Real Estate Brokerage Business

February 21, 2024

by a searcher from New York University in New York, NY, USA

Does anyone have experience either buying or operating a real estate brokerage business? Any recommendations on literature to read or thoughts on why it's a bad idea?

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Reply by a searcher
from Northwestern University in San Rafael, CA, USA

You are purchasing human capital (seller note or some protection against flight is appropriate). These guys are money-motivated and many will move for better splits. You should study keenly the rationale for why this team stays at the firm. What is the quality of your brokerage team and what advantages can enable you to compete against a well-resourced publicly-traded field? In the good times the PE backed or publics will purchase top brokers on fixed contracts (difficult to match).

I would also note that this is a high beta business that may not be well suited to supporting leverage. The trend amongst the publics (e.g., CBRE, C&W, Newmark) is to focus on stable property management, project management, and asset management revenues rather than sales, and capital markets, because of the volatility of the latter. Leasing has historically had some revenue recurrence in that renewals happen in good times in bad (unless we are talking urban office leasing today).

Reply by a searcher
from Northwestern University in Chicago, IL, USA

Drawbacks of the brokerage include the cost to acquire and ongoing payments. Industry has nice margins however there is much admin and running a brokerage requires mgmt. (developing plans, policies and procedures). Know others who have acquired and has been a mixed good / bad scenario. You do need to be licensed and this is state specific. There are some good sales people who do not want the admin and prefer to work for others and in the team environment. Also referenced previously is the lawsuit. Mixed input on that, where the buyer pays instead of the seller rates haven’t decreased. There is the industry itself, higher rates and you do need to ‘close’ to get paid. Having an office, advertising and training all add costs that you’ll want t make sure are recovered.

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