Opening a real estate brokerage with a non-broker partner

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Opening a real estate brokerage with a non-broker partner

Natalie Stanley
Member since 2024 · 9 posts · 5 votes

Hi! I am hoping to see if anyone has advice on opening a brokerage where one owner is the broker and the other owner is an investor. I am a rental property investor and have about 35 properties. I am opening a brokerage with my long-time realtor with the goal of building out a property management side and sales side of the brokerage. We will own the company 50/50. Splitting all start up fees and go forward expenses. All of my rental properties will be going into the business on the property management side which will provide the company immediate income. What my agent and I are trying to figure out is what is a fair split for the sales side of the business as it relates to the broker doing business. What percentage of the 3% that the broker brings in from sales should go straight to the brokerage instead of as a commission to the broker? Are there other ways people have structured this that they could share? For further context, I am not taking on the role of a silent partner in the company. I am an attorney and will be very involved in the startup and go forward of the business and building out of the sales and property management sides. 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    2y
    Quote from @Natalie Stanley:

    There are many ways to skin the cat. I know some brokerages split the commission 50/50 with their agents. As the agent brings in more money, that split adjusts and the agent keeps a larger chunk. Other companies, like mine, start at a 70/30 split with the agent keeping 70% of the commission. The more they sell, the better that split gets. If they do really well, they can get to a point of keeping 100% of their commission. This resets and starts fresh every year.

    Some brokerages charge monthly desk fees to cover the basic administrative costs. Some charge for using the copier or for administrative support.

    Determine your expenses, then figure out what you need to charge to make it work (plus your profit).

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  • Natalie Stanley
    OP
    Member since 2024 · 9 posts · 5 votes
    2y

    In this case, the owner / broker/agent is also a 50% owner of the company and the profits of the company are split 50/50. When we start out we will be focusing on growing the property management side of the company but the broker wants to do sales on the side within the brokerage until we decide to build that portion out. Would a commission split be treated differently in this type of situation?

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    2y
    Quote from @Natalie Stanley:

    In this case, the owner / broker/agent is also a 50% owner of the company and the profits of the company are split 50/50. When we start out we will be focusing on growing the property management side of the company but the broker wants to do sales on the side within the brokerage until we decide to build that portion out. Would a commission split be treated differently in this type of situation?

    He should be on a commission split plan for his sales. Say something like 90-95% to him as an agent and 5-10% into the company.
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  • Crystal SmithPro Member
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    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    2y
    Quote from @Natalie Stanley:

    Hi! I am hoping to see if anyone has advice on opening a brokerage where one owner is the broker and the other owner is an investor. I am a rental property investor and have about 35 properties. I am opening a brokerage with my long-time realtor with the goal of building out a property management side and sales side of the brokerage. We will own the company 50/50. Splitting all start up fees and go forward expenses. All of my rental properties will be going into the business on the property management side which will provide the company immediate income. What my agent and I are trying to figure out is what is a fair split for the sales side of the business as it relates to the broker doing business. What percentage of the 3% that the broker brings in from sales should go straight to the brokerage instead of as a commission to the broker? Are there other ways people have structured this that they could share? For further context, I am not taking on the role of a silent partner in the company. I am an attorney and will be very involved in the startup and go forward of the business and building out of the sales and property management sides. 


     In my opinion, the answer to your question lies in what you project the expenses of the sales side of the business will be.  The only way to recoup those expenses is to take them out of sales commission.  The 2nd part of the answer lies in what kind of revenue you want the sales side of the business to have, again said revenue also comes out of the commission.  What's left after you recoup expenses and take some review is the commission for the individual agent.  

    The other part of my response is it depends on the business model you want to use.  If you intend to recruit others to your new brokerage you may use a model like my brokerage where the owner is an investor & he has a managing broker running the business.  It's a near 100% brokerage. 100% meaning I take home almost 100% of my commissions.  He also has a property management company.  In his business model, he has recruited over 600 agents he does not take a % of the agent's commission. He charges a flat fee for all closed transactions no matter what the size ($395 at the time I writing this) and a small fee per month to cover stuff (At the time of this writing it was less than $50 per month) along with Errors & Omissions that covers me in 2 states. 

    I think once you have the answer to what you expect on the expense side along with the business model you want to use then you can figure out how much of the commission should be retained by the business. 

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  • Natalie Stanley
    OP
    Member since 2024 · 9 posts · 5 votes
    2y

    Thank you for sharing! This is very helpful.

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