Avoid Threats to Your Livelihood

The biggest risks for brokers typically arise from three sources: loose financial management, legal issues, and lack of oversight. Here are risks to avoid.

March 1, 2012

Getting loosey-goosey with money. Real estate lawyers are seeing more brokers get into trouble by dipping into their escrow account to cover short-term expenses or by having such weak financial controls that sales associates have gotten away with asking clients to write checks directly to them, rather than to the company.

Commissions you can’t sustain. Don’t feel pressured into top-heavy commission split agreements. If you’re providing generous company perks, determine whether you’re still profitable offering top producers top-of-the-line splits and lower producers better-than-basic splits. Similarly, consider whether it’s smarter to focus on splits or on net income during recruiting.

Affiliating or retaining unwisely. Affiliating mediocre salespeople doesn’t increase your bottom line—nor does retaining them. Make the difficult choices to keep your distance from salespeople who aren’t going to make your company stronger.

Insufficient or no insurance coverage. Poor management often leads to multiple claims against your company and thus increased insurance costs. That, combined with an uncovered insurance claim (say your policy doesn’t cover vacant land, or the claim relates to a violation of a federal statute, which are typically not covered by insurance) or no insurance at all, can lead to the demise of your brokerage.

Poor oversight of experienced salespeople. Letting experienced sales associates operate without supervision could lead to trouble. Review their transactions. Veteran sales associates need oversight and training as much as new sales associates—if not more—because they haven’t just emerged from real estate school where they learned about new laws and regulations.

Sources: Bruce H. Aydt, ABR, CRB, senior vice president and general counsel, Prudential Alliance, REALTORS®, St. Louis; David Fialk, ABR, CRS, broker-owner, Choice Realty Co., Iselin, N.J.; Jamie Billotte Moses, Fisher Rushmer Werrenrath Dickson Talley & Dunlap, Orlando, Fla.; Bill Richardson, managing broker, The Keyes Co., Boca Raton, Fla.; Daniel Villazon, principal, Daniel Villazon PA, Celebration, Fla.; Alex Wang, CRS, e-PRO, founder and broker-owner, Rainmaker Properties, Palo Alto, Calif.; Dax Watson, Mack, Drucker & Watson, Phoenix.

freelance writer

G.M. Filisko is a Chicago area freelance and former editor for REALTOR® Magazine.