For many brokers, selling their real estate brokerage someday for a good price — enough to fund a comfortable retirement — is an aspiration they haven’t really considered seriously. Other brokers are building a business for family legacy, or the eventual opportunity to sell a business to create family legacy.
Selling a brokerage isn’t quite like selling any other type of company or business for a number of reasons, but mostly because it’s a people business. When the time comes for you to think about selling yours, you might not know what to expect. Here are 16 steps that you’ll have to take before the deal is closed:
- Get your finances in order
- Start tracking the value of your firm
- Document your business processes
- Develop a strategic plan
- Perform a SWOT analysis
- Step away from day-to-day management duties
- Find one (or more) potentially interested buyers
- Sign an NDA
- Due diligence
- Start negotiating the sale
- Evaluate cultural compatibility
- Verify assets
- Review the letter of intent
- Sign the purchase agreement
- Close the sale
- Announce and celebrate!
We’ll explain a little bit about what to expect in each step.
Step 1: Get your finances in order
Any potential buyer is going to want to understand where your brokerage is financially before they start discussing what they might be willing to pay to acquire it, and the same is true for merger opportunities. So the first thing you’ll want to do is to gather your profit and loss statements, your tax return documents, and other key financial details that can help you showcase how you’ve grown the brokerage and what the future trajectory might look like.
“So many brokers do a poor job of financial planning and balance sheet building that it is hard to fix when you position the company for sale,” says George Slusser, co-author of Acquiring (More) Profit, the definitive guide to real estate mergers and acquisitions.
“It is important to formulate what expenditures you apply to the business that an acquirer would not, like an unreasonable car purchase,” he adds. “Moreover, many owners underpay themselves for the management function to optimize for tax liabilities. All of this gets reconciled to prepare a brokerage for sale.”
Step 2: Start tracking the value of your firm
Have you ever had a valuation done on your brokerage? Most brokers haven’t, especially if they’ve never seriously considered selling before! But it’s a good idea to get a valuation of your firm every year for a number of reasons — not just sales-related.
“Knowing the value of your business in current market conditions is beneficial,” says Finley Hair, the national director of WAV Group’s M&A Advisory division. “However, going through the preparation to sell a real estate brokerage will always be a huge advantage — because you never know when the time is right until it’s too late. Be prepared and hire an expert advisor to increase your odds of a better outcome.”
So if you haven’t ever had your business valued, take the documents you collected in step one and share them with a professional who can help you assess how much your business might be worth. (There are also workbooks available that might help you answer the valuation question on your own!)
Step 3: Document your business processes
This might already be something that you’re doing to help support administrative staff orientation or general company organization, but if you’ve been too small or too ad-hoc up until this point to have focused on business process documentation, now’s the perfect time!
“Having documented processes is so important in a merger, allowing the two firms to compare and contrast best practices and leverage the strengths of each firm moving forward to generate a better operation,” says Victor Lund, co-author of Acquiring (More) Profit. “We spend a lot of time behind the scenes of a transaction doing this work because firms have not taken the time to build well-documented operational processes and policies. If you have, it becomes a valuable asset.”
You’ll want to put together documentation around the following business standards and processes:
- Organizational charts with roles and responsibilities
- Agent recruiting, hiring, and onboarding
- Listing and transaction management
- Compliance oversight
- Marketing (both at the agent and brokerage level)
- Agent training and technologies
- Ancillary services (property management, mortgage, and so on)
Step 4: Develop a strategic plan
Perhaps you already have a strategic plan for your company; if so, it’s time to revisit it and ask yourself if it still applies. If not, now is the perfect opportunity to start planning ahead and thinking about where you want to go.
At this stage of the process, you should have a general idea of how much your real estate brokerage is worth. How are you feeling about that number? If you’re hoping to get a better price, what can you do to improve your numbers today?
These are considerations for your strategic plan. After all, it might take some time before you find the right buyer, so you might as well set your sights on success in the meantime. The building blocks of planning are straightforward, but using a facilitator to help your team develop a vision, define the current state of the company, and develop the tactics to bridge any gaps can lead to a remarkable and transformational effort. Slusser and Lund outline how strategic plans can support your brokerage sales goals in Acquiring (More) Profit.
Step 5: Perform a SWOT analysis
This can be done before the strategic plan if you choose, and many companies perform a SWOT analysis as part of their annual strategic planning. If you’re not familiar with the concept, SWOT stands for “strengths, weaknesses, opportunities, and threats,” and your job is to assess the state of your business in each of these areas.
When you’re analyzing your company, don’t forget about items like your current team’s talent and level of competency, your own bandwidth and ability to commit to growth, and other variables that might present assets or challenges when the time comes to make an ownership transition.
“Brokers look at market share reports constantly, but rarely do they look at them through the prism of a merger or acquisition,” notes Lund.
Step 6: Step away from day-to-day management duties
Buyers want to find a brokerage that’s well-run — but it should operate well without the oversight of one particular human. If the reason why your brokerage is such a success is because you’re actively managing it every day, that’s not going to help you when the time comes to sell your real estate brokerage, unless you plan to stay on for potentially years continuing to run the company.
You’ll need to be able to show any potential buyers that the brokerage will operate just as well without you as it does with you because you built it to last beyond your tenure. So if you haven’t already delegated the day-to-day management tasks to a different person at the brokerage, it’s time to start working on that.
Step 7: Find one (or more) potentially interested buyers
After you understand your brokerage’s value, have documented your business processes, and are no longer necessary to the daily operations of your brokerage, it’s time to start seriously considering who might be the best person (or entity) to purchase the business that you’ve so carefully built.
How do you find a possible buyer? You can look to your competition and consider other local real estate brokerages, or brokerages that aren’t local to your area but are actively expanding within the state. Out-of-state buyers can also be an option: Consider where buyers and sellers are moving to or from when they relocate and explore possibilities in those regions.
You can also try to find buyers according to niche. If your specialty is luxury homes or waterfront properties, then other brokerages that specialize in the same niche might be interested in acquiring your business.
One excellent way to discover new leads on brokerage buyers is to talk to an M&A consultant about options. They work on these deals every day and know who’s currently shopping around for a brokerage to buy and who recently passed on an inquiry (and why).
“It is rare for a competitor to openly tell you that they would consider a merger, but most business owners will confidentially share their interest with a third party,” says Slusser. Everything is for sale if the price is right!
Step 8: Sign an NDA
An NDA (nondisclosure agreement) is a central part of any M&A deal. It binds all parties to discretion and allows you to freely discuss the intricacies of any pending transaction without feeling worried about the details leaking out to your competition or elsewhere.
Both the prospective buyer and you as the seller should be signing an NDA and adhering to its terms. This protects both of you from interference or speculation while you are hashing out the terms and conditions of the contract.
Step 9: Due diligence
Selling a real estate brokerage is literally a big deal, and so the buyer will expect you to help them with due diligence processes while you are discussing things like the price and the transition plan. This is where all of the work you’ve already done can come in handy, because you’ll need to show:
- Where your firm stands financially (including tax depreciation and other details)
- Who your employees are and their salaries and pay rates
- Benefits (if any) that are provided by the firm to staff
- Your agent count, commission splits, sales volume, agent fees, and other details
- Documentation around your office procedures, including any policy manuals or handbooks
- Details of the technologies and other resources you provide to agents, and the technologies and resources needed to operate the brokerage
- Any current debt owed or pending legal liabilities
- Licensing or franchise agreements, or other contracts or exclusivity arrangements
Being transparent with the seller about where you currently stand is the best way to help them arrive at a deal that works for everyone.
Step 10: Start negotiating the sale
When everyone has a more-or-less clear idea of the state of the business and its growth trajectory, it’s time to start hashing out the specifics of a sale.
Probably the biggest and most important consideration is the price. What seems fair? What’s the current business valuation, and what adjustments might you request or offer to that valuation to arrive at a price that works for both the buyer and you as the seller?
Another important question to answer surrounds the timeframe of the transition. How long do you want to stick around and help? If you stay on board indefinitely (as a sales agent, for example), then what will your new role and title be?
There are many other things to hash out with the buyer during negotiations. If you haven’t yet consulted with an M&A expert, this could be the perfect time to ensure you’re getting a fair price and that the terms of the deal work for everyone involved.
Step 11: Evaluate cultural compatibility
This might have been handled already during the due diligence step of the process, but if not, it’s an important step that you’ll want to tackle before moving forward with the sale. (That said, there’s some wiggle room here — you can verify assets before evaluating cultural compatibility, for example. Just make sure you don’t skip any steps entirely, even if they’re not in this exact order!)
Ask yourself, and be honest about the answers: Are there any red flags for what the future might look like for both entities? What can you do today to address them upfront?
Step 12: Verify assets
Just like in a real estate transaction, the buyer is going to want to verify the brokerage’s assets and resources. And you might in turn want to verify that the buyer has the funds you are seeking upfront in order to close the deal!
This part should not be too difficult or time-consuming for you if you have followed the previous steps and already have all of your financial and tax information ready at hand. If you need accounting assistance, an M&A consultant likely knows at least one specialist who works on this type of asset verification.
Technology used by a brokerage is often neglected in asset verification. “Data is an asset; past customer records are an asset; software licenses may be an asset or a liability,” says Lund. “Think about it.”
Step 13: Review the letter of intent
The letter of intent is the document that the buyer presented when they initially expressed interest in purchasing your brokerage. These are preferably not legally binding, but if there were any stipulations or promises made in the letter, now is the time to take another look and address them. There won’t be many more opportunities to ensure that everyone is happy with the deal!
Step 14: Sign the purchase agreement
A purchase agreement is legally binding and declares your intent to sell your business to the buyer you’ve selected. At this stage in the process, you should be aware of what’s in the agreement and what it means for you practically speaking, so your job is to carefully review the document and ensure that everything you’ve agreed upon to this point is included, and that there are no surprises or misunderstandings lurking in the wings.
Step 15: Close the sale
Closing the sale and transferring ownership is going to look a bit different for every deal and will depend on whether and how long you as the seller plan to stay on at the brokerage, what the payment plan is, and many other variables. But there will likely be some kind of closing involving a lot of paperwork and an official signing-over of the firm from one hand to another.
Step 16: Announce and celebrate!
It’s the last item on the list, but it’s still important — even critical — to carefully consider this step in the process. At this stage, the deal is old news to you and to the buyer, but your staff and agents probably haven’t been thinking about your future plans for your brokerage; they’re just trying to get through their days! So you want to make the announcement in a way that inspires excitement and renewed energy, not fear and uncertainty.
Discuss how to share the news with your fellow dealmakers and come up with a plan that will reveal what you’ve been up to in a positive, upbeat way. You’ll almost certainly want to hold some kind of meeting so that you can have a face-to-face conversation with everyone who works on your business with you and provide a warm introduction and welcome to the buyer. Remember, you have been working on the merger for many months or a year. For the agents and staff, this is day one.
After the meeting, consider hosting some kind of party or other celebratory gathering. If this looks more like a merger than an acquisition, then an announcement party can be a wonderful opportunity to introduce the brokerages to each other!
Selling your real estate brokerage is a big, complicated deal. It can take months and a lot of research and trust-building before you reach an agreement. Working with an expert throughout the experience can ensure that you don’t miss any important steps and are fully prepared to take the final plunge when the time arrives.
To connect with WAV Group for a valuation, visit https://www.wavgroup.com/brokerage-valuation-offer/.