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Realtor Advantage/Users/adamp/Desktop/Stuff for FAR/Magazine Assets/JULY08/images/Untitled-10

How to Buy a Brokerage the Smart Way

Back in 2004, after managing my own brokerage for 16 years, I felt like a mountain climber who had just reached the summit. Where, I wondered, do I go from here? Surely a different set of skills was needed to go higher—all my competitors were multioffice operations—but I doubted that I had the drive to press on.

So, when a big-name franchise company with deep pockets offered me more than my brokerage was worth, I accepted without hesitation and agreed to stay on in a salaried capacity.

But things didn’t unfold quite the way I’d expected. We were in the midst of a red-hot market when I was bought out—we had 115 sales associates, and we were closing in excess of 105 sales per month. The same people had also purchased several other companies—some of which were only marginally profitable—and as the market slowed, the cost of carrying the fixed expenses of these acquisitions became a major drain on resources. By the last quarter of 2007, sales were almost nonexistent.

To protect my investment, I took the company back in January of this year. I’ve reduced the lease by thousands of dollars per year, reduced the size of the support staff, reworked the company budget and refocused my attention toward future growth.

After four years on the sidelines, I’m enjoying this new challenge. I realize that I missed making all of the business decisions. And most of all, I craved the day-to-day excitement of running a real estate brokerage—and the camaraderie of my sales staff. I’m excited to be back at the helm because I sense that the industry is on the brink of a rebound. If you’re contemplating buying a real estate company, here are some tips to consider:

1. Timing Is Everything
You might ask “Why buy a brokerage in these uncertain times?” First of all, it’s inarguable that when the price is right, almost anything is for sale—especially when people are in trouble. It’s a buyer’s market out there, and if you can find a way to solve problems, you’ve found a way to make money. I believe that once the market corrects itself, there’s going to be two or three years’ worth of business to be done. We’re seeing significant improvements at my company already—we had about two-dozen sales during first quarter 2008—and I expect things to get even better.

We’re down to 69 sales associates and about 10 sales a month, but I plan to get our numbers back to where they were when I sold the company. In my opinion, the market is full of pent-up energy from buyers who’ve been holding off. Once the gates open, there will be more transactions to be closed.

2. Understand the Market
You must have in place associates and staff capable of serving the market properly. If you don’t have them, calculate how long you’re going to need to assemble the right team. It’s usually time-consuming, hard work. You can take an office that’s suffering and implement good ideas and good management, and it’s still going to take you a solid year to get things back up to speed.

In my case, I had to understand how the market had changed during the four years following the sale of my business. The only thing about the real estate business that doesn’t change is constant change. We have a tendency to let time slide by and fail to realize what’s changing around us. Suddenly, we wake up to the fact that our competition, which is younger and newer and fresher, is operating with techniques and technology that we know nothing about. Apart from start-up capital, my main investment has been in technology, where I’ve upgraded my servers and Web site.

3. Beware of Liabilities
Unless you can confirm you’re buying a solvent and successful company, make sure you’re acquiring only its assets. Otherwise, you’re buying its liabilities (i.e., debts, lawsuits, etc.) as well. The company that bought me out ended up in financial trouble, so, before I signed the contract, I had my attorney draw up the necessary paperwork to ensure that the selling company remained solely responsible for its liabilities.

When buying a company, buy only its interest in the lease, its equipment, its listing inventory and the employment contracts of its sales associates (if they work on contract). Of course, staff members are free to leave if they choose—but you are buying the other company’s sales staff (if they want to stay) as well as its inventory.

4. Consider a Name Change
Obviously, if you keep the name of the company you’re buying, you will have fewer start-up expenses. It’s overwhelming to get everything renamed just so you can operate. Since my company was no longer part of a franchise, I had to redo everything. I spent about $100,000 on brand-new signage (for the building and For Sale signs), stationery, business cards and advertising materials. If you’re buying a floundering business, I recommend doing a name change because it’s the quickest way to untangle yourself from problems and start with a clean slate.

5. Have Ample Cash on Hand
Most people don’t understand the concept of being underfunded until they try to open a business. Don’t leave it to guesswork. You will undoubtedly need enough capital to last the first year or two while things are evening out. Take it from me; nothing saps your energy and creative juices more than lying awake at night worrying about how you’re going to pay the bills. So, be sure to figure out how much it’s going to cost to open your business and then double that amount (to prepare yourself for those unforeseen expenses). 

6. Turn Off the Negativity
It takes the right kind of attitude to persevere in this slow-moving market. It’s a given that news has to be scary to make the front page, but I believe that if we could lock the media away in a room for a week, we could overcome all the pessimism. For the market to change, morale must change.

Natural fluctuations occur, but the people who hang in there and play the cards that are in front of them will ultimately win in the end. The future is very bright. Let’s face it: there were a tremendous number of order takers in the business when the market was at its peak. They waited for the phone to ring, and when it stopped ringing, they were helpless. Those who remain find themselves competing with fewer people for the available business. Good old-fashioned staying power will help you survive any market because every company has its ups and downs.


Jack Meeks is broker-owner of Real Estate Professionals of America in Casselberry and Real Estate Professionals of Lake in Mount Dora. He is past president of the Orlando Regional Realtor® Association and has served on the boards of directors for both the Florida Association of Realtors and the National Association of Realtors.