Real estate succession planning

How to sell your real estate practice

You’ve worked hard as a top producer for years and you’re thinking about winding it down. However, there is a lot of existing value in your book of business. On the flip side, there are young, up-and-coming agents who would be very grateful to cultivate your existing client base. How do you maximize the value of your business as you plan to retire?

  • Create a timeline. How much longer do you want to be working? Is it a matter of months or a few more years? The timeline for your personal goals will drive the process.
  • Identify top-producing agents who will mesh well with your client base. By selecting a top-producing agent with a reputation for closing deals, your legacy and potential income stream may be greater.
  • Create a fluid marketing plan for the transition between the seller and buyer. The buying agent should be coached on all the important nuances of the seller’s client base such as communication style, personality, and goals.

Structure the sale as immediate or gradual.

  • Gradual buy-out: Create a buy-out plan based on performance. One way to structure the sale is for the buyer and seller to work together for the first year to make a smooth transition during the changing of the guard. The first year may involve a 50/50 commission split. From there, the buyer may agree to pay the seller a 30% referral fee for the second year, 20% for the third year, and 10% for the forth year.
  • Immediate lump-sum payout: Retain the service of a professional business valuator to determine the sales price. One popular valuation method is a multiplier of the current income with the common multiplier being three times current net income. Say for example that the seller currently earns $100,000 in commissions each year, the suggested sales price using this method would be $300,000. Depending on the track record of the buyer, he or she may qualify for a business loan for the buyout.
  • Protect yourself. A solid sales contracts outlines whether the seller can still practice real estate or contact his or her client base for real estate sales after the sale.
  • Work with a broker who will assist in the transfer. It’s important that the broker is on-board with the business sale. Compliance, escrow and marketing support will be key for both parties to be successful in the buyout process.

For more information, contact Teresa Grobecker, Broker officer of Grobecker Holland International: direct: (415)-259-7232