Let’s talk about how to achieve your dream of starting your own real estate brokerage. After all, having your own brokerage means more money, more autonomy, and greater responsibility. 

But that doesn’t mean it’s easy! In my 28 years in the real estate industry, I’ve been an agent, broker-owner, franchise partner, recruiter, speaker, coach, and author. I’ve launched two brokerages, invested in two more, and coached dozens of broker-owners. I’ve put in the 80-hour work weeks, the sleepless nights, bought the Porsche, and yes, made mistakes along the way. Lots of them.

That’s why I wanted to write this guide. What does it really take to start a brokerage when markets are shaky, interest rates are rising, and the economy is on a wild ride? I want you to learn from the mistakes I made and build a sustainable brokerage from the ground up. But in order to do that, you need to start by asking yourself some important questions.

1. Determine Why You Want to Start Your Own Real Estate Brokerage

Starting a brokerage is a risk, and success requires a massive commitment of time, money, and energy. Understanding why you want this will help you envision exactly what you want to accomplish. A clear set of objectives will give you the fuel you’ll need for those 80-hour work weeks and the motivation to put yourself $50,000 (or more) in debt.

Money Is Not Enough to Fuel Your Daily Grind

If you really want to succeed, you’re going to have to dig a little deeper than money as a source of motivation. Maybe you really crave independence or want to prove something to yourself. Maybe your commission checks aren’t creating the lifestyle you want for your family. Whatever your reason, you better know what it is before you get started.

In order to be successful at a difficult task, your goals need to be concrete. Once you have your target, you’ll be surprised at how much energy you have to actually get there.

It All Starts With Your Mission, Vision & Values (MVV)

Take some time and come up with a heartfelt statement that includes your mission (why you’re doing it), vision (what it will look like when you achieve it), and values (the ideals, standards, and rules you will follow). 

While this may seem like a low priority, it’s a crucial first step for building a successful business. Every decision you make, every agent you recruit, and how people see your brokerage should be based on your MVV.

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2. Determine Whether You Are Qualified to Start a Brokerage

Are you (and any potential partners) actually qualified to run a real estate business? Here’s a quick gut check to make sure you’re ready to hit the ground running.

Do You Have a Broker’s License or Can You Hire a Broker of Record?

Legally, at least one person on your team must have a real estate broker’s license to be the broker of record—the person legally responsible for all the transactions agents in your brokerage complete. Note that the terminology differs by state. This same position in Illinois, for example, is a managing broker, and in Colorado it’s an employing broker. 

In some states, like New York, you can hire a broker of record to take on that responsibility for you. While this might seem like an ideal solution in theory, in practice it can be a nightmare. I call these brokers “four-star generals.” Since they think they have earned their stripes, they sit behind a desk and bark orders. Having a personality like that at the head of your brokerage makes it difficult to grow a sustainable business.

If you still need to earn your real estate broker’s license, consider The CE Shop. They make taking the requisite classes and passing the exam simple, convenient, and affordable.

Visit The CE Shop

Do You Have Enough Savings to Live for at Least a Year With No Income?

Even if you have the perfect plan and the money in the bank for the initial investment, you can never guarantee success in your first year. The market might shift, the economy might tank, or you could be sued by an irate client. You need to mitigate the risk of going bankrupt by having enough savings to cover your personal and business expenses for at least twelve months. 

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How to Estimate Real Estate Brokerage Expenses

Can You Get Financing?

If you’re new to business ownership, you might be surprised to learn that even billionaires use loans to finance new ventures. There’s a simple formula to understand why: using other people’s money (OPM) is better than using your money (YM). OPM > YM. 

Look into potential sources of funding you and your team can acquire quickly and cheaply. Your financing needs will vary greatly, so when you’re thinking through how to start a real estate brokerage, you could be looking at anywhere from $10,000 to $250,000 in capital to get started.

Virtual Brokerage Costs

To start a virtual real estate brokerage, $10,000 might be enough to bootstrap your business. You’ll need a cash investment to:

Brick & Mortar Brokerage Costs

If you want to start a real estate business with a physical location, estimates are harder to pin down. If you’re in a big city, you will be looking at renting office space for $2,500 to $10,000 per month for a small office in a good location. That number could double for a high-traffic storefront in New York City or San Francisco. You’ll also need to secure a long-term lease and pay for furniture, computers, Wi-Fi, and other utilities. Instead of that $10,000 bootstrap budget, your budget could balloon to $10,000 per month.

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Online Real Estate Brokerages: Is Virtual the Way to Go?

Do You Have Partners? Do You Trust Them?

Whenever money is involved, even the best of friendships can become strained. Before you start planning your real estate brokerage with other people, ask yourself if you really want to go into business with them. Are they professional? Do they have enough money in the bank to avoid making rash decisions because they need quick cash? 

There is no shortcut to vetting your partners, so make sure you get to know them well before you even think about planning your brokerage. Once you’re set on a partnership, be sure to carefully draw up a business operating agreement

It is unlikely that two or more people will be in consensus 100% of the time, which will lead to strife and indecision. Both can kill your business and possibly your friendships too. In a successful business operating agreement, there is usually one person who is ultimately in charge of making the final decisions. Decide who that person is upfront and address how others will handle it when decisions don’t go their way.

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3. Establish What Your Dream Brokerage Looks Like

Now it’s time to start sketching out your company on paper. This is also the perfect opportunity to run through the potential problems that may arise.

What Kind of Brokerage Would Make You Happy?

Imagine your ideal situation five years from now: Are you running a large brokerage? A small boutique company that focuses on luxury properties? Or would you rather work with investors, focus on property management, or fix and flip? What kinds of people do you want to work with? What office culture would make you excited to come to work every morning?

Don’t worry too much about money here; try to focus on what you want, and flesh it out on paper in as much detail as you can. This is your chance to dream! 

Does It Make More Sense to Buy a Franchise?

Before you sink your life savings into a new brokerage, you might want to consider investing in a franchise. Think through the advantages and disadvantages before you decide:

  • Has an established brand
  • Limits creativity
  • Comes with processes, software, and support
  • Best territories are often already taken
  • Can be easier to sell
  • Consumers have preconceived ideas about existing brands

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Should I Buy a Franchise or Start My Own Brokerage?

4. Ascertain if There Is Room for Your Dream Brokerage in Your City

By now you should have a better understanding of your motivations, the resources you need to succeed, and what kind of brokerage will make you happy. The next step in starting a real estate business is figuring out if your dream brokerage fits into your local market.

In order to find out whether or not your vision makes sense for your area, look at the current competition. Evaluate what successful brokerages are doing right—and more importantly, what they’re doing wrong that you could do better.

Here’s what you should examine:

5. Start Building Your Brand

Once you’ve narrowed your idea down to a brokerage that works in your local area, you need to start building your real estate brand. While this can (and will!) evolve over time, having a well-thought-out brand will bolster your business plan, and might just help you get a loan. 

As you’re considering your brand, make sure you can actually use it online by claiming a domain name and social media handles. If you’re using relatively common words, finding available domain names and social media accounts might be an expensive challenge, so choose wisely. Using your last name in your brand increases the chance that your brand name will be available.

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Here are the core components of any strong brand, roughly in order of importance:

1. Your brokerage’s name: The keystone of every great brand, what you name your business is one of the most important decisions you’ll make. If you’re stuck, check out our name generator:

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2. Your brokerage’s logo: As a visual representation of everything your brand stands for, your brokerage’s logo is the second-most important element of your brand. You owe it to yourself to create a professional logo.

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3. Your brokerage’s slogan: A memorable slogan, also known as a tagline, can also help get more leads and close more deals. Coming up with slogans is hard—maybe even harder than the name of your brokerage! But we have a slogan generator in our guide below that can create the perfect one.

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6. Draft a Business Plan for Your Brokerage

Once you’ve crafted a brand, the next step is to create a business plan for your real estate brokerage. This is one of the most important documents you’ll ever write for your business, so take it seriously. Here’s a quick rundown of what to include, or jump right into our guide to building a business plan, which includes a helpful worksheet. 

An Executive Summary

The executive summary of a business plan is where you briefly outline your path to success.

  • Why does your local area need a new brokerage?
  • How do you plan to fund your brokerage?
  • How will you recruit agents?
  • What will you pay them?

A Financial Plan

Next, you’re going to need to break out the calculator and make sure your numbers really do add up. Here are a few elements to think about including in your financial plan so that anyone can see a clear path to profitability for your business:

Your Splits & Fees Model

What do you plan to pay your agents? A high split might get more experienced bodies through the door, but you’ll have to close a large number of deals per month in order to break even.

If you offer agents a 50% commission split, you will find it easier to bring in plenty of trainable agents who only have to close a few deals to get you to solvency. But you might have a harder time attracting talented, successful agents.

Most brokerages tend to go with something right in the middle: high splits and low or no desk fees for proven agents, and standard splits or even commission shares for newer agents with less experience.

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Services You Will Offer Agents

Most agents today expect much more from a brokerage than just a good split and low fees. That means you need to offer compelling services to attract top agents. Marketing, printing, sign installation, inside sales agents, and transaction management services will help you attract agents. Make sure you’re calling this out in your business plan.

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An Office Plan: Brick & Mortar vs Virtual vs Coworking

Do you plan to rent out local office space or build a virtual brokerage? If you want to go virtual, cross off rent as an expense and possibly offer better splits to get more talented agents. On the other hand, renting a nice local office goes a long way toward establishing trust with potential clients. Coworking is also a great option that splits the difference—as long as those types of spaces are available in your local area. Make sure whatever you decide is clearly outlined in your business plan.

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A Lead Generation Roadmap

One key to keeping your agents happy is offering them loads of leads. If you have limited cash on hand, spending it on lead generation might be your best bet for the first year or two, especially if you plan on recruiting newer real estate professionals. You’ll want to include any lead generation costs and expenses in your business plan. Get started with our guides below, which review the hottest lead generation companies and outline their pricing, packages, and offer our pros and cons.

SmartZip keeps coming back as one of the best lead sources for new brokerages. SmartZip uses artificial intelligence (AI) to instantly sift through hundreds of data points on the internet and your MLS with one goal: to find homeowners who are getting ready to sell before they contact their first agent. However, they only offer this to one entity per ZIP code. Check to see if your ZIP code is available below.

Visit SmartZip
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Your Talent Recruitment Plan

Recruiting new agents and getting them to stay with you can be a full-time job. How much money, time, and effort do you plan on investing in bringing in and retaining new agents? How and where do you plan to attract them?

You can’t expect the novelty of being the new kid on the block to be enough to get agents’ attention. Even established brokerages like Compass often have to offer big signing bonuses, generous marketing budgets, or splits that mean they will see little profit from these agents in order to entice them to jump ship.

Many new broker-owners are afraid to start a brokerage because they don’t think they can entice top talent away from the big players. While this is an issue you need to plan for, don’t worry too much about it right now—and certainly don’t let it stop your dream of starting your own brokerage. You can still build a highly profitable brokerage with a mix of new and mid-level agents.

Also know that a brokerage without support staff is basically dead in the water. At a minimum, you will likely need to hire a receptionist and a transaction coordinator. A marketing professional is a smart third hire if you have the resources.

A Technology Suite

What kind of tech tools can you offer new agents without breaking the bank? In most cases, the more high-end the software you offer agents, the more agents you’ll attract. As an added bonus, many agents will be far more effective using advanced customer relationship managers (CRMs) that can automate outreach and follow-up.

Voice-over-internet-protocol (VoIP) is another way to attract agents and help them work smarter instead of harder. VoIP companies like Grasshopper offer multiple lines for cell phones as well as scalable, advanced phone systems for brick-and-mortar offices. 

Need more ideas for your business plan? Check out our favorite brokerage software, real estate apps, transaction management tools, website builders, and CRMs.

When it comes to IDX website and CRM platforms, CINC can be a game changer for your new brokerage. Unlike most IDX websites, CINC’s lead generation technology helps you generate hyperlocal leads from specific neighborhoods, school districts, or even gated communities. Once your new site captures a lead, CINC uses AI lead nurturing trained by top producing agents to get them out of your CRM and into your agent’s cars.

Visit CINC

Marketing & Advertising Tools

Running and optimizing Facebook, Instagram, Google, and YouTube ads has a steep learning curve. Get it right and you’ll fill your CRM with qualified leads at an affordable price. Get it wrong and you’ll pay top dollar for cold leads your agents will complain about. Be sure to include the marketing and advertising tools you want to offer in your business plan.

Dippidi eliminates that learning curve and lets you market your brokerage and generate, qualify, and nurture leads on autopilot. Not only will they run and optimize your social media ads for you, they use advanced conversational AI to qualify and nurture them until they’re ready to go see houses with your agents. Welcome to the future of real estate!

Visit Dippidi

The Management Structure

This is one of the most neglected elements of running a successful real estate brokerage. Most new broker-owners end up micromanaging their new agents, or worse, taking a laissez-faire approach, which can end in litigation. 

As you might imagine, supervision can be more of a problem for virtual offices, especially those where managing brokers also work their own deals. Attorney and real estate broker James S. Tupitza recalls a recent $1 million policy limit settlement against a broker for negligent supervision of a salesperson and expects more. He characterizes the importance of quality control for small, virtual brokerages in this way: “There is an exponential increase in the risk brokers assume as the sales teams move away from the traditional office. Supervision must keep up with all the changes in the way salespersons operate.”

How will you ensure compliance without being an overbearing tyrant? For most people, the answer is building an organizational chart that spells out each partner’s responsibility and sticking to it. Technology, especially in transaction management, can also make compliance much more seamless. Put all of this into your business plan so that potential lenders know you have a strategy to mitigate the risks.

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A Processes & Procedures Plan

If you think you can just wing it and come up with processes and procedures for your brokerage on the fly, you’re in for a rude awakening. Smart business owners spell out all the rules their agents and employees must follow from the very beginning. After all, good agents do not thrive in chaos. Structure is crucial, even for something as trivial as buying coffee for the office.

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A Prospective Budget

In the budgeting section of your business plan, you’re going to take all of your hopes and dreams for your brokerage and (hopefully) make the numbers work.

Of course, your budget won’t be an exact representation of your monthly expenses, but it’s a good starting point to estimate how many agents you’ll need and how many deals they’ll need to close to break even, or better yet, make a profit.

Let’s look at this highly simplified budget as an example:

Quarterly Expenses
Office Space $6,000
Recruitment $900
E&O Insurance $190 x 10 agents = $1,900
Lead Generation$4,500
Employee Salaries$18,750
Marketing Expenses $3,000
Loan Repayment$3,000
Total Quarterly Expenses$38,800
Target Quarterly Revenue
Median Listing Price$500,000
Gross Commission Income (per Deal) $15,000
Agent Split-$7,500
Total Revenue (per Deal Closed) $7,500
7 Agents (Closing 2 Deals per Quarter)$105,000
Quarterly Expenses-$38,800
Total Quarterly Revenue$66,200
Total Annual Revenue$264,800

Keep in mind this is an overly simplified budget and does not factor in slow seasons, agent turnover, or training.

Try to look at your revenue projections as soberly and honestly as possible. Being confident in your abilities is great, but the realities of the market have ended many would-be brokerages before they even really got off the ground.

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7. Secure Financing & Office Space

Now that you’ve come up with a bulletproof business plan, it’s time to secure your financing and start looking for office space.

Using the budget you came up with earlier, figure out how much money you’ll need to keep the business afloat for at least two to six months with no revenue. Keep in mind that this is in addition to your personal financial cushion. 

Where to Get Financing for Your Real Estate Business

Financing can be trickier in this industry than it is in others. Real estate brokerages don’t have large assets to lend against—only desks and a few computers. That means banks don’t have the same security they do when they make loans to other entrepreneurs. Instead, they will probably make you secure the loan with your personal assets, as the Small Business Administration (SBA) does. This makes taking a loan out very risky.

You can obtain an SBA loan using money from your 401(k), get a traditional bank loan, use your own cash, or some combination of all three. Just be aware that you will likely need to secure your loans with personal assets.

Cover Your Legal Bases 

If you have partners, you also need to make sure you have all agreed upon revenue shares and are all jointly and severally liable for any and all expenses or potential losses. A limited liability company (LLC) is probably your best bet in terms of structuring the business, but make sure to consult with a lawyer to see what might work best for your unique circumstances.

How to Find & Lease Office Space for Your New Brokerage

In most major cities, good office space is still expensive, even post-pandemic. Here are a few tips to help you find a space that works.

  • Start small. Consider coworking or subleasing in offices that already have some technology infrastructure such as internet access.
  • Pay attention to aesthetics and make sure your space is well-furnished and professional.
  • Choose a location that is convenient for potential agents and customers.

8. Start Recruiting New Agents

Yes, you’ve done a lot of work to get to this point, but don’t pat yourself on the back just yet. Now you need to start what is often one of the most time-consuming and frustrating parts of running a brokerage. Recruiting—and more importantly, retaining—talented agents who will actually close deals.

As a rule, buyer’s agents are a lot easier to recruit than listing agents, but keep in mind that you’re probably going to have to feed leads to your new agents or have an aggressive sales training program to help them get their own leads quickly. 

Try to get a decent mix of buyer’s agents and listing agents. Recruiting listing agents won’t be easy, but investing the time, effort, and money into recruiting them will be worth it. Every new listing agent you can recruit helps build your brand.

Consider these tips as you get started:

  • Start poaching talent away from dull, tired competitors right away. You’re the cool new kid on the block, and agents’ curiosity will never be higher than right now.
  • If you spend $10,000 to acquire an agent, you need to make that money back quickly. A one-year return on your investment is a good rule of thumb.
  • Bringing a top producer to your brokerage means other agents will take notice, making recruiting that much easier.
  • Screening for a good cultural fit is crucial to hiring agents who will stay for the long haul. Agents will want to join you—be sure they value what you offer and be sure they always feel that you value them.

Bringing It All Together

Ultimately, the decision of whether to start a brokerage has to be yours, but if you have the right motivation, financing, planning, and vision, this could be your year.

Have great advice for starting a real estate brokerage? Have questions specific to your market or situation. Let us know in the comment section!