Five Steps to Creating More Value in Your Brokerage

What can you do to get the highest dollar for your brokerage when you’re ready to sell?

by Steve Murray, publisher

In REAL Trends’ work on valuations, mergers and acquisitions, we often are asked, “What are the things a brokerage can do to create higher value in their businesses?” Based on our work in this area and general consulting with brokerage firms, here are the five steps that we most recommend:

Step 1: Determine who you are and what you want your firm to mean to agents and housing consumers. Pick a spot and focus on that—don’t try to be all things to all people. For instance, not only is it hard to be a high-quality, low-cost brokerage firm, it is nonsensical; no one will believe you for long.

Step 2: Determine the reason you own a brokerage.
Do you do it for the income, equity, or is it for personal satisfaction? Most would say that it’s a combination of all three. But, you have to pick one as the highest priority goal. One great example of this confusion is firms that say, ‘I want to have solid profitability,’ but all their behaviors scream, ‘I want the highest possible market share.’ One of the rarest things in our business is a firm that has a high market share and also the largest profit margin.

Step 3: Do these three things. To be successful, brokerage firms have to do three things. First, they have to recruit talent continuously. Second, they have to develop their people’s prospecting and selling skills. And, third,
spend less money than you have coming in. Too many brokerage firms don’t do the first and second well at all. Want to increase your value? Get good at all three. This means having a plan to do so.

Step 4: Stop chasing technology. Likely, your existing CRM and transaction management systems are fine. Leading brokerage firms have determined that technology does not provide a sustainable competitive advantage. They know that having such systems is important, but not the most important attribute of their firm. Yes, work to improve your web site, but don’t think that any advantage you may create will last long. It won’t be the reason your value goes up.

Step 5: Stop spending money on brand advertising. The fastest growing and most profitable brokerage firms in the country do not spend much money on brand advertising. In fact, they spend very little. The most profitable brokerage firms in the country spend the least on occupancy costs. Want to raise your value? Stop wasting money on institutional brand advertising and office space.

There are other areas where brokerage firms can work to raise the value of their firms. In our experience, these are the most important determining factors in value.

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