Should You Open a Real Estate Brokerage or Stay an Agent: 5 Reasons Why You Should NOT Open a Real Estate Brokerage
Should you open a real estate brokerage or stay an agent? That is the question.
If you are a real estate agent who wants more time in your life away from business, you might be tempted by the idea of opening your own brokerage firm.
After all, that’s what most agents want to do eventually – run their own business and make more money while having the choice to step out of their business and enjoy the life they have built with their friends and families.
But is this really the right decision for you?
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Should You Open a Real Estate Brokerage or Stay an Agent?
What most real estate agents don’t realize is that opening a real estate brokerage might not be the best idea for someone who is looking for more money, more time, and less stress in their lives.
Most real estate agents and even team leaders who end up starting their own brokerages actually end up working more, which means that they would have less time for their friends and family while taking on substantially more financial risk and liability.
Owning a real estate brokerage is not what it seems from the outside looking in.
In fact, most real estate teams turn over a higher profit in their businesses than their brokers do.
A recent RealTrends study done in 2021 shows that the average real estate team retains a profit margin of just over 60% while average real estate brokerage companies have a profit margin of only 13.8%.
In this article, we will go over the top 5 main reasons why you should not open a real estate brokerage and the number one alternative solution to opening your own brokerage that will actually give you the lifestyle that you wish to have.
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5 Reasons Why You Should NOT Open a Real Estate Brokerage
1. You will most likely work more if you open a brokerage
2. Brokerages take on extremely more financial risks than agents do.
3. Brokerages take on extremely more legal risks than agents do.
4. You Will Need to Compete With Other Brokerages to Recruit Agents
5. There is a Significantly Better Alternative
1. You will most likely work more if you open a brokerage
The first reason why you should not open a real estate brokerage is because you will have to work more hours and take on more stress throughout your day.
Most real estate agents open a real estate brokerage with the dream of building a large enough business so that they can work less and have more free time.
The natural progression of successful real estate entrepreneurs in the industry is to go from being a “solopreneur” or an independent real estate sales agent, to an “entrepreneur” or a team leader, then to a “business owner” or a broker.
Although that sounds like a very natural progression of a real estate agent’s career, the unfortunate reality is that real estate agents can hardly ever truly become a “business owner” and reach the status of true financial freedom or to put it simply a “realtor retirement”.
Most agents who open their own brokerages quickly realize that they are working more hours than when they were just an agent at another brokerage.
When you own a brokerage, you are responsible for all the business functions – from sales and marketing to HR and accounting. Whether you decide to run these operations yourself or hire them out, you will be working more hours than when you were just an agent.
Running an Adult Daycare
Many real estate brokers have compared their experience of running a real estate brokerage to running an “adult day care”.
That is because the broker in charge or the broker who owns the company must be responsible for answering all of their agents’ questions, be there to support their agents’ every need, and provide enough value to the agents at their company so that they are compelled to stay an agent at their brokerage.
An owner of a brokerage is in essence, a “daycare provider” for their agents.
2. Brokerages take on extremely more financial risks than agents do.
When you open a real estate brokerage, you are taking on the full financial responsibility of the business.
This means that not only are you responsible for all the marketing, human resources, and accounting functions of the company, but you are also responsible for the financial risks associated with the business.
If you start your own real estate brokerage you are essentially starting a multi-department business that will require funding, investment, and you to take on the unfortunate reality of heavy monthly operating expenses.
This means that if your brokerage fails to bring in enough revenue each month to cover those expenses, you will be liable for all the debts and liabilities of the company.
In contrast, when you are an agent at a brokerage, you are only liable for your own individual debts and liabilities, which as you probably know, are very lean for the individual real estate agent.
Also, if you do not have the proper funding to start your own real estate brokerage with money that you have saved up throughout your career, you will need to either find investors which will eat away at your company’s equity and your profits or take out business loans which will add on to your monthly operating expenses since you must pay back the loan.
If you happen to experience a recession or a down market in real estate, as an agent at a brokerage you can simply leave that company and go work for another.
But as the owner of a brokerage, you will most likely be forced to close your doors and lose your entire business or even file bankruptcy if things get bad enough.
Think back to the 2 most recent economic crises that we have faced. 2008 and 2020.
Many real estate brokerages were forced to close their doors because they could no longer bring in enough revenue to cover their business expenses.
What do you think your chances would be to be able to survive such a market crash as a real estate broker?
Is that a risk you want to take on?
3. Brokerages take on extremely more legal risks than agents do.
Another important reason why you should not open a real estate brokerage is the legal risks that you are now vulnerable to.
As the owner of a real estate brokerage, you are also responsible for all the legal risks associated with the company.
This means that if your brokerage is sued for any reason, you will be the one who is held liable.
You will need to make sure that you have adequate liability insurance and legal counsel in order to protect yourself from such risks, but even then, you are not fully protected.
In contrast, when you are an agent at a brokerage, you are only liable for the legal risks that are associated with your own personal actions, which are extremely limited.
As an agent, legally you are acting on behalf of your broker. This means that the broker is actually responsible for all of the actions of their agents.
This means that if someone sues you for a mistake that you might have made as an agent, the brokerage will be the ones who are held liable and not you.
The legal risks of owning a real estate brokerage are not to be taken lightly.
Many extremely successful brokerages have seen their entire business empire topple to the ground from one lawsuit.
In a sense, as a real estate broker, you are always one lawsuit away from your business being completely wiped out.
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4. You Will Need to Compete With Other Brokerages to Recruit Agents
How do real estate brokerages make money?
From the commission splits they take on the production of their real estate agents.
In order to be successful, real estate brokerages need to have a constant flow of quality agents. This means that they need to be able to recruit and retain agents who are knowledgeable about the industry, dedicated to their work, and who will produce results for the company.
One of the main ways that brokerages attempt to do this is by offering their agents competitive commission splits.
This is the percentage of the sales commission that the brokerage will take for itself.
The higher the commission split, the more likely agents are going to be to work for that company.
As you can imagine, this is a very important factor when it comes to agent recruitment and retention.
Now, imagine that you are a real estate agent who is looking to work for a new brokerage.
Which brokerage would you be more likely to choose?
The one that has a 50/50 commission split or the one that has a 70/30 commission split?
Obviously, most agents would prefer to work for the brokerage that has the higher commission split.
This means that in order to be successful, your brokerage will need to be able to offer competitive commission splits in order to attract and keep agents.
However, in a down market, it can be very difficult for brokerages to maintain such high commission splits.
Many brokerages are forced to lower their commission splits in order to stay competitive, but this can often lead to agents leaving the company.
This is because agents are very aware of what other brokerages are offering and will often move to a brokerage that has a more favorable commission split.
In order for your brokerage to be successful, you will need to be able to constantly recruit new agents and keep them happy.
This can be a difficult task, especially if you are competing against other brokerages that have more to offer.
5. There is a Significantly Better Alternative
The last and probably most important reason why you should not open a real estate brokerage on your own is that there is a significantly better alternative solution to the problem that want to solve by opening your own brokerage.
Even though they underestimate the risks and overestimate the rewards, real estate agents know that starting your own real estate brokerage is a lot of work.
You do not go out of your way to get business loans, find investors, get a broker’s license, take on substantial risks, and spend massive amounts of time and energy if you are in a great place in your life and business.
Real estate agents want to open to real estate brokerages for a reason.
They need to solve a problem in their life by making drastic changes in their business.
The problem that you want to solve by starting a brokerage will be different than other real estate agents who want to do the same things.
You may:
-want more free time to spend with your family
-want more predictable income each month to sustain your lifestyle
-want to build a business with equity and cash flow that you can step away from in a few years when you decide to retire
-want to work with other agents and build a team so you can step out of production and take vacations every 6 months
-want to make more money so you can finally buy that dream house or dream car
-etc.
Whatever your reason might be for wanting to start a real estate brokerage, you are trying to solve a problem.
Starting and owning a successful real estate brokerage is not your motive or goal. It is simply the vehicle of choice that you want to use to get to your true goals.
Unfourtanely for real estate agents, they have been conditioned to think that opening a real estate brokerage is the only way that they can build the lifestyle that they really want to live.
And it is true, in the past, owning your own brokerage is the only way for real estate agents to even have a chance at running a business that can provide them with a lifestyle that they can truly say that they never need a vacation from. A lifestyle of having both time and money.
But in 2022, there is an alternative to starting a brokerage that can give you the life you really want to live as a real estate agent without:
-taking on financial risks
-taking on legal risks
-finding investors
-taking out loans
-additional stress
-working longer hours
-tiny profit margins
-massive monthly expenses
That solution, is eXp Realty.
By becoming an agent at eXp Realty you are able to:
-build equity in your business as a real estate agent
-build a team of agents that will give you a residual income stream
-have both time and money freedom in your life
-start your own brokerage without taking on the risks or liabilites
-leverage groundbreaking technology at minimal costs
-drastically reduce your monthly business expenses
-build your business and earn override income from agents without geographical restrictions
In 2021 alone, over 600 already established real estate brokerages moved their entire businesses over to eXp Realty to take advantage of the 3 income compensation plan that will give them the life they wanted when they first started their real estate brokerages.
This is your “Golden Opportunity” to finally build that dream lifestyle that you have always wanted as a real estate agent.
This is your defining moment. Take advantage of it now.