Notes

When going into business for yourself, planning is essential to create the vision you have for the brokerage. Written business goals and a mission statement give your company purpose, define its direction, and keep it on track as you make decisions. A mission statement briefly states the purpose or reason for the company’s existence.

One of the first decisions is to decide whether to start up a new company or purchase an existing brokerage. Then you must choose a business structure; many factors will come into play. There are advantages and disadvantages to each type. However, no matter which structure you choose, you are not locked in for the life of your business. A sole proprietorship is an unincorporated business owned by one individual and is the simplest form of business organization to start and operate. A partnership is the relationship between two or more persons who join to carry on a trade or business. Many states do not issue partnership licenses. In those states, a partnership may perform acts for which a real estate broker license is required, as long as every partner has a real estate broker license. A corporation is a legal taxable entity formed by filing articles of incorporation with a state agency. Overall, 37% of residential companies surveyed are incorporated. A Limited Liability Company (LLC) is an alternative business entity that has characteristics of both corporations and limited partnerships.

The brokerage can be independent or a franchise. An independent brokerage is not affiliated with nor uses the brand of another local, regional, or national company. Recent statistics show that approximately 15% of the firms were affiliated with a franchise. A franchise is a form of business in which a firm that already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor’s trade name. A brokerage can be as small as a single broker working out of his or her home or as large as a regional or national brokerage with hundreds of agents. The company may interact with the public using a physical or a virtual office. A physical office is called “bricks and mortar” location, whereas a virtual office is located on the Internet. A combination of bricks and mortar and a virtual office is called a “bricks and clicks” office.
A real estate broker needs insight into the current and projected state of the real estate industry. By using economic data and trends to prepare a market analysis, you can determine how to position your company profitably in your local market. A market analysis is a study of economics, demographics, absorption rates, and other factors to determine supply and demand, market trends, and other factors important to buying, selling, and leasing real property. This includes an analysis of factors effecting national and local economies.

Real estate markets are driven by the business climate and activity in the economy—which are continuously changing. Business and real estate cycles are identified as a sequence of four phases: (1) recovery, (2) expansion, (3) peak, and (4) contraction. These cycles are the result of changes in the supply and demand for property. In real estate, supply is the total amount of a given type of property for sale or lease at various prices at any given point in time. A supply analysis looks at the existing inventory and absorption rate in the real estate market. Demand is the desire to purchase a commodity. A demand analysis includes an examination of location, demographics, and purchasing power.

By analyzing your competitors and you will discover the top players in your market area. Position your company to take advantage of their weaknesses to increase your market share.