Do You Have an Exit Strategy?
How To Sell Your Real Estate Business
You’ve worked hard your entire life and it’s time to relax. What’s the best way to sell your real estate business?
If you have some time to prepare before you sell your real estate business, that will be helpful. The more time you have to work on a transition plan, the better. A year or two is usually sufficient if you do it the right way.
The most important piece of the puzzle is finding another agent who is compatible with the way you run your business and the way you interact with your clients.
The second most important piece of the puzzle is the continuity of marketing. If your clients have known you by your name (as opposed to a “team” name or “group” name), that’s something to consider. If you have a few years, it would be wise to start marketing yourself as a generic team name that isn’t attached to YOUR name. Alternatively, you could start doing joint marketing with your name and the name of the agent who will be taking over when you officially sell your real estate business and retire.
Think of it this way: If you have been doing business for your entire career as your first name and last name, the buck stops with you. That’s great when you’re actively working in the business and interacting with your clients, but what happens if someone takes over your business? If you leave everything in your name and then a long-time client has a problem with a transaction and calls your cell phone while you’re relaxing at the beach…what then?
AWKWARD CONVERSATIONS, that’s what.
Plus, you don’t want someone else messing with your pristine reputation that took years to build, right?
THE VALUATION CONVERSATION
This can be a little tricky, but there are really only two things to consider when selling your real estate business: Price and terms.
The price is usually determined by using a multiple of what the business made in profit in the previous twelve months. Of course, a seller of ANY product or business will think it’s worth more than it’s actually worth, so check yourself before you go into a negotiation about the price.
The most important thing to remember when going into a negotiation is to keep it simple. If you start going line item by line item to negotiate a total price, you’ll be dead in the water. Of course, there are hard assets you use to run your business (computers, office equipment, phones, signs, lockboxes, etc.) and all of those should be taken into account. Most of the value in your business is tied to your clients, though.
The value in your business is in your database, and maybe a little goodwill. Your customers are your most valuable asset, both now and after you retire. There will likely be some fallout when people can no longer deal directly with you, but a little education and a smooth transition will help keep that to a minimum. After all, the price someone is willing to pay for your business is based on the potential for future transactions, so you want to protect those transactions whenever possible.
When you sell your real estate business, the actual purchase will be cash up-front, payments over time or a combination of the two. A flat upfront fee and a percentage of commission for the next few years is a common structure. If you want a full cash payment up-front, you can expect a much lower total price. If you don’t need any up-front cash and are happy to receive payments for years into the future, you can expect a higher total price. There is no “one size fits all” and it’s helpful to be open to creative solutions here.
You will also want to take the time to think through the “what if” scenarios. What if one of you passes away before the end of your agreement? What if the buyer’s brokerage goes out of business before the end of the agreement? What if the buyer gets out of the real estate business for other reasons? There’s no way to consider all the potential hiccups, but you can think though the most likely scenarios and plan accordingly.
PROFIT SHARE AND GROWTH SHARE
At Keller Williams, we have an additional retirement program that is unique to the real estate industry. In the US and Canada, we call it profit share. Outside the US and Canada, it’s growth share. The calculations are a little different, but the general concept is the same: When you help Keller Williams grow, you receive a financial reward for that. The financial reward can last well into your retirement years. There are people who are fully retired from the real estate business because of their profit share. We have another post where you can learn more about Keller Williams profit share.