Lee Nelson is a freelance journalist from the Chicago area. She has written for Yahoo! Homes, TravelNursing.org, MyMortgageInsider.com, and ChicagoStyle Weddings Magazine. She also writes a bi-monthly blog on Unigo.com. Contact Lee at email@example.com.
Ensure Your Company Legacy Lives On
Planning for the future of your real estate brokerage? Learn why one Atlanta broker chose an employee stock option plan.
November 30, 2015
Rhonda Duffy has done things differently since founding her real estate company 22 years ago. For instance, she’s always kept business hours instead of working all day, every day. She says she wanted a family life, too. And now she’s continuing that trend of bucking the norm as she transfers her business to 29 employees through an employee stock option plan, or ESOP.
Duffy Realty of Atlanta is now employee-owned. There’s nothing that makes Duffy happier, she says, than to see her legacy continue on and be protected. But for now, she will continue to operate the company with her husband, Frank Duffy.
“This isn’t my exit strategy. It’s an exit from this phase to the next phase,” she says. “Any successful agent has a team behind them. With the 29 new owners, there is a new energy towards the future.”
All the company owners, including the Duffys, are continually meeting to come up with new ideas to keep the company strong, improve their bottom line, and attract new talent to the firm.
But employees for Duffy Realty are owners without the risks that normal owners face.
“They are what are called beneficial owners,” Duffy says. “They have no legal right to borrow money against the company or get petty cash out of the drawer. They get the stock and stock shares. They can invest that, turn it in for money, or let it grow.”
An ESOP is a company that sets up a trust fund where new shares of its own stock are contributed or cash is used to buy existing shares. Several tax benefits come along with an ESOP, including the fact that company contributions to the trust are tax-deductible within certain limits, and dividends are also tax-deductible. Employees pay no taxes on contributions to the ESOP, only on the distribution of their accounts.
Duffy believes ownership is about taking action.
“You can’t be stagnating as an owner,” Duffy says. “The way we are running our ownership means that we, as a group, vote on the future. Some of those plans will fail. Owners will feel that pain as a judgment failure.”
All 29 of the beneficial owners of Duffy Realty have administrative tasks at the business, although they also participate in the sales process that makes real estate commission for the company. She has other 1099 status real estate agents who focus solely on sales and only collect commission.
Duffy got the idea for an ESOP from her friend Tony Robbins, motivational speaker and self-help author. She had been unaware of how beneficial it could be to her and her company.
“I learned that not everybody can become an ESOP. You have to earn the right to make your company into an ESOP. It’s a milestone,” she adds.
According to the National Center for Employee Ownership, there are roughly 7,000 ESOPs in the U.S., with 13.5 million employees. The NCEO states that if a company wants to be become an ESOP, there are certain requirements: A company must make enough money to buy out an owner; payroll must be adequate to cover the purchase; the seller must be willing to sell their shares at fair market value even if the ESOP pays less than an outside buyer would; and management continuity must be provided.
Not everyone at Duffy Realty is an owner right now, but they could have an opportunity to be one based on their job performance.
“For instance, if a buyer’s agent becomes someone who is able to impact Duffy Realty with a certain amount of transactions and also mentor other agents, then he or she will be given ownership,” Duffy says.
The owners gain stock shares each year, and the shares have more value as the company pays off the debt of the sale to the selling shareholders, which is Duffy and her husband.
The whole premise of building a legacy came to light for Duffy when she won her second number one Retail Estate Agent of the Year in the U.S. ranking by realtor.com® and Zillow. She also has been the number one retail agent in Georgia 11 years in a row through sales statistics from the MLS.
“My business is something I’ve imprinted; something I’ve built and given to the younger agents now, which allows them to have a livelihood,” she explains.
When she began in the business in 1997, she felt there was a lot of room to shape the standards of the realty industry. In addition to keeping business hours, Duffy also began a payment schedule targeting sellers who don’t want or need an agent, or just needed a few of their services and wanted to get their home on the MLS. Her company accepts part of the listing commission fee upfront — $500 — and then collect a smaller fee at closing where they charge 0.75 percent of the sales price.
This serves the seller in two ways, she says: The lower commission costs give them the competitive edge in pricing and an opportunity to keep more money in their pocket at the conclusion of a sale.
That philosophy took off like crazy and continues today.
“We meet the needs of the average person who wants exposure and expertise,” she says.
Today, 92 percent of Duffy’s business comes from referrals. She’s a broker in seven states, a certified home stager, a real estate expert for several news stations including CNN Headline News, and a licensed auctioneer who does 60 to 70 charity auctions each year pro bono for the Atlanta community.
“Successful people are not going to be a lone wolf. It’s all about impacting people as you go along,” she says. “Nobody who is number one at anything is doing it alone.”