New Broker - How to do learn Brokerage Operations

29 Replies

@Russell Brazil

@James Wise

@Joel Owens

@Darren Sager

@jay hinrichs

Well, I find myself in a bit of a dilemma.

I decided to get my Broker's License and start a Brokerage Firm. I now have my NY Real Estate BROKER's License (Note, Broker's License, not Salesperson's License) under my own Brokerage. I even have my Broker's Pocket Card! haha!

I qualified based on personal experience which means buying, selling, renting, mortgaging, etc. of my own Properties.

I opened my Firm and will probably purchase a property sometime this year in the $2 Million range which should give me a 3% Commission or around $60k.

HOWEVER, I am also thinking that I would like to offer friends and family my service as well and to give them a discount on my commission... at least in the beginning few years until I really understand all the things a Broker really needs to know.

I'll probably just concentrate on being a Buyer Broker rather than listing as I don't have experience YET at selling.

I won't take on an Agent just yet either until I fully learn all the normal operations of a Residential Brokerage Firm.

The dilemma I am having is that because I have not worked as an Agent, I am now tasked with understanding how to run a Brokerage firm from scratch.

So even simple things are unfamiliar to me including:

1) Associating/Disassociating Agents. File Agent's Licenses until they disassociate.

2) Insurances like General Liability and E&O

3) Forms such as co-Broke for Listed MLS Properties

4) Which Disclosures are needed for what circumstances... ie. Lead Paint Disclosure for Properties build before 1978

5) Keep all documents for 3 years.

6) How to conduct a proper CMA

7) How to conduct a proper BPO

etc.

I have both the Salesperson and Broker's License Study Guides which gives me a lot of information. However, to be honest, a lot of the material references are pre-2008. I don't trust that the Official Study Guides and Exam Questions and Answers are actually up to date.

I tried looking for Real Estate Office Management Books... there are several but I don't know which would be detailed enough for me to actually pick up the business processes and steps needed to run a Brokerage Office so that I conform to NYS/NYC laws.

I am planning on joining our local board, the Real Estate Board of NY (REBNY) and to have a NAR membership.

I will be asking them about education on how to run the Brokerage.

I want to keep it as a one man Brokerage until I understand exactly what I need to know.

Any suggestions would certainly be welcomed.

@Llewelyn A. I strongly recommend working at another firm for a while.  There are far too many scenarios and details to learn from a book or even here on BP.  

If you go out on your own with zero experience, you're going to get hurt - and you'll end up hurting your clients too.

In MA, we're required to work under a broker for 3 years before we can even take the broker's test.  There's a very good reason for that.

In a similar situation, my solution was to retain an attorney to be my broker of record.  It worked out so well that I've kept him on, even though I can now get my broker's license.

Charlie MacPherson, Real Estate Agent in MA (#9532146)
781-412-4151

Yeah In GA you have to have a license active and in good standing for at least 3 years before you can get a brokers license. That does not include reciprocal licenses where someone is already a broker in another state.

Now things might have changed some since I last checked as it's been awhile.... : )

Some states have where you can automatically become a broker but there are not many of them.

I agree you need to see how an office is ran. You might NOT even want to have agents at your firm. It can be a headache to deal with. Only a certain percentage tend to close anything. The rest can fade out fast. I like working with my commercial clients one on one and doing my own investments. I have zero interest growing with lots of agents. You get into (headache mode) that way.  

Example: Say on the residential side you are transactional fee model. You charge 500 to an agent per closing. You build up to 50 agents. Out of those 50 maybe 20% close something a month. 10 agents times 500 equals 5,000 before business expenses as a brokerage and your time watching over them. You also get notices from the state real estate commission that some of them are getting license suspended for back child support, delinquent student loans, not paying to renew license, not completing ongoing education course requirements,etc.

They also might not be paying you per your IC contractor agreement the ongoing MLS dues. In addition wait until you get an IRS demand notice that they want the commission going to your agent for a transaction to them instead to pay back taxes owed.

Some of the others you mentioned might be a better resource if you want to learn and keep a bunch of agents. I am the opposite of that business model. There comes a tipping point where you can grow teams to where they could make more for you then you could make on your own but before that you can actually make less training them up and cutting your income down by feeding them deals and they get a cut. It's all in your goals. Some of my friends do not like to close much themselves but like having a bunch of agents around to train up and manage. 

I like peace and quiet and my way of doing things.................. : ) Agents will try to do things their way and not follow the agreement fully and tell you later on. Most agents do not close much so tend to be rusty and you have to step in as the broker and fix things and then are not getting much to do that. If I added agents for commercial I would take a 50/50 split. Anything smaller it is not worth my time.  

I, as a former agent, would Highly suggest you Not open your own brokerage. I’d rather hit myself in the head with a sledge hammer, daily. Just put your license with a broker that doesn’t take a big split. You will get a feel for all the BS involved with being a brokerage at the same time......you just give them a small piece of your commission, or a “transaction fee” for each deal. I’ll bet within six months you will absolutely change your mind.

Actually, I bet you change your mind within s week if you go thru any training where you an agent’s requirements, and get a glimpse of the broker’s responsibilities.

@Charlie MacPherson

@Joel Owens

@Wayne Brooks

So, it's not a choice of whether or not I should open a Brokerage or not..... I already DID open a Brokerage.

The purpose is to get the Buyer side of the Commission which is substantial at the $Million plus side of things.

I have bought 8 multi-family building in NYC from 1997 to today.

There is no need for me to skip getting the full Buyer Side commission anymore. That's the whole purpose of the Brokerage.

HOWEVER, since I have a Brokerage, I can now Buy and Sell to others, which I couldn't do before getting the License.

Another plus is that the Property Management Firm that I started to Manage all the Properties can now manage properties for those that I help buy multi-family properties as I am very familiar with it.

BTW, it's very difficult to get a Broker's License in New York. Qualifying on Experience requires 5,250 points. I have much more than that from 2 decades of experience.

I currently have 3 firms.

1) An IT Software firm that develops Software for Enterprise Wide Corporations

2) A Property Management firm that takes care of all my existing properties

3) A new Brokerage Firm

I have a NY Broker friend of mine who can walk me through all the Process, but I want to first do my own research since he is a bit busy.

So going the route of working for another Brokerage Firm won't be an option I would be considering.

At worse, I will hire an Associate Broker or an Office Managing Broker to Manage and set up the appropriate Business Processes.

Then I'll have my Software company come in and develop all the necessary IT (Websites, MLS Access, etc.) projects that a full blown Brokerage need these days.

@Llewelyn A.  I agree with @Joel Owens .  Hire a managing broker who knows the ins and outs of running the business and representing buyers and sellers.

I'd also suggest that unless you have programmers with time on their hands, you might consider not reinventing the wheel when it comes to office software.  There are lots of good websites with IDX feeds out there already.

Best of luck in your new venture!

Charlie MacPherson, Real Estate Agent in MA (#9532146)
781-412-4151

@Joel Owens

@Charlie MacPherson

The BIC hire would be one of the last resorts I would take.

I have two priorities right now.

1) Capture the Buyer Side Commission as I buy properties to add to my Portfolio

2) Figure out all the other business processes for a Brokerage firm for 2 reasons:

a) Broker for Friends and Family

b) Apply Business Analyst techniques so I can interface with my IT Software Firm to create a Broker Office Application which can be offered to other Start up Brokerages, competing at the lower entry level at first.

I will probably hire a BIC after I generate enough commissions from my own purchases. There should be 2 acquisitions I will do this year generating around $100k in Commissions. Hopefully that will keep the Brokerage afloat for a while as I learn other aspects of the business.

Charlie: I already looked into IDX... and you are right, no need to reinvent the wheel.

There are some growing pains that REBNY (NYC's Real Estate Board) is having right now as they just revamped their MLS database.

BTW, the programmer with time on their hands is me. I've been in IT for almost 30 years and stuff like IDX is routine for me.

Wow....this is one of the scariest posts I have read in a while.

I would STRONGLY suggest that you partner with another Broker as an associate Broker in order to learn the ropes. As a broker, you have more liability and responsibilities to answer for. Also, make sure you have a KILLER E&O insurance policy in place. You will need it!

Also, many times the higher the price point, the smaller the co-broke, so that $30K you are expecting may be more like $15K with a reduced co-broke.

I have owned 3 brokerages over the years  I am with @Wayne Brooks   on this one, last thing at this point in my life do I want to do but herd cats....  My wife and I just hang our license at a fixed rate shop.. for 12k a year for both of us.. but to be fair my wife does 10 to 15 million a year and I do ZERO... then she has a transaction coordinator that charges 400 a file to make sure every T and Dot is done.

Even with your brokers license you can go work for a flat fee company..

short of that only do your own deals.. do NOT bring in anyone under you at this time.  You are far too substantial from what I know of you on BP to risk having some agent fubar you and you get in some massive suit.. remember E and O is just insurance and they don't cover a bad agent who has commited fraud ..

Good luck with it..

@Cara Lonsdale

Thanks for the vote of Confidence! And don't worry... I don't bite, I only look scary.

In NYC, I have dealt with many Brokers and Agents as Seller's Rep.

Most are reasonable good. That does not mean they will be able to find the "Highest and Best Value" before I find it.

Case in point, in 2008, I went to see a building which was being sold by a Broker who was also a VP at one of the biggest Residential Realty in NYC (I won't name them here due to the acerbity of the deal I got). I went specifically because I spotted a mistake in the advertisement of the building.

The building was being sold as a 3 Family, 4 Story building. HOWEVER, that was only the current usage and not the LEGAL usage of the building.

The Seller originally bought the building as a 3 Family, 4 Story building so she did not know there was actually a difference in the LEGAL usage. The building was actually converted from usage as a 4 Family, which is it's LEGAL usage via it's Certificate of Occupancy and it's current configuration as a 3 Family.

I went down to the basement to confirm that there were 4 Gas Meters and 5 Electric meters. Once I made that confirmation, I didn't need to see the rest of the building. That just confirmed that the building was a Legal 4 Family as you are not allowed to have any more Gas Meters in a NYC building than the amount of legal kitchens.

I immediately put in an Offer at full Ask, but stipulated that I needed a Seller's Concession of $60k.

I went into Contract and bought the building. The following business day I went to the Buildings Dept and got a certified copy of the Certificate of Occupancy for a 4 Family building as the legal usage.

I immediately put back the kitchen which was taken out prior to the Seller actually owning it and re-appraised the building for $350k more than my Purchase Price.

I then went to my Mortgage Broker and opened up a 2nd Lien for almost the same amount.

What's scary is not me....... it's the other Brokers that have to deal with me as they really should have known BOTH the Current Usage and the Legal Usage.

I don't blame the Broker in this case because the CofO was not available online. Although you could have confirmed it via the meters, not a lot of Brokers understand construction well enough.

Also, I taught Real Estate Investing for a while. My best student made about $2 Million in profits based upon my recommendations. Students that passed my highest classes also did great.

This is another reason why I started the Brokerage firm. I have too many people that want to Purchase upon my recommendations based upon 2 decades of success.

Being a smart investor and being a qualified Broker or agent are two TOTALLY different things.

Having the talent to sniff out deals in no way makes you automatically qualified to complete the process including negotiating and completing contracts and addenda (and being able to explain it properly to a Buyer or Seller), and knowing all of the things you can and cannot say or do.  You could get yourself into a lawsuit before you even have your first deal done!

I am not trying to discourage you, only to help guide you in the best way to accomplish your ultimate goal.  I just think you are skipping a few key steps, that are an important part of the process, and I think that would be regretful.

So you just got your pilot's license and you want to fly a 747 filled with passengers? What could go wrong? Any experienced agent will tell you that getting your license gives you just enough knowledge to be really dangerous. It isn't the end of learning but just the beginning. I'm surprised that they allowed you a brokers license without any agent experience, it usually takes years working as an agent before you can become a broker. If when you harm someone you will be held to the higher standard of a broker and you will be told: "If you didn't know, you should have known".

"until I really understand all the things a Broker really needs to know" Would you want to be on a plane where the pilot is learning to fly? I would recommend that you become a copilot and find a good broker to work under and learn from. Good luck.

@Jay Hinrichs

Wow! 10 to 15 million a year! Even if you averaged it with your contribution of Zero, that's still fantastic!

I appreciate the advice to not take on Agents at this time.

I totally agree.

I also appreciate the advice of using a Transaction Coordinator. I'll look into it.

One of my Partners who is in his 20s want to basically shadow my Real Estate Career. He's young and ambitious and I told him I would take him on as an Agent after he works for another Agency for at least a year or more AND I feel I can catch his mistakes OR at least have another Broker working for my Brokerage who can.

I have another friend that is an experienced Broker for 20 years. He has been pestering me to let him join my new firm. Part of his reason is that while he's probably a good Broker, he has not made substantial income.

I had the opportunity to give him some training for a side job in IT to help support himself. After a while, I can see why he didn't make much money all those years. He's very disorganized, unfocused, opinionated, does not think outside the box, etc.

To be honest, while he's a friend and he knows the ins and outs of a Brokerage, I can't see myself taking him on even as an Associate Broker because I'm afraid he can be reckless.

That had me wondering if there are a lot of other Brokers out there that are similar. If I am going to hire someone, I really need to see results over a certain time in their own careers. I don't see the point on hiring someone that might even be a risk. I would rather learn it all myself.

Unfortunately, in NYC, a Broker that has results probably wouldn't join a small firm like mine. A good Broker should be able to make $300k and upward, from what I have been told.

As I progress the Brokerage, I'll see if my anticipation of hiring a good Broker is as difficult as I think it will be.

Thanks again!

This post has been removed.

@Cara Lonsdale

@Matt Shields

Matt... the metaphor of getting a pilot's license and flying a 747 filled with passengers without ever having to fly does sound scary!

However, to make it more accurate.... I've been flying a plane for 20 years, progressing constantly, but without passengers in a specific route.

NOW that I have the ability to fly with people in the plane, in this case, just Buyers.... not going to List a Property just yet.... researching what the passengers need and other aspects of flying a plane with Passengers in it, is another type of license.

For the Brokerage Firm, I had to take 140 Hours of classroom study. If you exclude the 20 years of my experience, yes.... it sounds scary. Maybe it still sounds scary to both Cara and yourself with my 20 years of Buying Experience.

BUT, add to it that I have started 2 successful business.

Add to it that the Brokerage Firm is an LLC, will have General Liability and good E&O.

Add to it that the Buyers will be only Friends and Family, people I know well and who knows me very well.

In fact, those Friends and Family already have made millions from Partnering with me. And some of my friends and Family never invested to their regret.

Really.... I got what you both are saying. WHEN I AM IN A TRANSACTION, HIRE SOMEONE WHO IS EXPERIENCED!

I got that!

My first transaction will be my own.

My first transaction as a Buyer Broker where I am the Broker and not the Buyer, I will absolutely have it overlooked by another Broker or, as Jay Henrichs mentioned, a Transaction Coordinator.

I also want you both to consider that I'm not 20 years old. I've built several businesses and applied reasonable risk mitigation otherwise I would never have attained the level of net worth that I am at today.

If you want to have a brokerage, Id suggest buying a franchise. All the processes, business structure, liability limiting, training for you as the broker and agents would all be set up already.  I am a broker, and Id probably never open up my own shop. I make more as an agent than brokers do.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635
Originally posted by @Llewelyn A. :

@Cara Lonsdale

@Matt Shields

Matt... the metaphor of getting a pilot's license and flying a 747 filled with passengers without ever having to fly does sound scary!

However, to make it more accurate.... I've been flying a plane for 20 years, progressing constantly, but without passengers in a specific route.

NOW that I have the ability to fly with people in the plane, in this case, just Buyers.... not going to List a Property just yet.... researching what the passengers need and other aspects of flying a plane with Passengers in it, is another type of license.

For the Brokerage Firm, I had to take 140 Hours of classroom study. If you exclude the 20 years of my experience, yes.... it sounds scary. Maybe it still sounds scary to both Cara and yourself with my 20 years of Buying Experience.

BUT, add to it that I have started 2 successful business.

Add to it that the Brokerage Firm is an LLC, will have General Liability and good E&O.

Add to it that the Buyers will be only Friends and Family, people I know well and who knows me very well.

In fact, those Friends and Family already have made millions from Partnering with me. And some of my friends and Family never invested to their regret.

Really.... I got what you both are saying. WHEN I AM IN A TRANSACTION, HIRE SOMEONE WHO IS EXPERIENCED!

I got that!

My first transaction will be my own.

My first transaction as a Buyer Broker where I am the Broker and not the Buyer, I will absolutely have it overlooked by another Broker or, as Jay Henrichs mentioned, a Transaction Coordinator.

I also want you both to consider that I'm not 20 years old. I've built several businesses and applied reasonable risk mitigation otherwise I would never have attained the level of net worth that I am at today.

 I have no doubt that you are a great person.  I am in NO way commenting on your character.  And props to you for the continued success of your many accomplishments.  Those are not to be excluded from your achievements.

I will see if I can follow your analogy with my own.... It's like sitting in the jump seat in the cockpit for 20 years, and now being the head pilot (not to even mention that there are passengers!)

I will say that it DOES make me feel a little bit better that you have gone through the 140 hour education requirement.  When reading your initial post, I got the impression that you were able to acquire the broker's license in the same way people avoid college classes by taking CLEP tests.

However, I still maintain that you will benefit from working side by side with an experienced Broker who can show you the ins and outs of a day to day operation including reviewing agents' contracts, meeting compliance criteria, and so forth.  I can appreciate your desire to be at the top based on your experience of owning businesses.  What about hiring a managing Broker for your firm?  This may be the best way to own the business, but have someone competent and experienced to learn from and take on the responsibility of the day to day business.  And it wouldn't interfere with you doing your own deals.

@Russell Brazil

@Cara Lonsdale

Ah, I see. It was extensive studying for both the Salesperson's Exam and the Broker's Exam at the same time. Both Classes and exams had to be passed.  Certificates of Completion had to be included in the Broker's License Application.

This year, I'm only planning on 1 transaction. I'm planning on buying another Investment Property, around $2 Million, and acting as my own Buyer Broker. I'll give the Listing Agent/Broker full disclosure when I submit an Offer.

I'll also clear it with the Real Estate Board of NY (REBNY) just to be extra cautious. I may even check with the NY State, Board of Real Estate, Department of Licensing. I've had the pleasure of talking with them to make sure that my past experiences qualifies. They are extremely helpful.

There might be One more similar transaction towards the end of the year. But that's not guaranteed.

With only a single transaction, purchasing my own property as the cooperating broker, clearing it with REBNY and NYS Board of Real Estate, plus involving a Transaction Coordinator, and lastly, run it by my Broker friend to see if I missed anything. I am guessing that nothing is overkill on this 1st transaction.

Russell, in this case of just a single or possible two transactions where you were buying your own Investment, would you still recommend buying a Franchise for that situation?

I am still not sure if the analogy of using a pilot in a 747 plane is correct. It's funny, but when I make an analogy about something I did with a financial transaction to my friend who is an Emergency Doctor, he always tells me that's not apple to apple... in the Emergency room, the patient can die.... the Stress level is vastly different.

In this case, Yes, my Brokerage can get sued, but no one is going to die.

I would say a better analogy would be going Pro Se (acting as your own lawyer) from reading books, hoping to win a case in Tenant/Landlord court in New York City.

I've done that twice.

The first case the tenant did not show up. The Summary Judge directed me to go to the Tenant/Landlord Part, where I had an Inquest trial against the no show Tenant. I won by default.

The second case the tenant showed up. However, I was seeking possession, not non-payment. The Judge was obviously pro-tenant. However, I stepped in and offer to stipulate a date for eviction a few months in advance providing the tenant deposited rents in the Court's Escrow. The tenant was eventually evicted by the Marshall. I went to Court and collected any of the rents that were in Escrow after.

The 747 Plane Example is not fair.

In fact, as long as I don't commingle personal funds with the Brokerage Funds, have O&E and General Liability, and as long as I am not GROSSLY negligent, any law suit should be defendable. Also, the Brokerage doesn't have much assets.

But it won't come down to that anyway. I'm the Buyer and I represent myself. So I won't sue myself! haha!

@Llewelyn A. Once you join your local realtor association, NYSAR, and NAR, you will have access to the legal hotline for NY, which can offer a lot of guidance on the topics you listed and the attorneys can answer any questions you have for free.

Things like how to associate agents can be answered by the Department of State or a local realtor association.

I think that going through your own transaction will allow you to pick up on a lot of things about the process, although if you qualified by experience it seems you would already have been through numerous transactions.  I'm sure you know a lot more than many new agents!

In addition, since you will most likely be using your own closing attorney for your purchase, you will have one more knowledgeable person that you could probably ask a few questions - at least during the course of your transaction.

@Russell Brazil

@Cara Lonsdale

@Matt Shields

@Stephanie Irto

Hi Stephanie. CORRECT... and one I never mentioned to the other posters.

Because these transactions are very large, neither Broker every represent the Buyer or Seller legally nor hold Escrow.

Once the meeting of the mind occurs, the Seller's Attorney then sends a Contract to the Buyer's Attorney.

The transaction is then out of the hands of either Brokers/Agents.

The Attorneys for either side typically collect $2k each.

Even after, the Closing Agent is normally another Attorney.

Also, Closing is normally done at the Bank's Attorney's Office.

Typically, there are 4 or so Attorney's, each representing all of the Party's interest, The Buyer, The Seller, The Bank and the Closing Agent and/or Title Company.

At the 9 Closings I have been a party to a Transaction, normally as the Buyer, there has only been ONE time that I have ever seen a Brokerage send over a representative to collect their check. Other than that, the check get's mailed to the Seller's Broker.

Cara: Just to flesh out the Analogy again.... My role in the pilot analogy would not even be to fly the plane. That would be the two Attorneys, both understanding the final destination, and a written Agreement on how to get there would be in place.

My role would only be to let the Passengers legally know that they can board the plane. BUT, after they board, they must speak to the one of the two Pilot representatives to determine if they should fly over the Empire State Building or maybe Rockerfeller Center so that they can get a good look. But ultimately, both Pilots will need to agree to the final destination.

Even the Earnest Money and Deposit money is not touched by the Broker. That's all handled by the Attorneys.

As a side note, the Contract here in NYC is approximately 10 pages long. It's boiler plate and contains every contingency you can imagine. Brokers/Agents here are not allowed to do anything to that Contract for fear of practicing Law without a license. Our E&O won't cover changes to legal documents.

From what I understand, we can fill out boiler plate legal documents, but we are not allowed to make any other changes.

Real Estate Licensee's main duty here is to have the Parties have a "Meeting of the Minds."

The Attorneys take over right after certain disclosures of Agency has been given.

Even the Attorneys will attach Riders to the Contract. Typically, you will see Lead Paint, Asbestos, Termite, etc. disclosures.

As an experienced Buyer, I already know all of the Contingencies in the boiler plate Contract of Sale, and probably ALL of the added Riders for typical disclosures.

The Property Condition Disclosure is also not even bothered with by the Brokers. That again, is handled by the two Attorneys. Typically, a $500 Credit is given to the Buyer to sign a Waiver of Disclosure and a Rider declaring that the property is being purchased "As Is."

I have NEVER seen a Property Disclosure filled out in any of my transactions. The $500 Credit is done automatically by the Seller's Attorney because it essentially protects the Seller. It's just too easy to forget to disclose something and will lessen the liability of the Seller and increase the responsibility of the Buyer to conduct his own Property Inspection due dilligence.

I suspect that outside of NYC, a lot of these kinds of things are done by the Broker's office.

However, the Role of the Broker, after the "Meeting of the Minds," is VERY minimal.

If you do this just remember one very important thing. DO NOT expect the brokerage with agents to make you tons of money long term.

NAR in the upswing has about 1.2 million current members nationally.

Just like economic cycles when it is recovering and at it's peak people come in droves to get licensed or re-activate license. Then when cycle goes down NAR membership levels drop. Last down turn about 400,000 left the business. Numbers are at about the peak again.

https://www.nar.realtor/membership/historic-report

Right now the big brokerages are grow,grow,grow and teams,teams,teams. When the train starts slowing down and properties are harder to sell the brokerages will try to shift costs onto agents for marketing. The carrying costs will get real high for brokerages to make their NUT as transaction volume drops. Those brokerages are a volume business. I saw many brokerages get cocky last upside and grew too much and then burned through cash waiting for the cycle to turn around quickly and they evaporated most of their profits before scaling back or pulling the plug.

With Trumps tax policy nobody knows for sure but everything I have read points to a strong top cycle extension for the next 2 to 2.5 years before the natural cycle down turns happens. We are 10 years in already from 2007 but many experts believe the tax policy will juice investing and the economy a few more years past it's natural down turn. 

Originally posted by @Joel Owens :

If you do this just remember one very important thing. DO NOT expect the brokerage with agents to make you tons of money long term.

NAR in the upswing has about 1.2 million current members nationally.

Just like economic cycles when it is recovering and at it's peak people come in droves to get licensed or re-activate license. Then when cycle goes down NAR membership levels drop. Last down turn about 400,000 left the business. Numbers are at about the peak again.

https://www.nar.realtor/membership/historic-report

Right now the big brokerages are grow,grow,grow and teams,teams,teams. When the train starts slowing down and properties are harder to sell the brokerages will try to shift costs onto agents for marketing. The carrying costs will get real high for brokerages to make their NUT as transaction volume drops. Those brokerages are a volume business. I saw many brokerages get cocky last upside and grew too much and then burned through cash waiting for the cycle to turn around quickly and they evaporated most of their profits before scaling back or pulling the plug.

With Trumps tax policy nobody knows for sure but everything I have read points to a strong top cycle extension for the next 2 to 2.5 years before the natural cycle down turns happens. We are 10 years in already from 2007 but many experts believe the tax policy will juice investing and the economy a few more years past it's natural down turn. 

 To piggyback on Joel's data and thoughts, this also illustrates tangently why being an agent can be better than being a broker. When the number of agents shrinks during down cycles, average commission percentages actually rise. There are also less total transaction sidez, but less agents in the pool competing, so many top agents number of sides remains relatively flat.  

We had a number of agents in my particular office who did considerably better during the great recession than before. I also saw it as my oppurtunity to switch from being a part time agent to being full time as I saw how drastically the number of total agents dropped.  Maryland is actually still well below the number of peak agents from 2006/2007.

A good agent need only make minor, or achievable changes to their business during different economic cycles. It is much much harder for a brokerage to do so as they need to not only worry about what they are doing, but also what all the agents are doing.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Joel Owens

@Russell Brazil

Thanks for the information.

I was already suspecting that Brokerages shift costs onto Agents.... or for that matter, Associate Brokers.

It's the one reason I decided to open my own Brokerage because I don't trust other Brokerages to add enough value to my training versus making money using my sphere of influence.

I happen to have a large Sphere of Influence in consideration that I have a large Friends and Family network, I have over 65 current tenants, 100s of former tenants, and lots of Students from a Real Estate Investor Education program I ran for 8 years prior to 2014.

One of my Partners just started as an Agent at one of the big firms. He hates it and he was given an open rental listing to market with his own money of which 50% of the commission was going to his Broker.

This Particular Partner is an expert at Rentals and manages 2 of my buildings. He's having a difficult time competing against experienced Rental Agents for that commission.

In NYC, the Tenant Pays for an Agent to find a Rental, not the Landlord. So when he runs ads for our properties, it's always a NO FEE listing. That NO FEE listing is the one that draws in the Leads.

Had the Rental been an Exclusive Rental Listing, he wouldn't be wasting time and money on trying to rent an apt that all other Agents can also rent.

I suspect my Partner will burn through his budget for the listing and not be able to sign a Lease.

I consider Brokerages treading new Agents this way setting them up for failure.

Because the Brokerages normally give the best leads to their best closers, the worst leads and worst jobs will go to new agents.

These are reasons why I wanted to just start a Brokerage. I'm completely avoiding wasting my time, money and the time for anyone within my Sphere of Influence.

Many of my Partners and their friends as well as my family members know that if something goes wrong and it's my fault, I have more than enough Capital to make a loss whole. I never had to test that because I've never lost money on a deal yet.

The reality is that I don't need to make Money from the Brokerage firm. I'm already set financially.

Those in my Sphere of Influence know that as well. They know I'm not desperate to sell anything just to put food on the table.

Any Agent that joins my firm will have to live up to my very high ethic standards. I intend on building my Brokerage based upon Ethics and Honesty first, Hard Working second, whether or not I make money.

I'll keep in mind that during a down turn, it may be to my advantage to be an Agent.

I suspected as much because I can see that Agents who do not have enough resources to cover themselves for the long term may need to come out of the field for a while.

That's definitely not me. I can devote my full time without financial consequences and I am certainly going to Sell as a Broker owner as well.

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