In parts one and two of our agent succession program coverage, we discussed the basics of building an agent succession program and how to value an agent’s or team’s business. In the third and final article, RealTrends covers lessons learned and developing a partnership and contract.
Building a successful agent succession plan at your brokerage requires some planning. It starts with a business foundations class and coaching to help agents and teams build a business that has value. In many cases, that coaching and education starts when an agent joins the brokerage.
From there, the brokerage must have a plan to value an agent’s or team’s business each year to determine how they are growing. Then, when the real estate professional is ready to sell, they can officially enter your succession program, where the brokerage leader helps them find a suitable buyer, draft expectations and contracts and implement the transition period.
Finding alignment between buyer and seller
Selling a business usually requires the seller to stay involved in the business during this transition phase. It’s no different when selling an agent’s or team’s business. “We have a gradual transition phase that lasts about a year,” says Richard Fino, vice president of agent success at Long & Foster Real Estate in Virginia. The process starts with choosing the right buyer and determining the motivation of the seller.
“We’ve found that the buyer and seller must be aligned in their idea of customer service and business for the partnership and ultimate transfer to work. It’s also important for the seller to have a clear idea about what they want to do once the transition period is over,” says Fino.
According to Chuck Boles, a certified mediator, business coach and founder of The Chuck & Buddy College of Business Knowledge, “The repeat and referral business history between agent and client is ultimately defined by the parties having compatible core values that define the priorities they live by. In my opinion, transferring a client base that aligns with the licensee’s core values and life priorities needs to be valued. Additionally, it is critical that the selling agent identify a buying agent with core values similar to theirs. Core values are those that focus on one’s life priorities like faith, family, friends, etc.”
Fino notes that they’ve had sellers and buyers back out half way through the transition period for various reasons, including a decision to stay in the business and finding that the fit wasn’t a good one. “One of our first deals, an agent who was in the top 5% in the nation here at Long & Foster, thought she was going to sell to someone, and then realized it wasn’t a fit,” says Fino. Because of the 12-month transition period, the two parties recognized that and cancelled the transaction. She went on to find a more suitable buyer.
Defining the agreement
Because of that first experience, he says, “We define the divorce before the marriage. If someone changes their mind, it’s clearly defined who gets what up front.” Long & Foster developed a series of contracts, drafted by their attorneys to guide both parties. “We always suggest they run the contract by their personal attorney before signing.” Boles agrees. “When you enter into a business partnership, the most important thing is not the upfront handshake, it’s the out-the-back-door handshake.” As part of Boles’ program, he recommends a Letter of Intent, Merger Partner Information Agreement that outlines approval for a credit report check and background inquiries, and a Merger Transition Timelines document that outlines month-by-month the responsibilities and actions taken by each party to complete the sale in a 12-month transition period.
Fino notes that you can’t have too much detail in your contracts and agreements. No transaction is the same and situations arise that aren’t covered in the contract, so flexibility is required. That’s why having a broker involved as the accountability partner helps the transaction move forward. “I have a series of clauses that capture certain situations. For example, one person was selling their farm, not their entire business. So, that required a different version of the contract. Another agent was moving but wanted a clause about what happens if they move back,” says Fino. “What if somebody passes during the process? Do you pay the estate, and, if so, does someone in the estate have to be licensed? All of those details matter if you’re providing a great service for your agents,” he says.
Fino notes that every transaction helps them hone the program and develop clauses to suit the new situations that arise. They completed 17 “trust mergers” so far and have about 100 agents in the program. One trend he’s noticed is that it’s not just retiring agents or those who are moving out of the area who want to sell. “People envision that this would be a larger agent selling to a newer, younger agent. It’s actually flip-flopped. Many of these agents sell to a larger team, because they think there’s a higher probability that it’s going to succeed.”
When it comes to an agent succession plan for brokers, it takes a strategic approach. But, the benefits to both the agents and the brokerage are substantial.