Selling Your Real Estate Practice

Or maybe you want to buy in?

September 1, 2001

As real estate salespeople near retirement or contemplate a lifestyle change, they may wonder if there is a way to cash out of their business building years. Because they aren't brokers, there isn't a franchise or an independent broker waiting to buy their goodwill. But buyers exist. Salespeople who are new to the area may be wondering how they can develop a profitable practice. Is there a way for these sellers and buyers to come to a meeting of the minds?

Two salespeople, Colorado practitioner Alisa Hagner and North Carolina practitioner Sally Lancsek-Holt, tell how they met their goals on both sides of the table.

Alisa--Buying A Real Estate Practice

Ten years ago, Alisa moved with her family to the Denver area. Working as a technology assistant to a brokerage, she taught early contact management software to salespeople. One practitioner approached her and said that she wanted Alisa's help with developing a database, so that she could sell her business.

"You can't sell a business out of a file," says Alisa. "As I got into the project, I got interested in buying the business myself." The two women reached a seven-year agreement and based the sale of the business on the referral concept. The first year, Alisa would pay 30 percent to the practitioner on sales generated from the database. The second year, the percentage dropped to 25 percent, and to 20 percent the third year. Years four through seven were to come in at 10 percent.

"I was already a salesperson, so I had my own contacts," says Alisa. "We agreed that I would buy her database and that when I made a sale on one on her referrals, I would send her a check from closing.

The practitioner asked Alisa to forward the referral fees to a trust fund that she had set up for her special needs daughter. The practitioner helped Alisa become known to her clients by sending them periodic letters generated from the contact management software, introducing Alisa and encouraging them to call her with their real estate needs.

The arrangement paid off for both. "The first year, I sent her over $25,000," says Alisa.

Before the terms of the contract were fulfilled, the practitioner passed away, but she was comforted knowing that her daughter would be cared for, Alisa says.

Sally--Selling A Real Estate Business

In her early fifties, Sally Lancsek-Holt was far from being ready to retire, but she was ready for a lifestyle change. She married her former business partner Bill Holt, and they relocated from the Philadelphia area to the Outer Banks beaches of North Carolina. The only problem was that she was a top producing salesperson, an inner circle achiever for her franchise. How could she profit by leaving?

"The biggest problem is determining a value for goodwill," says Sally. In Sally's case, finding a ready buyer for her business was easy. Her partner, Elaine Punchello, had worked for Sally as an assistant while still in high school until she was made a partner years later. Sally and Elaine came to terms over Sally's real estate practice - 30 percent on the total business for a period of five years. Elaine didn't have a practice separate from the clients she met through Sally, but she had the advantage that she was already well-known to them. Therefore she will pay Sally a referral fee on all sales.

But Sally isn't exactly starting over from scratch. She and Bill are reteaming, and plan to build a business with the lovely vacation homes on the Outer Banks. "A lot of former clients may be interested in buying second homes here," says Sally. Her agreement with Elaine allows her to market from her database of clients to sell them vacation properties.

If you are interested in selling your business here are a few tips:

  1. Make sure your client/customer list is current. The more accurate and up-to-date the information is the more valuable it is.
  2. Beef up the content on every contact. A buyer is going to want extensive information, not just the phone number. Make sure you have the names and birth dates of the clients, their children, and all relevant information on the home they bought. The more data fields you have completed in your contact management software the more valuable it is.
  3. Inform your sphere that you are retiring or moving, and introduce your buyer as someone you hand-picked to take over the business. Make sure that the client understands that your replacement was chosen because their business philosophy closely matches your own.
  4. Allow the clients to contact you if they wish.
  5. Make sure your replacement is techno-literate because they will be using the database you create for him/her.
  6. Only sell to people with a solid track record for doing business, so that you will know that your clients are being serviced the way you want them to be.
  7. Decide whether you want to maintain a license and whether you would like to contribute occasionally to the business. Make sure the replacement is compatible with your new goals.
  8. Get it in writing.

If you want to buy a business:

  1. Find out what the selling agent is willing to let you do to help you buy the business. Can you work as his/her assistant for a time to get to know the business, and to cut down on the years or amount you'll be paying in referral fees?
  2. Look for a retiring/relocating agent who keeps good records. You are paying for a database, it should be current and accurate.
  3. Every circumstance is different. Find out if your selling agent plans to continue carrying a license, and what that may mean to your business.
  4. While contracts vary, the norm may not be what Sally and Alisa chose to do. You may be required to pay cash up front with fewer years of referral fees.
  5. Get it in writing.

(c) Copyright 2001 Realty Times. Reprinted with permission.

Blanche Evans is a writer/editor and CEO of evansEmedia. Formerly, she was a senior editor with Realty Times, where she was named by REALTOR® Magazine as one of the most influential people in the real estate industry.

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