Is 2021 the Year to Start your Own Brokerage? Here are Three Things to Consider First
You just finished your broker courses and were granted your broker’s license. 2020 was a bit of a whirlwind, wasn’t it? At this point, it feels like it’s now or never. You ask yourself, is 2021 the year to start your own brokerage?
If this sounds familiar, it’s easy to see why. The real estate brokerage industry is worth $164 billion, and we’re nearing a whopping 1 million brokerages in the United States. There is a great opportunity for success, but success doesn’t come easy in this industry. It’s challenging — just ask industry experts for advice on starting your own brokerage, and they might just tell you “don’t.” So, before you jump into the brokerage business, we narrowed it down to three major categories to consider: your financial status, your brokerage brand as well as your location and recognition.
Examine your financial status.
1. Are you financially ready to start a brokerage?
Startup costs can easily run from $10,000 into the hundreds of thousands, so having a strong financial backing is the first thing to consider. You either need to have the funds built up in your savings or have a plan in place to secure a loan. Depending on the brokerage type, how much cash you need in the bank will vary:
Is it a good time to start a virtual brokerage? Absolutely. With the changes that came with COVID-19 in 2020, there is a huge reliance on virtual tools like tours, online listings, etc. Clearly, we’ll continue to rely on these tools moving forward. This is also a much more affordable option since you can cross off office space and common overhead costs that would cost you between $2,000-10,000 each month.
Brick & mortar brokerage
If the traditional office space is important for your brokerage firm business model, then your financial backing need is stronger. In addition to that original startup sum, the reality is that you should plan for at least $10,000 in monthly expenses. In fact, having at least one year’s expenses available would be the best case scenario to avoid going under.
Some first-time brokers want immediate name brand recognition, and that comes easy with a franchise brokerage. Starting a franchise brokerage is expensive — in in fact, some start at $200,000. If this is the business model that you imagine for your brokerage, then startup costs are significant.
2. What is your budget?
Take a look at that business plan you developed (don’t tell us you haven’t done that yet!). After considering the must-haves for your brand, what can you actually afford on a monthly basis? We pulled together a general list of monthly costs below. And if the brokerage you want to build is not in alignment with your budget, it’s time to wait on starting your own brokerage.
- Overhead (office rent, utilities, furniture, computers, office expenses)
- Commission model
- Lead generation software for your agents
- Marketing costs
- Website management
- Licensing and other business fees
- Backend software and accounting (and other tech)
Will you be a forward thinking brokerage?
You have to think in a forward-thinking manner when considering how to start your own real estate brokerage firm. 2020 disrupted the real estate industry and forced brokerages to adopt new technology at rapid paces. However, the industry will continue to change at a faster pace than we previously thought. What plans do you have in place to prepare for the future?
Streamlined backend and accounting processes
The real estate industry is one of the slowest to adopt new technology often leaving brokerages with legacy softwares that wastes time and money. If you’re planning to start your own brokerage in 2021, you have to be forward thinking in all areas from marketing to yes, your back end and accounting software. Streamlined platforms will keep your admin costs low and save you a lot of time entering duplicate data.
Utilize technology to reach first-time home buyers
First-time home buyers are a force to be reckoned with. They’re young professionals who know social media, technology and the Internet like the back of their hands, and they’re dominating home purchases. How does your brokerage plan to leverage these clients? Meet them where they are by marketing to first-time buyers on social media platforms and through digital means like email marketing, text messaging, remarketing, review platforms, etc.
36 percent of buyers would be a home entirely online while 43% would be interested In selling a home entirely online. That says a lot about where the industry is headed! From the get-go, your brokerage needs to think in modern solutions — where you list, how you reach customers, streamlined communication, apps, etc. Even with little name recognition, a brokerage that is ahead of the times and makes the process painless for clients is a game changer.
Factor in your location and name recognition.
The real estate market is thriving to say the least. Inman reports that home sales should be up by 6.9% in 2021, a number the industry hasn’t seen since 2006. Let’s just say that where there’s money, there’s competition. Do you have the name recognition as an agent in order to compete with existing brokerages? If not, consider a well-known partner, a franchise brokerage or waiting a while longer.
In response to the pandemic, the industry has seen what some call a “mass migration” to suburban areas. We wouldn’t describe it as “mass” since it’s not as dramatic as some reports say, but there is a current increase in suburban home purchases: 57% of home buyers bought in a suburban location between April and June 2020. Potential buyers want a single family home that offers a comfortable work-from-home experience. In addition, there isn’t much of a need to live close to an office location anymore thanks to remote work experiences. However, large city centers are not dying by any means — there is just a better opportunity in these growing suburban locations. Where you choose to open your brokerage does play a factor into its success.
Zipi is a cloud-based, back office and accounting platform designed for real estate brokerages to streamline processes and cut costs. Request a demo to get in contact with one of our expert team members.