Valuing small brokerage firms in today’s market

Despite merger and acquisition activity largely muted on a macro scale, local M&A is seeing plenty of action in residential brokerage.

Ebbs and flows in the housing market are as certain as the sun rising in the east. Regardless of where we are in these undulations, there will always be a place for M&A. Obviously in weaker markets, multiples may not be as high and cash flow may not be as robust, which is not a good combination for valuations, nevertheless sellers and buyers can still be found.

Necessity vs. Opportunity

Sellers in today’s market don’t tend to be opportunistic sellers like we see in stronger markets, more so they’re owners who need to make a move out of necessity. Perhaps there’s a health issue, a partnership dispute, retirement is beckoning, or an owner doesn’t have the fortitude to go through another downturn.

In the latter case, it could be a situation where a firm is struggling financially, or that the owner is an agent who wants to go back to listing and selling and wishes to leave the operational hassle of running a brokerage to someone else. 

The vast majority of small brokerage firms have owners who continue to produce, and in weaker markets, these are the types of firms that are prime candidates for those brokers looking for acquisitive growth in their local markets.

On the other side of the coin, buyers are always lurking, regardless of the state of the market.  Obviously in down markets they tend to be more careful in how they spend their money, as more than likely their firms are also feeling some level of pain. 

Gaining marketshare in today’s market

Rather than capitulating like some of their competitors, they’re embracing Warren Buffet’s mantra of “being fearful when others are greedy, and greedy when others are fearful.” As the latter element of this Buffet quote implies, some buyers seek to capitalize on the fear brought on by weaker markets in order to strengthen their own long-term prospects.

At RTC Consulting, we’ve been telling our growth-minded clients to gird up for tremendous opportunities since the middle of last year. Many of the small firms in their markets have been and will be struggling mightily in a downturn. Because of this, some may be quite amenable to finding a new home for their agents.

While some of these firms may be in dire enough straits that they are willing to walk over for minimal financial consideration, most buyers are still going to need to pony up. As long as a firm has agents that are producing, there is going to be value. 

Fortunately, valuation in our industry, especially for smaller firms, is not super complex. 

We recently updated our popular e-book on “Valuing Small- to Medium-Sized Brokerage Companies.” Whether you’re a potential seller or buyer, this book is a great guide for understanding what you may be worth, or what you should be paying. 

Download your e-book today, for FREE, on our website.

Some of the finest firms in our industry got to where they are today by leveraging growth opportunities in weaker markets. 

One opportunity to learn how some of these firms did it is to attend RealTrends DealMakers and Gathering of Eagles conference in June. There will be panels on “How to Find and Develop M&A Candidates” and “Local M&A as a Means of Growth” to name just a few. 

Join us in Austin, Texas for this spectacular event!