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In 2012, at the ripe old age of 28, I had the bright idea to start my own real estate brokerage. The United States was just emerging from the biggest real estate recession in modern history. I rented a sleek storefront on the main drag through downtown Orlando.
Today, Mainframe Real Estate is one of the top brokerages in Central Florida.When people ask me, “Why did you start your own brokerage?”, I answer honestly: I was young and naive.
I have advised many people who have asked me about opening their own brokerage, and I have encouraged almost all of them not to do it.
Opening a real estate brokerage may seem like the next natural step in becoming successful in the real estate industry. But really, this is probably the biggest setback most people can take, and here’s why.
Choose a bad reason
There are two main reasons why I want to open a brokerage: First, I’m not young, but I’m naive and I completely underestimate the complexities that come with it.
Another reason is ego: they think they can do better as their own boss, they want full control over their brand, and they don’t want to be accountable to anyone. You might imagine that some people would open their own brokerage to make more money, but that would be naive.
If you think owning a real estate agency means you’re your own boss, you’re naive. You’re now in charge of all the agents you hire.
You’ll quickly realize how much effort it takes to keep everyone happy, especially in the beginning, as each agent who joins brings with them a new list of requests. After all, being a business owner means that everyone else is your own boss and you’re accountable to more people than you’ll ever know. A true leader is always the last one standing after everyone else’s needs have been met.
Master of what has yet to be accomplished
Young and naive, I didn’t realize that starting a business meant creating a monster. A business would sprout arms, legs, and rear its ugly head. It would eat up your money and steal your time.
Just when you think you’ve checked one item off your list, four more get added. Just when you think you’re starting to make a profit, you find yourself needing to hire more support staff. As your business grows, so do your problems. Your organization becomes more and more complex, and your operating costs rise, so it’s impossible to simplify things.
If you’re successful, your support staff will eventually be able to delegate responsibilities and regain their sanity — if you can’t, you’ll end up drowning in a quagmire of projects and tasks that aren’t your forte or that don’t bring you any profit.
Every business owner needs to know all aspects of their business, including operational procedures, marketing, branding, accounting, technology, and more.
As a small business owner, you can’t ignore these things and you need to be a semi-expert in all of them. If you don’t understand how every aspect of your company works, you certainly can’t grow or expand. Most agents don’t excel in all of these important functions, and opening a brokerage without these skills will hurt everyone in your organization.
If someone insists on absolutely opening their own brokerage, I have the most serious, yet counterintuitive, advice imaginable: don’t hire any agents or open an office.
These are two symbols of a successful brokerage, but they are also the beginning of never-ending expenses and growing pains. If you must open a brokerage, start small, don’t start big.
Agents come, they stay, they go.
If you thought prospecting for home sales was hard, think about the most frustrating part for brokers: recruiting. While it may be easy to convince new, inexperienced agents to join your company, training and replacing them is a pain.
Convincing experienced, high-performing agents to join your company is difficult, even with the best value proposition. Job transfer is a big risk consideration that most likely won’t happen anytime soon. Since recruiting is the lifeblood of an agency, this painfully slow sales cycle can be much more demotivating than the fast pace of real estate sales.
Once you start recruiting, maintaining a healthy culture in your office is paramount. A happy agent is a happy agent. It’s the perfect way to retain talent. But keeping different personalities happy at once is a challenge that few are educated to handle.
As a broker, you soon find yourself being more like a politician or therapist, managing egos and emotions rather than transactions.
If you’ve ever felt blindsided by a buyer, it’s nothing compared to that of a loyal agent or longtime friend leaving your company. You may pour your heart, soul and trade secrets into the people you care about, but that doesn’t mean they’ll stick around forever.
Go big, but why even try?
When it comes to starting your own brokerage, you either start small, start big, or give up. If you start big, go for it.
Understand that on your first day in business, you will be competing against larger companies in your industry who have established brands, technologies, processes, recruiting strategies, and more.
You are starting from scratch. How will you compete against countless competitors? What is the value proposition of hiring an agent? Going from zero to hero is a risky journey, what is your end goal?
Commission compression is a reality in the modern real estate brokerage model. Many agents compete on simply being cheap. If an agent isn’t cheap, they must offer exceptional value. If they are cheap, they must deal with a huge number of agents. Either way, all agents are competing in a landscape of ever-increasingly cheap models, in a seemingly race to the bottom.
As for the end goal, consider that the real estate mergers and acquisitions landscape has completely changed over the past decade.
Large brokerages are acquiring competitors less frequently and are increasingly buying off their competitors’ top agents with bonuses and bribes. Brokerages no longer necessarily acquire competitors, but rather try to gut them.
That hasn’t happened in real estate yet, but the disruption of the equivalent of Amazon or Netflix could have a devastating effect on traditional industries in the short term.
If you’re considering a strong exit strategy for the future by selling your brokerage, you may be nervous about the number of years it will take to grow and how quickly it could be disrupted by innovation or ruthless competitors.
Finding success
Of course, there are stories of successful brokerages being opened, but most are not. Most are stories of dysfunctional small businesses where the owner thinks everything is fine, but everyone else disagrees or doesn’t realize how much they could improve.
I have seen solo agent brokerages succeed, but they spend time on things they shouldn’t and are ill-prepared for an increasingly competitive industry. I have also seen team brokerages succeed, but building the infrastructure of a multi-person organization is impossible and painful.
Team-style brokerages require more support and systems than traditional brokerages, including dedicated staff, a more robust lead process, and hands-on meetings.
What is my definition of success? It’s simple. I consider the highest level of success to be earning the income you want while being in control of your work-life balance. Starting a brokerage is a long and winding road to achieving this success.
Think about all the other ways you could be successful. Maybe you could be successful by expanding and streamlining your strong real estate sales business. Maybe you could be successful by investing in real estate to create a portfolio that will generate passive income in the future. Maybe you could be successful by pursuing another passion that brings you more satisfaction than showing people houses on the weekends.
Practical conclusions
I’m pessimistic, call it realism, but I want you to know that I have no regrets either. I have some of the best agents in the area in my office, and that makes my job more fulfilling.
More importantly, we have developed our own technology and have a strong intellectual property portfolio. Without our technology to allow me to be creative, I would have pivoted and moved on to another line of work a long time ago. Just as it’s difficult for most real estate agents to truly love what they do, you’ll probably feel much the same about being a broker. So why become a broker?
The wisest thing to do is to learn from the mistakes of others, especially when it comes to long-term career decisions that are difficult to undo. Finally, you might think I’ll end with a hopeful message that maybe you can successfully open a brokerage firm. Statistically speaking, that’s unlikely.
But you might be the exception — someone with the talent, drive and tenacity to outmaneuver the competition, build a profitable brokerage and maintain a good work-life balance.
perhaps.
But before you dive in, ask yourself if you’re being a little naive.
Sean Frank is the founder and CEO of Mainframe Real Estate in Florida. Instagram and LinkedIn.
