A real estate brokerage employs real estate agents and associate brokers and conducts real estate transactions. Most real estate transactions take place with the usage of a brokerage. Essentially, a brokerage facilitates the process of buying and selling real property. In order to open a real estate brokerage, you will need to become licensed as a real estate broker or hire one to oversee operations for you. This requires you or the broker to have been licensed as a real estate agent for a certain amount of time (as determined by your state), along with some other state-specific requirements.
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We have put together this simple guide to starting your real estate brokerage. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Exploring your options? Check out other small business ideas.
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
Luckily we have done a lot of this research for you.
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Real Estate Brokerage Name Generator
If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.
When registering a business name, we recommend researching your business name by checking:
It's very important to secure your domain name before someone else does.
There are licensing fees, which are different from state to state. You will need to have an office and an ongoing marketing campaign. You will need to have insurance to be bonded and for “errors and omissions” coverage in contractual dealings.
Typical startup costs are:
Being realistic, you will need up to 12 months to begin closing your first deals and earn your commission, so you will need to finance the operations, which are running at a loss for the first year. This means you will need to finance about $46,750 for the first year, not counting any money you will pay for employees or need for yourself. Most brokerages are financed by investors, family, or with their own capital.
The monthly expenses for a small office with five real estate agents and one administrative support staff are:
Total: $9,450 per month
One of the best things about the real estate market is almost everyone is a potential customer. The evolving nature of the industry requires extended interaction with clients in order to secure listings and buyers. An ideal seller will be motivated to sell quickly, though the process to secure the listing will likely involve constant interaction for several months.
An ideal buyer, on the other hand, will be one who is either ready to purchase in cash or has received financing from a financial institution. Ideal buyers will also have an idea of what type of property they'd like to buy while also being flexible.
An oft-overlooked quality in sellers and buyers is agreeableness. Most real estate agents and brokers will tell you that a lucrative opportunity with an ornery client is not worth the time. A brokerage may find itself working for 6 months without ever completing a transaction because of a picky client.
Real estate agencies make money by earning a commission (or a part of a commission) from participating in the conclusion of the sale of a property. In the sale of a property, they may represent the buyer, the seller, both (with consent from both parties), or by acting as a transaction coordinator—who helps with the paperwork without representing either party. Typically, a broker will receive a percentage of the agent's commission, as agreed upon in the agent's contract. This may take the form of a 50/50 split, 60/40 split, 90/10 split, or whatever else the broker and agent agree to.
In the sale of single-family homes, the typical sales commission is 5% to 6% of the sales price. For the sale of much more expensive commercial properties, the average commission is 1% to 2% of the sales price.
This commission is shared in equal amounts by the brokerages of the listing agent and the selling agent. It is possible for the listing and selling agent to be the same person. The real estate broker that the agent works for typically gets 10% to 50% of the commission depending on how much financial support they give to the agent, such as a monthly draw against future commissions.
Real estate brokers, who are well-established and successful, typically make more than $100,000 per year after paying for the expenses of their operations.
Investopedia describes how the real estate commissions are paid. The most successful real estate brokers in a major market area can easily make over $1 million per year. The one thing to remember is that it is just as easy to sell a home that sells for $1 million, if it is fairly priced, as it is to sell a home for $100,000. The paperwork and the selling process are very similar in both cases. However, the commission for selling a $1 million home versus the commission for selling a $100,000 home is quite different.
One thing to consider is adding property management services to your real estate brokerage business. This is an excellent source of additional income and helps attract more clients for real estate sales.
Want a more guided approach? Access TRUiC's free Small Business Startup Guide - a step-by-step course for turning your business idea into reality. Get started today!
One crucial aspect that cannot be overlooked when starting your real estate brokerage is the importance of establishing a solid business foundation. While sole proprietorships and partnerships are the most common entity types for small businesses, they're a far less stable and advantageous option than LLCs.
This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business's debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business's liabilities.
In practice, this means that if your real estate brokerage were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.
More than 84% of our readers opt to collaborate with a professional LLC formation service to kickstart their venture. We've negotiated a tailored discount for our readers, bringing the total down to just $29.
Note: If you're interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN through the IRS website. If you would like to learn more about EINs, read our article, What is an EIN?
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Besides being a requirement when applying for business loans, opening a business bank account:
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
Recommended: Apply for an easy approval business credit card from BILL and build your business credit quickly.
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
Regulations on real estate brokers vary by state. Real estate brokers must be licensed. To become licensed, brokers need to have been a real estate agent for a certain amount of time, complete required pre-license education (number of required hours vary by state), and pass a real estate license exam.
Real estate agents must work under the supervision of real estate brokers.
All real estate brokers are real estate agents but not all agents are real estate brokers. Real estate brokers are required to undergo additional coursework and experience in order to obtain a broker’s license.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
FInd out what types of insurance your Real Estate Brokerage needs and how much it will cost you by reading our guide Business Insurance for Real Estate Brokerage.
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
Recommended: Get a logo using Truic's free logo Generator no email or sign up required, or use a Premium Logo Maker.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
Creating positive word-of-mouth referrals is critical. You will gain this by making your clients happy. If someone lists a property for sale with your firm and the sale happens quickly for a fair price, then you will gain a good reputation.
Moreover, if you find a “dream” home for a family that is one that they can afford in the area they prefer to live in, you will increase your positive reputation.
There is still value in traditional advertising as well, like mailers, newspaper ads and more, but the industry has shifted heavily in favor of Internet marketing. Well-polished websites, informative videos, and an active social media feed all help brokerages appeal to the younger demographic.
Making the process easier for the client will go a long way to attracting new clients and keeping your relationship with existing and former clients strong. Clients want a brokerage that will work hard for them and go the extra mile. Whether that's a gift basket sent to a family after the purchase of a new home or maintaining flexible hours for showings with a buyer, that extra step will help to set you apart from the competition.
It's also important not to forget clients once the deal is closed. Clients are made into repeat clients when the brokerage follows up periodically to ensure clients are happy with the transactions. Following up like this will help you find out when your former client may need to buy or sell again, and you'll be at the top of their mind.
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
Recommended: Get started today using our recommended website builder or check out our review of the Best Website Builders.
Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
If you find yourself driving through the neighborhoods, looking at the various properties, and thinking about how much they might sell for, then real estate might be the perfect business for you. You will spend a lot of time canvassing certain areas of town to get familiar with what is offered for sale and then more time in your car driving potential buyers around to take a look at these properties.
Local ordinances require you to be a real estate agent for a certain amount of time before you can get your broker's license and start your own brokerage, complete a certain number of deals per year, complete a certain number of hours of continuing education, and pass the real estate broker's exam. If you've worked as an agent and enjoy the experience, you might enjoy opening a real estate brokerage.
Take our Entrepreneurship Quiz to find out!
While daily duties differ greatly for real estate brokerages, the general duties of the supervising broker (and/or owner of the brokerage) can be summed up as follows. Supervising brokers advertise the brokerage and oversee the operations of agents. This includes helping with paperwork, giving advice, and stepping in where necessary to help with transactions.
Brokers also frequently perform many of the same duties as agents. A broker may choose to represent a client as a listing agent or a buyer's agent. As a listing agent, your duties include marketing properties, holding open houses, and vetting buyers. A buyer's agent, on the other hand, helps clients by finding suitable properties, creating and presenting offer agreements, among other things.
Because of the licensing requirements, all real estate brokers that establish their own companies have worked as real estate agents for others first. There are also course requirements for each state that need to be finished successfully and exams that must be passed in order to be qualified for a license. Real estate agents have to work under the supervision of a licensed real estate broker. Being personable and gregarious is very helpful in getting listings of properties for sale and helping buyers find a property that they want to purchase. Exceptional organizational skills are also necessary. Meticulous records need to be kept in this industry. A customer relationship manager, like Copper, is a great way to keep track of interactions with customers and clients.
Expansion of this business is based on serving additional geographical areas. A common practice is to set up a brokerage in one community and then expand to serve other areas based on the initial successful operation.
An example is Century 21 that started in 1971 with a single location and then expanded globally to now have over 6,800 independently-owned franchise operations in about 78 countries, with over 100,000 sales professionals.
If you'd rather buy into an existing system, you can join a franchise. Companies like Re/Max and Keller Williams carry brand recognition that may help brokers in the marketing process. In addition, real estate franchises usually help market your business and offer valuble training along with proprietary business models. If you would rather not start from scratch and you have significant income, a franchise may be the right fit for you.
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