Planning to Become a Real Estate Broker
Answer these 3 key questions to form the basis of your real estate broker business plan.
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Are you starting a business selling real estate? A practical business plan can really help. Even if you don't technically need a plan to show to a bank or an investor, you can use the plan yourself. Give yourself a head start by answering three key questions, then flesh out the steps to follow.
Question #1: Where do you want your business to go? Where do you want it to be in three years? Visualize your typical day in the future. Will you be working part time out of your home, working part time from a brokerage office or working full time from your own brokerage office?
As part of this same answer, define success for yourself. Most people assume business plans are about money and money alone, but the reason many people start their own business is about a desire for both money and time. Do you want to be able to mind a business and coach a kid's sports team at the same time? That flexibility might define success for you. Or maybe you want to work as hard as you can to be listed in the million-dollar-sellers list of the local real estate community organization. You'll want to build a plan to match your real needs, not just some standard real estate assumption. Everybody is different, so every plan should be different.
Question #2: How are you going to use this business plan? Will you be showing it to a bank as part of a loan application, or will it be for your eyes only? The plan should fit its purpose--form follows function. In my experience, most real estate brokers are planning for themselves and people in their inner circle who are also involved in the business, not really for outsiders.
If you're like the majority and won't be showing your plan to strangers, you won't have to edit and polish the text and fine-tune the plan's format because it's just a working document. Bulleted text and key references to main concepts might be enough to keep you on track.
Question #3: How will you develop a specialty or focus? Think about how you can be different from all those other people out there trying to sell real estate. Is there a portion of the real estate market that interests you more than all the others? You might have experience or interest in more economic starter houses or palatial high-end mansions, or maybe you want to work in commercial real estate. Maybe you know one neighborhood very well. Or maybe you're a whiz at analyzing the market--I personally know one real estate broker who built his business on technology, using a website full of interesting market statistics to attract new clients.
Most people who start as brokers begin by affiliating themselves with an established brokerage business. Most of those brokerages offer a lot of help to new affiliates. As you look for your specialty or focus, absorb the valuable information and step-by-step help you get from the branded brokerage--it'll help you get to the next stage.
After answering these three questions, use your answer to question #2 to determine how much work you put into polishing your answers for questions #1 and #3. With that in mind, you're on your way to a new business and a completed business plan. To further flesh out your plan, get your financial projections in order:
- For your sales forecast, try to create an educated guess of your unit sales and average commission per sale to get an estimate of the actual commissions you'll earn. Remember to estimate the impact of sharing commissions with other players in the deal.
- For starting costs, estimate what you need in terms of office equipment, stationery and other standard startup expenses. Depending on your brokerage affiliation, you may or may not need professional help from attorneys, graphic artists and so on. Create as comprehensive a list as possible.
- For running costs, estimate monthly expenses for office space, telephones, computer connections, cell phones, etc.
- Pull your commissions, costs and expenses into a cash-flow estimate. Remember to include the impact of the time spent waiting time to receive commissions (such as escrow periods) compared to when you need to pay costs and expenses. Cash flow is much more important than profits.
Pull the sales forecast together with your text explaining the key points of your business, then add details you can track later. These details include dates, deadlines and activities. Then, as your business starts, make sure you go back to your plan every month to review, revise and manage.