Today’s real estate market is equally primed for those real estate Broker/Owners who want their company to be acquired by another and for those wishing to acquire an existing company.
Many Broker/Owners of small real estate firms lament their lack of inventory, their relevance in the market, and their ability to stay current with technology. Owners of larger operations often share these concerns, and in addition:
- The industry’s population is aging. In the U.S. the median age of a REALTOR® is 53 with 30% over the age of 60 and only 4% under age 30.
- Many broker/owners do not have a solid exit strategy which adequately prepares them for retirement.
Large, publicly-traded real estate companies sometimes acquire market share by buying the number one, two or three operation in an area. The larger the brokerage, the more likely stock and cash-up-front may be paid. In other instances, the acquiring company may buy a book of business but offer no up-front money, only payment over time. Some may offer management a contract, employment or a vested interest in the newly-merged operation.
According to the industry experts at T3 Sixty, $2 billion was invested in the real estate technology space in 2017. While it’s important for companies to be high tech, relationships matter most so it’s equally important to be high touch. “Even with advances in artificial intelligence and artificial valuation models, I believe that most of the business will continue to be transacted by real estate professionals. Technology will not replace real estate agents, but real estate agents who do not use technology effectively will be replaced by those who do,” says Tami Bonnell, CEO of EXIT Realty Corp. International and the author of a white paper entitled, Mergers & Acquisitions in Real Estate Brokerage. Many smaller companies can’t afford the technology, are afraid of it, or don’t want the responsibility of keeping abreast of the latest innovations. Now is the time to make a move.
The key reasons for wanting to sell an existing brokerage or wanting to merge with another operation include concerns about hitting financial goals and reduced margins, leadership struggles, teams taking control of the brokerage, and partnership and/or health issues.
“In my experience, the majority of the Broker/Owners facing these issues simply want to retire, or shift focus by staying on after their business is acquired and working in a different capacity. They care about their people and want to ensure their agents and staff will be well-treated,” says Bonnell. Regardless of the size of the companies involved and whether they are acquiring or being acquired, there are some important considerations:
- The business philosophies of the leadership on both sides should agree.
- The merging of companies is similar to the blending of families; it is important to take the good qualities from both companies, so everyone has a sense of belonging.
- Good communication. Stay connected and help everyone understand that it will take time to blend.
The top 10 reasons you should consider selling your company are:
- You’re not making enough money and/or you’re not getting a satisfactory return on your invested time.
- You want to return to selling. Many people open a real estate brokerage because they thought it was the next logical step in their career when their true love was listing and selling real estate. A good salesperson isn’t necessarily a good business person.
- You want to start a new career.
- You are tired of the managerial hassles.
- Partnership disputes.
- You want access to better resources.
- Personal or legal problems.
- Loss of agents. You’re sick of the revolving door.
- Burn out. You’re a real estate veteran who has lived through more than one recession and you don’t want to build again.
- You want to retire.
Bonnell’s white paper outlines three case studies including one where an owner of a company of 27 agents wanted the opportunity to retire over three to five years and she assumed her son would take over the business. “Over several meetings during which we explored the possibility of acquiring her company, she eventually trusted me enough to reveal that she was conflicted about pursuing our negotiations,” says Bonnell. “She confessed that she had never discussed with her son his stepping into a leadership role and she felt that by continuing our discussions she would hurt his feelings and she was afraid to raise the issue with him.”
Bonnell encouraged the brokerage owner to put negotiations on hold until she spoke with her son because, “Regardless of whether her company was acquired by us or not, she owed it to herself and her son to clear the air. She agreed and enjoyed what she later told me was the best conversation she’d ever had with her son. She discovered he had no interest in the real estate industry; he wanted to go to school for something else entirely. He didn’t want to hurt her feelings, so he had never mentioned it to her! With that weight lifted, she and her agents joined EXIT.”
As a 30+ year veteran of the real estate industry, Bonnell was instrumental in building three major brands and has successfully negotiated scores of mergers and acquisitions. She says, “If you’re interested in exploring the possibility of selling your brokerage, make it known to your Dirty Dozen (a close sphere of professionals who work in the real estate industry but who are not REALTORS®, such as appraisers, home inspectors, mortgage professionals, etc.). They may know of brokerages in your community which are primed for growth and may be a good fit with your business and personal philosophies.”