What’s Your Business Worth?
In part one of our REALTOR® Retirement blog, industry consultant and recruiter Judy LaDeur started sharing some insights from her training module How to Successfully Sell or Acquire a Thriving Real Estate Business.
One of the burning questions is, How do you determine the price of your business and get paid?
“It varies based on marketing conditions,” says LaDeur. “Typically, the number is one-and-a-half times the amount of income that (business) generates, but take a look at the past few years, so that you’re looking over a range. If your business generates $200,000 in income, then it’s worth $300,000.”
Most buyers don’t have the money to pay you up front. The easiest and most successful solution is to pay a percentage of each closing until the agreed-upon sales price is paid in full. Both parties sign a contract, along with the broker, saying that whenever a closing occurs, the selling agent will receive 15% of the buying agent’s commission; this applies to ALL closings.
“If I’m selling my business,” LaDeur continues, “then every time the buyer has a sale, I collect 15-percent until my $300,000 is met. It’s like buying a car. You get the car when you sign the contract, but make payments until the car is paid in full, then it’s yours to resell. The same applies here; once you have paid for that business, the business is yours to sell again when you want to retire.”
Earning residual income on top of a buyout is as simple as referring new clients. Once you have sold your business, anyone else that you meet moving forward is a potential new client and may be treated like a referral.
LaDeur suggests a 25-percent referral fee, but has one very important caveat, “You cannot collect money, whether it’s through the sale of your business or through referrals, unless you maintain an active license because it’s being paid on commission.”
I am taking 25% of all listings that were in place or will be in place shortly. I am taking 25% of the gross income on any rentals that are currently in place. Any new tenant, the new agent will keep. Any buyers that I refer, I am also taking 25%. – Retired Arizona REALTOR® Sandy Benesch
How soon into your real estate career should you start preparing to sell? “From Day One,” advises LaDeur. “There are two things every REALTOR® should do to have a nice, saleable business down-the-road; one, keep an up-to-date contact management program, and two, market yourself to build client confidence.”
If you think you have found someone to buy your business, or you are purchasing another agents business, invest in a behavior assessment to test compatibility. Your clients like you for a reason, Finding a buyer (or seller) that shares a style similar to your own is very important.
As LaDeur puts it, “Clients should feel the same about that person as they do you.”
In part three of this series, we examine a “broker beware” scenario that could make or break your business.
Related articles:
Lay Groundwork for Your Exit Strategy – REALTOR® Mag (Nov. 2017)
Life After Real Estate – REALTOR® Mag (June 2017)
NAR’s Sell Your Business Tool Kit Tags: Judy LaDeur, retirement, selling business