with a coffee shop and internet cafe. A place where folks could come in, grab a seat and get a little work done while they sipped a latte and were bombarded with subliminal messaging about who their next real estate agent would be.
It would be a delightfully welcoming space, a place people felt comfortable and at home. Walls where local artists could schlep their wares, maybe a little spot in the corner where the next Ed Sheeran could sing and play a guitar on open mic night.
The vision and plan was crafted inside my head, committed to paper, and a site search began.
It didn’t take long to realize how expensive it would be to bring this vision to reality.
Commercial space is expensive. Beholden to a lease, what happens if everything we build just gets ripped out from under us when the landlord raises the rent? I knew I could sell the hell out of real estate — I did not know if I could craft a sellable craft coffee. If the coffee shop/internet cafe failed, could the brokerage operations survive? So many questions, so much capital investment.
Exploring the financials behind owning and operating a brokerage swiftly revealed that the largest expense, by far, is office space overhead. I’m excluding agent commissions, which are obviously unavoidable outside of having salaried W-2 employees as agents instead of independent contractors. This article isn’t going down the alternative or reduced commission path.
Not only is office space expensive, it’s typically very underutilized in the real estate sales vertical. Let’s face it, the vast majority of an agent’s time is spent in the field: showing homes, sitting opens, doing listing presentations.
Walk in many a real estate office, and what do you see? A receptionist at the front desk, presumably a broker in a back office, banging his or her head on a desk while reviewing yet another incomplete file.
Meanwhile, no agents are at their desks. The only time anyone is in the office is when the title rep shows up with bagels and doughnuts for the weekly sales meeting that everyone hates attending.
No matter how I manipulated the spreadsheet, it quickly became apparent that to get our new brokerage off the ground, we needed to greatly reduce the dollars on that line labeled “office rent.”
But, I thought, “What if we took that expense line to zero?”
At first, my wife thought I was insane. But the more we pondered, the more sense it made. The only time we went into our office was to attend the aforementioned carb-loaded sales meeting or pick up a commission check.
So, why not eliminate the office? There are ways to have meetings online, and checks can be deposited electronically, even back in 2006. One could reasonably argue that both online meetings and direct deposit are improvements over face-to-face — more efficient, better for the environment, time saving.
Yes, there are certainly positives for having office space and physical presence, but let’s talk about moving online or creating a virtual brokerage. Whatever you want to call it, here are a few things that helped us along the way.
Know the rules
State licensing laws vary, and may (or may not) have significant impact on what you can or cannot do with regard to physical space. My licensing entity, the state of Arizona, specifically allows home-based brokerages. My homeowner’s association allowed it. Other states have other requirements. There are some less expensive options to a full-blown public office that apply widely to be discussed.
Find out, upfront, what the rules are, from physical space, to signage, to record retention, electronic distribution and storage. If you’re thinking about making the move online, know the rules.
Be prepared for the paperwork
There is an absurd amount of paperwork in real estate. Electronic document management is the greatest thing to happen to real estate since surveying. In the year 2020, there is zero need for manual handling of paper documents. If you’re not already paperless, then stop reading, drop everything you’re doing, and get there.
For the online brokerage, a paperless system has to work, and be compliant with state law and regulations. Humans are fundamentally lazy, and if you give them the easy option of turning in paper docs, someone is going to do it. Paper needs to no longer be an option.
Pay attention to security
You have sensitive information, and bad people want it. You don’t want to make news for a data or privacy breach. You’re best advised to seek professional advice.
Understand it’s not for everyone
As a broker trying to attract agents to an office that didn’t exist, I quickly learned there are three types of attitudes that exist, and they each have about an equal slice of the pie:
- You’ve got people that dislike everything associated with working in an office. They seek out officeless opportunities.
- There’s the indifferent. They don’t really care either way and function equally well with or without what comes with physical work space.
- And there are those who can’t do it. For a variety of reasons, they like want, or need a place to “go to work.”
Don’t waste your time with that last group. They may be wonderful humans and amazing agents. But they aren’t right for “virtual” work, and it’s unlikely you’ll convince them to change. Focus primarily on the first group, but don’t ignore the second.
Bridge the gap
Opening an online brokerage wasn’t easy, especially 14 years ago. We took a pretty big swing, and for the most part, it worked out well. There were many lessons learned.
Office culture really matters. You’ve got to inject some face-to-face time and let that happen. You just do. People aren’t robots. We’re social pack animals. Sometimes the pack needs companionship and play. You can help build a culture electronically, but plan for face time.
Consider baby steps
Rather than diving headfirst into the online world, easing in might be better for you. There are three interesting alternatives to having a dedicated physical space for your brokerage.
- Office condos: Popping up everywhere, these are “business parks” with space ranging from small one-person rooms not much bigger than a closet to a couple thousand square feet. Some come with amenities like shared conference rooms and kitchens, public event space and more. Often they have short-term leases available.
- Office sharing: From doubling up with a friend to finding someone in a related business to split expenses, you can in effect have an office roommate to share costs. One of our agents connected with a lender who had an open desk. Be very careful here, and make 100 percent certain you’re RESPA compliant. Look outside real estate to help with that. I’ve seen agents double up with (non-real estate) lawyers, life insurance reps or CPAs and save significantly.
- Coworking: The WeWork fall from grace brought the attention of coworking space to many, but it’s been around for awhile. There are several models, but generally a lot of small businesses and entrepreneurs collectively support the management of a large workspace. It’s a very inexpensive way to get work space, often in downtown areas that might otherwise prove financially challenging. Nationwide companies like Regus offer memberships for access to all of their offices and services.
There are many different ways to go about being an online brokerage. Even just looking at alternatives to your physical space can have an impact on your bottom line. The virtual model isn’t for everyone. Neither is my personally favorite brokerage model, the small boutique independent.
One of the most beautiful things about real estate is that it can be approached in so many different ways. Whether you want to be a brokerage in an app, the hip indie or a mega-franchise, the world is out there, waiting. Get to work!
Jay Thompson is a real estate veteran and retiree in Seattle, as well as the one spinning the wheels at Now Pondering. Follow him on Facebook, Instagram and Twitter. He holds an active Arizona broker’s license with eXp Realty. “Retired but not dead,” Jay speaks around the world on many things real estate.