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January 30, 2007

Selling a Real Estate Practice: Plan for Profit

Selling a real estate practice is easier said than done. Few I have ever met, at the agent level, have been successful in doing what I have heard advocated over the years by some instructors (often instructors who have little experience in listing and selling themselves and who did not build and sell a real estate practice themselves).

I successfully sold a tax practice, a financial planning practice, a property management practice and continue to receive referrals on sale transactions.

If you develop a steady flow of leads from your web presence, that is a marketable asset. Structuring the deal itself is always a chore. Will you be selling to cheap?

If you are thinking that you will be able to sell your real estate sales business, start planning now? The bottom line requires quantifying the bottom line. Here are a few thoughts.

Look at a property management practice should be easy enough to sell as the revenue can be quantified. Having said that, what do property management practices sell for? An amount equal to the annual gross revenue? One and a half times the annual gross revenue? (a property management practice can also be a great source for future commissions).

When one sells commercial property, it is usually priced by a factor of the net income and the income is examined in three areas:

Quantity - the amount collected

Quality - financial stability of the tenant

Durability - the term of tenancy (long-term leases are preferred since reduce future vacancy factors and thus increase overall quantity).

A real estate sales business is a little more difficult to quantify. I think, however, it is important to have more than a digital database of names and contact information. Other facts about the client base should be important factors as well.

Amount of new business is part of the "value equation" as well as repeat business from your database. Look at the idea of "Quantity, Quality, and Durability."

As for the software you use to do this, Top Producer and Online Agent are not the only options and often, because of their steep learning curve, are not the best choices (and just because someone is 14 years old does not mean they are better at learning software than you are, especially industry-specific software).

The concept of bringing in your successor over time also makes some sense to optimize the transfer of your business because you are in a personal service business and your database alone is not very personal.

A "turn over process" will maximize the success of the person buying your business which should mean greater value for you in the sale.

And let's not forget the terms of the sale. How much down, amount and number of payments, etc.

I am an advocate of preparing to maximize the asset one builds in their business over the years and to do so requires, IMHO, a lot more thought, preparation and detail than I have heard discussed by many who advocate the "idea," which is a sound "idea." If one wants to truly maximize this opportunity, the more you can determine long in advance of the sale will help you with the process and the pricing when the time comes to "cash in."

(or cash out :-)

(Saul Klein is CEO, Real Estate Electronic Publishing Company, Home of RealTown.)

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