How to Start a Real Estate Brokerage

With almost 150,000 real estate firms in the U.S., you face some strong competition when starting your own brokerage.

However, if you start off with a good foundation and get the basics right, there’s no reason why you shouldn’t be able to run a highly successful and profitable business.

In this article, we will outline the five steps you need to take when starting your own brokerage to give you a competitive edge.

Step 1: Getting the Foundations Right

Let’s take a look at what you need to do before starting your brokerage. 

➡️ Get your real estate broker license (or hire a licensed real estate broker)

In the U.S., a real estate broker is responsible for the transactions that are processed under their license. This person is accountable for everything related to the transaction, including legal compliance and their real estate agents’ performance. 

If you want to open a brokerage, you either need to get a broker’s license yourself or hire someone to broker transactions for you. 

Find out from your local Real Estate Bureau what the licensing requirements are for you or the broker you hire.

You typically have to complete a course ranging from around 40 to a few hundred hours, such as the LRE8170 Broker Pre-License and LRE8171 Applied Real Estate Principles courses offered at Harper College. You may also need some prior experience as a real estate agent.

➡️ Decide on a business structure

You must take steps to ensure you operate your business legally. The Small Business Administration (SBA) has a helpful ten-step guide to setting up a company.

One of the first things to decide on is the business structure. Brokerages can operate as a sole proprietorship, LLC, partnership, or corporation. 

Most people choose to operate their brokerage as a limited liability company (LLC). An LLC is a simple business structure that lessens personal liability and often provides better protection of your personal assets. You won’t require a board of directors or need to hold formal shareholder meetings. 

You should also apply for a federal tax ID and consider taking out errors and omissions insurance (E&O) to reduce risk exposure. 

➡️ Start with a minimum viable brokerage

Unless you have startup capital and experience, we recommend beginning with a minimum viable brokerage. 

This means you’ll launch with a minimum investment and the basic infrastructure in place. Doing so allows you to adapt quickly and scale appropriately. 

➡️ Will you do the selling or hire agents?

When you first start, you will probably perform the duties of both a real estate agent and brokerage owner. You’ll need to find leads and market properties, organize tours, and facilitate transactions. 

This is beneficial at the beginning of your journey as it eliminates agent fees. You also get to keep all the profit and reinvest it in your business. The downside is that doing everything yourself means growth will be slower.

At some point, you may want to hire real estate agents to work for you. The more people you recruit, the more deals you can close and the more commission you can earn. 

💡 You Need a System for Recruiting The most successful brokers build systems to recruit agents, which work in a similar way to the ones they use to generate leads. Check out our article about Robb Campbell. He is one of the country’s top real estate recruiters. He told us about the system he uses to recruit agents for his business.

➡️ Take financial planning seriously

You should create a real estate business plan with detailed financial projections. This ensures you have an understanding of how much cash you need to operate and how many sales you must make to earn this money. 

The first thing to consider in your business plan is startup costs. This can amount to anything from a few thousand to hundreds of thousands of dollars. It all depends on the type of business model you use. 

A virtual minimum viable brokerage with you performing the role of agent requires the least amount of money. You’ll have to cover business registration, insurance, essential equipment, and reliable transaction management software. 

The amount of cash you need quickly rises if you want to open a brick-and-mortar location. You will have to factor in the cost of office space, furnishing, and labor. 

You’ll also need to address how you will finance these costs within your business plan. 

You may have money saved up that you can use to get started, or you may decide to apply for financing via the SBA. 

Costs only increase once you’ve started your brokerage. You’ll need to cover:

• Marketing.
• Utilities.
• Staff expenses.
• Rent.
• Agent commissions.
• Franchise fees.
• Association and multiple listings service (MLS) fees.

These costs can easily hit thousands of dollars per month. This is why it’s important to create detailed cash flow projections that show the targets you’ll need to reach to cover them. 

Step 2: Start Closing Real Estate Transactions

With your business entity set up, it’s time to put pen to paper on your first deal. These deals are often the hardest as you may be starting from scratch in terms of leads, reputation, and client base—unless you already have an existing network in your area due to your real estate experience.

As getting cash flow to cover your costs is an essential part of running a business, we recommend that new real estate brokers put all their focus on getting their initial deals over the line. 

At first, this means doing anything you can to bring in leads for yourself and your agents. 

If you have already established yourself in the real estate industry, you may have a network you can rely on for referrals. This is an ideal scenario, as people will trust you. 

Let other realtors know you’ll be willing to pay them a commission for any property they pass on to you. This can be a good source of referrals, as popular realtors often receive leads they can’t or don’t want to list. 

Attending business events is another good way to expand your network and get more referrals.

But don’t limit yourself to professional connections. Ensure that everyone in your network knows you’ve started your own brokerage. Tell them you would appreciate referrals if they know anyone who is considering selling their home.

Customer incentives

You can offer several buyer and seller incentives to make your brokerage stand out; each has its own unique benefits and downsides. Here are some incentive examples:

👉 1% fee

HomePros offers a 1% fee, which is much lower than the average 3% commission. Lower fees appeal to sellers as they pocket more of the sale total.

While you’ll earn less per sale, you may be able to stay profitable by taking advantage of cheaper online marketing techniques to sell homes, reducing commission splits, or processing a higher volume of sales. 

The downside is that it may be tougher to attract good real estate agents. You’ll have to develop a creative solution to ensure they still earn enough to make their work worthwhile. 

👉 Flat-fee brokerage

Brokerages can differentiate themselves by offering to work for a flat fee. You’ll offer your services at a predefined cost that won’t change—no matter how much the home sells for. 

The benefit to the client is that they know exactly how much their fees will be up front. If their home sells for the expected amount, they will save a percentage of the sale price. 

Homie, a flat-fee brokerage, says that the average customer saves around $10,000 when they choose its services. This is a significant figure that will be very attractive to sellers. 

The brokerage’s benefit is that they also get a guaranteed amount of money, even if the sale goes through for less than expected. 

👉 Minimum service flat fee 

Some brokerages offer a flat fee model where they provide a minimal service, such as listing the property on an MLS, but then they let the seller take care of finding a buyer. The brokerage doesn’t assign the seller and agent, market the listing, arrange home tours, or take photos. 

The benefit of this basic service to the seller is that the fee is much lower. If they can get a deal through, they will save a considerable amount in fees. The brokerage’s benefit is that, while they won’t earn as much for the sale, agents are free to work on other deals. 

👉 Express sale

Selling a home is often an inconvenient and stressful experience for the current owner. As a result, some brokerages provide a new service, sometimes known as an ‘express sale.’ 

This is when they give the seller a fast cash offer and buy the property from them.

For the seller, the benefits are more flexibility and a quick, stress-free sale. However, they won’t take advantage of market demand, and the offer they get may be relatively low.

The benefits for the brokerage include more potential profit and more predictable buying processes. The downside is that you’ll need a lot of free capital to buy the home, and there is a small risk that you could lose money on some properties.

Step 3: Choose a Commission Structure

Real estate commission on a property sale is typically between 5% and 6%. This percentage is then split four ways between the buying and selling brokerage and agents. 

While the overall percentage the client pays doesn’t change much, there is room for negotiation in how the brokerage splits the commission with the agent. 

There are a few real estate commission plans that may complement the way you run your business:

💲 Traditional commission split

A traditional commission split sees the total commission divided between the agent and the broker-owner. 

The exact split will be decided when the agent joins your brokerage. Usually, the agent pays between 10% and 40% of the amount they receive to the broker. 

This structure encourages agents to keep bringing in deals, as the more transactions they close, the more they earn. 

Sometimes, percentages change depending on where the lead comes from. If the agent brings in the lead, they may receive a higher percentage of the deal. If it comes from the brokerage, the company can collect more money. 

💲 Commission threshold 

A commission threshold is similar to a traditional split. The difference is that the percentage the agent pays to the broker reduces once they pass a monthly sales target. 

For example, the agent may keep 60% of their first three sales in a month. Then, after the third transaction, they earn 70%. In some cases, there is even a third tier. 

The benefit of this type of structure is that agents stay motivated once they have brought in a significant sales volume—potentially increasing the amount you make as a broker. 

This type of structure is also likely to attract quality agents who are confident in their ability to push sales over the line.

You can base the threshold on various factors. For example:

• The amount the agent has paid to you.
• The number of transactions they’ve completed.
• The total value of the sales.

💲 Flat-fee structure

In a flat-fee structure, the agent keeps 100% of the commission but pays a regular flat fee to the brokerage. 

This fee, often called a desk fee, is either paid every month or per transaction. It allows the agent to use the brokerage’s office and other infrastructure. 

Monthly fees are paid whether or not the agent closes a deal during the period. 

The benefit to the brokerage is that it receives a guaranteed income. It also typically provides agents with less support and doesn’t pay for signage or advertising, for example. This can significantly lower their costs. 

The downside is that a brokerage won’t earn as much from productive agents as a traditional commission model.

This type of structure typically attracts experienced agents who generate consistent revenue and close deals without much support. 

💡 Use a Commission Calculator Once you’ve selected a commission structure for your brokerage, you can use our intuitive calculator to work out commissions within your brokerage.

Step 4: Choose a Business Model

The next step is to choose how you’re going to run your business:

🏠 A brick-and-mortar office

Traditionally, brokerages operated from a dedicated physical office. This was a requirement as technology couldn’t facilitate remote work.

Many brokerages still operate like this and for a good reason. Having an office gives employees a place to work, hold meetings, and communicate with others. All the equipment people need is right there in the office, and many real estate agents expect you to have one.

Having a favorable street presence can also improve your visibility in the area. It encourages people to drop in when they are interested in selling or buying a home. This may be essential if you deal with specific customer groups, as many people still prefer to visit a physical location. 

If you choose to go down the franchise route, you will often be required to have an office as part of your agreement.

The biggest downside to the brick-and-mortar model is the cost required to run an office. And the reality is that even if you have an office, many agents will spend a significant part of their day in the field. 

💻 A virtual brokerage

Technology has enabled brokerages to go remote. Even those previously unconvinced about virtual brokerages’ merits were forced to change their minds in 2020 due to the pandemic. 

Remote work during this period didn’t seem to harm the industry. Sales volume in 2020 remained high and was more than in previous years.

Running a virtual real estate brokerage has many benefits. You save significantly on the cost of office space. It’s also easier to scale up and add people to your real estate team without worrying whether you have room for them.

It’s suitable for agents, too, which may make recruiting easier. They enjoy flexibility over where and how they work. Instead of commuting to the office, they can work at home and go straight to meet clients, possibly saving hours each day. 

The downside is that agents won’t have space to meet clients. This is problematic on the occasions when in-person meetings are necessary.

However, many brokerages are overcoming these difficulties with new options that cater to their needs. Moving to a remote work environment allows for a vast operation that runs virtually with cloud-based tools and a franchise structure. 

This enables agents and employees to collaborate anywhere without the need for brick-and-mortar offices.

For many brokerages, starting with a remote operation and then renting some office space when required is a good idea. 

💡 You Need the Right Technology to Make a Remote Business Work Technology means that many of the tools previously required to run a successful brokerage are now redundant.  Agents can scan documents on the go with their phone cameras, send them to you by email, and review documents on their computers.  Meanwhile, tools like Zoom and Slack help keep the team in reach when needed. Perhaps most importantly, transaction management software keeps everything running smoothly.

🔗 A hybrid model

In a hybrid business model, most of the work takes place in the field. Agents still send digital documents and communicate with the team online, but you have a small office space. 

This typically entails a limited number of meeting rooms or hotdesks that agents can use when they need to. 

You’ll save on property costs as you are renting a smaller space, but you’ll still get many of the benefits of an entire office.

Another option is to take advantage of coworking space if it is available in your city. These are open-plan offices shared with other businesses. 

The companies that manage these spaces often provide all the infrastructure you need to work, such as Wi-Fi. You can also usually reserve meeting spaces, presentation venues, or conference rooms when required. 

It’s a good solution for firms with a small number of employees. The downside is that your employees will have to be comfortable sharing the space with other businesses.

🤝 A team structure business model

Brokerages are typically viewed as competitive places to work. Agents control the whole sales process and take home the rewards. 

A team brokerage is a little different. In this structure, agents intentionally operate more like a team—a small group of highly productive and focused real estate agents. 

Each has a manager and plenty of support staff that helps bring in sales. Agent commission is much lower to cover the extra costs, but good teams can sell at a higher volume. 

This guide provides an overview of how it works. It uses an example in which agents only receive 30% of the total commission, a significant decrease in industry averages. 

Each agent closes an average of 30 transactions a year, which is around four times the national average—easily making up for the shortfall. 

It’s also more attractive to clients who benefit from the more service-oriented focus of these businesses.

Step 5: Use Best-in-Class Real Estate Software

Brokerage management software helps you streamline processes and scale your business. 

It’s crucial to choose solutions that agents and other employees find easy to use and fit in with their day-to-day workflows.

Some software packages are more fundamental to running your brokerage than others.

1. Real estate compliance software

Real estate compliance is complex. Having set procedures and keeping a record of transactions is the best way to ensure you operate in line with regulations. It’s vital that you start using compliance software from day one. 

This software can make it easy to comply by:

• Letting brokers review documents quickly. 
• Storing a downloadable history of activity on each transaction.
• Ensuring each step takes place when it should.
• Ensuring only people with permissions can view certain information.

2. Accounting software

It will be helpful to your new business if you also get reputable accounting software as soon as possible. This is important as it tracks all your spending and transactions, and it’s even more advantageous when you need to submit your tax return. 

The longer you delay investing in accounting software, the more complicated your tax return will become. 

You don’t need accounting software marketed only to real estate brokerages. The best solutions are the ones that handle business accounting. 

Your brokerage is a business, and expenses will be similar to any other company in any other industry. 

Xero and QuickBooks are great examples of popular accounting platforms that easily integrate with other software.

3. Real estate transaction management software

Managing the real estate transaction process can be overwhelming. It’s a good idea to invest in transaction management software once you have your first deal under your belt. 

A product like Paperless Pipeline allows you to digitize and automate the entire transaction process. This is essential if you plan to run a brokerage remotely and valuable even if you don’t.

You can:

• Create transaction checklists that guide your team through all the steps, from listing to closing.

• Automatically set dates so admins and agents can see exactly when tasks are due, ensuring deals stay on track. 

• Generate reports that show crucial transaction information. For example, the number of deals expected to close within the next 30 days or the number of deals closed in a certain period. 

• Upload and review documents from anywhere, enabling a completely remote way of working. 

• Connect your account to over 3,000 commonly used apps.

Find out more about how Paperless Pipeline helps brokers manage transactions on our website. 

4. Real estate commission management software

Once you’ve started employing agents, you’ll need to get commission management software. 

This helps by automatically tracking sales and calculating commissions based on your agreed-upon structure.

You can view reports, manage plans, and even assign different agents to unique commission structures.

Additionally, agents can view their own income reports in a few clicks, allowing them to see how much they’ve made and what they can expect to make in the near future.

Find out more about how Paperless Pipeline can help you manage commissions on our website.

5. Integration tools

Once you have multiple software-as-a-service (SaaS) apps and packages in operation, it’s helpful to use an integration tool to get them working in synergy. 

Popular tools like Zapier allow you to automate essential functions across your apps, freeing up your time and reducing human error.

6. Customer relationship management (CRM) software

Customer relationship management (CRM) systems allow you to manage and organize customer data, track sales, and plan and execute marketing campaigns. 

They also gather customer interactions from across your channels and record them in a single place. This means that everyone working at your brokerage will always have the latest customer information available to them. This improves efficiency and customer experience. 

You may need a CRM as you begin gathering cold leads. In these early days, we recommend you choose a good quality free tool like HubSpot. Later on, once you’ve started managing an extensive sales pipeline, you may wish to upgrade to a premium CRM. 

The type of brokerage that you operate will impact which CRM you choose. If you are a producing broker, you may want to allow your agents to select their own CRMs to keep their leads confidential. If you are a managing broker, you will more likely supply your agents with a CRM.

Start Your Own Real Estate Brokerage with the Right Tools

You now know the basics of how to start a real estate brokerage. With the right foundations laid, this is the beginning of the road to becoming a successful broker. 

If you want to ensure you get off on the right foot, investing in transaction management software is crucial. 

This software can help automate your entire transaction process from start to finish, giving you more time to spend on growing and scaling your business. Better yet, it gives your agents more freedom to close deals that benefit your brokerage.

Subscribing to Paperless Pipeline is an investment in the future of your business. You can try our tool out for free today without being tied into any agreements or providing your credit card details.

We’re excited to join you on your journey toward becoming a successful real estate brokerage.