Real estate agents want their happily ever after: a post-career life with the stability that a bucket of money or residual income can bring. The road to a secure future isn’t clearly marked in real estate, the paths at agents’ disposal more like winding capillaries — a set of sprawled options realized through careful planning, the earlier the better.

With no one-size-fits-all solution, and uncertainty around what brokerages can and will provide, respondents to Inman’s survey for our Special Report on agents’ retirement plans shared their unique methods for valuing their businesses, creating a succession plan and implementing systems that take the long haul into account.*

Timing is important

Business is getting harder to predict, said one Washington, D.C., agent: “I’m working on it but not sure what the business will be like 10 years from now.”

“The business is changing and if low inventory remains, selling a database will get harder and harder,” said an experienced agent, also from D.C.

It can be hard to plan too far in advance. “Time will tell. Depending on what is happening in real estate in 10 years, I will make my decision on if my database is worth selling,” said one respondent.

We asked about the biggest threat that a broker trying to sell the business today faces.

Respondents — more than 75 percent of whom were experienced agents or brokers — cited new real estate brokerage models, shrinking profit margins, an aging agent population and a lack of capital as their largest concerns.

Disruption in the real estate business is happening, where technology enables buyers and sellers to more easily transact directly with each other, making agents’ databases less secure, added a rookie agent from Santa Clarita, California.

Other dangers included:

Waiting too long to “hang up the spurs”

Ego getting in the way

Franchises saturating the market

A lack of diverse revenue streams

A lack of systems in place to ensure a smooth transition

Having your reputation damaged after sale

According to one experienced broker, planning to be in the business another 20 years, newer low-cost agencies are a development to be afraid of for business-owners looking to sell in the next few years. “The old model is just too expensive to maintain, and all agents want bigger splits and less from their brokers.”

The values of real estate businesses are not what they were, agreed a South Carolina broker.

“I sold my brokerage, then I bought it back, then I sold it again. The business model has changed quite a bit. The agents get a larger cut and the brokerages are not worth as much as they use to be. That is why I got out of it. I saw that the future of owning brokerage was going down. There are better investments.”

The “lead machines” out there taking people from agents’ existing databases are something agents should be worried about, too, said respondents.

“There are just too many ways for someone in your sphere to be lured away to another agent,” said an experienced Philadelphia broker with 10 to 20 more years to go in the business.

And some things never change. “Clients don’t want to be sold,” said one respondent simply.

“Clients don’t want to be sold.”

No one really “owns” clients or properties in a database; they just own intellectual property, such as photos or listing descriptions, said a New Jersey agent.

“There’s nothing valuable to sell, in my opinion. Current CRM systems don’t enable business intelligence on clients, which might be valuable.”

Confusion reigns on retirement planning

However valuable you perceive your real estate business, for a growing numbers of agents, a retirement plan is becoming top-of-mind — and they have many questions about what they can take away from their real estate careers.

What is clear from this survey is that there is a substantial lack of planning from agents on how they will exit the business profitably, which is concerning when 30 percent of agents are in the 60-plus age bracket, according to the National Association of Realtors.

When asked if they had a plan for what they would do with their client base at retirement, 34.82 percent said they would be keeping it active and sell referrals while 31.25 percent did not have a plan for their client database at all. Another 11.83 percent thought they would be able to sell their business whole.

The reasons agents and brokers are exiting is why most people choose to retire — to spend more time with the grandchildren and to take time to travel.

Our respondents also said they would be leaving the industry due to changes in the business, too much federal regulation, stress, financial unpredictability, declining margins, technology and a lack of respect for the profession.

Of our respondents, 12.3 percent were planning to retire in the next 1 to 4 years, and a further 10.7 percent planning to exit after 5 to 10 years.

And of these, it seemed that a number still did not have all their ducks in a row.

“I have no idea how to go about selling my business,” said this Miami broker frankly, planning to retire at 66 in a few years’ time after working part-time for a stint.

“I have no idea how to go about selling my business.”

This respondent was having difficulty getting their head around selling anything of their business when they came to retire.

“I owned two retail stores and sold them both. Real estate is different. It’s all about me; I can’t sell ‘me.’ It’s a job, not a business. I could sell referrals.”

For those planning to sell their database or their brokerage, more than 45 percent did not have a partner or a buyer in mind, and another 26.5 percent did not expect to sell their database or their business at all. Meanwhile, 27 percent had a buyer or partner in mind.

Respondents were relatively optimistic that it would work out in the end, many hoping to hand over to a younger like-minded agent at their brokerage.

More than 31 percent of those surveyed said they thought that it would be moderately easy to transition their business; 30 percent thought it would be neither easy nor difficult; and 18 percent thought it might be moderately difficult.

Some stated their lack of plan to sell their book of business was because they had good savings in place for retirement without a plan.

As this experienced Chicago broker explained: “Most agents I know just give up the business and don’t sell their database. Probably because of additional income from investments, Social Security or additional partners income.”

We found property investments (57.6 percent) were the most popular form of retirement plan for agents, others relying on personal savings (50.7 percent), SEP IRAs and individual 401k (both 33.7 percent), simple IRAs (21.8 percent) — and 17.4 percent of respondents intended to benefit from their spouse’s retirement plan.

Another 16.5 percent said their retirement would be partially funded by their franchise/brokerage revenue or profit sharing.

Many brokerages are doing little to help retiring agents transition

The fact that they have good savings and investments may persuade some retiring agents not to bother with putting a value on their real estate business and selling it, but it seems like a waste to be missing out on useful income for their old age.

And for broker-owners and managers — the ones who feel the pain when a big producer leaves — it is something that doesn’t bear thinking about. Yet a surprisingly large percentage of brokerages are doing nothing to help their veteran agents transition their businesses to up-and-coming junior agents.

A number of respondents said they were looking for information on how to manage their eventual exit from the industry, and almost half of respondents felt their brokerages were doing nothing to help them transition into retirement or were not aware of a program on offer.

Some companies — including Keller Williams, EXIT Realty and eXp Realty — were said to be the exception, seen as having systems in place linked to recruiting agents.

In some offices, Re/Max was said to be pairing up veteran agents with junior agents with the idea the older agent would pass on their business to a junior agent in time.

Some brokerages were said to be giving their agents information on building a real estate portfolio but did not have agent transition programs on retiring. And a number of respondents were still recovering financially from what the 2008 Great Recession did to their real estate investments, in some cases delaying retirement.

As a successful Austin, Texas, agent with more than six years’ experience put it: “We are on our own. It’s a terrible industry for retirement planning.”

“We are on our own. It’s a terrible industry for retirement planning.”

One Arizona broker is moving companies and looking forward to more support on retiring from her new brokerage.

“My current brokerage offers nothing. My new brokerage has systems in place to help with transition,” she said.

Where brokerages should be

To do nothing as a brokerage is simply not good enough, said Joseph Rand, one of the managing partners of Better Homes and Gardens Real Estate – Rand Realty in New York and a passionate advocate of establishing a transition process for retiring agents.

Rand said it may not have occurred to brokerages before now, but those successful agents who have built businesses within brokerages rather than setting up on their own in the 1980s would be heading for retirement in the next 10 years — and these are valuable businesses that could be lost forever if brokers don’t step up.

“The industry has not established a procedure for transitioning a business for an agent who wants to retire out. It’s a time bomb that some of the most productive agents are leaving the industry in the next 10 years and their business will be up for grabs,” he said.

“They have built a meaningful book of business that they should be transitioning over five years, and brokers should be helping them do it.

“The win-win-win is the agent transitions out, the junior agent builds their business and it keeps the clients intact. The client, used to working with the same agents, get some continuity.”

While there is an established route for brokerage owners who want to sell their businesses and a ready market, there is not a ready market to sell business for agents, said Rand.

A number of respondents in the survey said that their database didn’t feel rock-solid, with lead generators and internet leads muddying the waters.

“If you are a real estate agent and your business is entirely reliant on internet leads, you have nothing to sell. There’s no book (of business) there. If you are an agent that has personal referrals, a reputation, a brand, a website, a Facebook page, and those generate business for you, then you have something of value,” said Rand.

“If someone can acquire your mobile phone number, your website, they can get some polish from your reputation, can start marketing, then transition, you are no different from a doctor or a lawyer that has a book of business that can be sold.”

At Rand Realty, they already have a number of agents who are interested in exiting within a 5- to 10-year window and are documenting transactions so that every year they can show where their business has come from.

Succession as a CRS elective

Meanwhile, frustrated with the lack of direction or succession plan for agents in the industry, Rob Mygatt, a partner with The Group, based in Fort Collins, Colorado, has set up elevatetransitions.com, a training and retention tool that helps agents build saleable businesses and offers succession ideas as a CRS (Certified Residential Specialist) elective.

“If you build your business with relationships, not just transactions, you will have something that is important and valuable,”he said.

Brokerages who do very little to help their agents transition are taking “a grand financial risk,” said Mygatt, previously a global trainer for Hewlett-Packard.

“Having a top producer just walk out the door without a succession plan is basically a financial disaster and a tragic waste,” said this experienced associate broker, planning on retiring within four years.

Mygatt thinks that agents are disorganized about their retirement plans because they live in the present and also because of ego — they don’t think anyone can replace them.

In his own case, he has been working with a protege for two months, who, after three years will be well up to speed, he said. He also has an excellent administrative assistant.

When he retires, he will maintain a profile in the community through his work with charities and expects he will get around $25,000 to $35,000 a year of residual income.

“It’s about creating a legacy,” he said.

“It’s so obvious, but no one is doing it,” he added.

In explaining the lack of action coming from brokerages, they tend to be “myopic,” and they don’t want to talk to their agents about retiring largely because they don’t want them to retire, said Mygatt.

He thinks it is changing. “Companies are beginning to realize if they don’t have an effective transition program, the big producers are going to leave, and with that, all the power leaves. The community feels rejected, confidence in the brokerage goes down — lenders, home inspectors, all the members of the community are affected.”

Step 1: Figuring out how to put a value on your business

The first step, while the industry catches up, may have to come from the agents. And for those serious about putting a value on their business, this is something many agents need help with. As four respondents joked when asked what their business was worth: “Priceless!”

Responses from the survey showed around 25 percent had no idea how to value their businesses.

“People around here don’t seem to sell their business or database,” said an experienced broker based in Seattle, Washington. Some said they were planning to ask a third-party appraiser to take a look.

Of the respondents, nearly 40 percent were trying to build a saleable business.

And for those hoping to sell their business as a whole, 29.7 percent said they would keep their business active and sell referrals, while 28.6 percent did not have a plan for their business.

According to Virginia-based executive coach and trainer Chuck Boles, president of The Chuck & Buddy College of Business Knowledge, a successful agent is often evaluated by others on the number of sales volume they settle — and that is not what business buyers are looking for.

“That’s not bankable; the only thing that is bankable is cash flow and profit history.”

He urges agents to create a database in their real estate practice that allows them to do an annual valuation — a rolling five-year historical average of their business growth patterns and values in key areas of their practice.

The executive coach does not hold with the referral system.

“The industry is too hung up on the old way of doing it, which is totally non-business based. Attorneys, dentists, CPAs and the like sell their practices because they are taught to build something saleable from the outset of their careers.

“The real estate industry focuses on making ‘transaction-to-transaction heroes,’ where success is recognized based upon the number of transactions and number of listings. That’s ego-building, not business-building,” he said.

Boles suggests putting a value on each of your clients to get an idea of how truly valuable each client is.

For instance, an A+ client is someone who has bought a home with you twice and referred you twice, so is worth, say, $1,000, while an A client is one who has done one transaction and one referral, worth $750.

During the 6 to 12 months that the business seller and the new owner are working hand-in-hand, that new owner should be introduced at least twice to the A+ client and others at different tiers.

“You are conveying the core values of client base to the custody of the new owner — passing the baton,” said Boles.

Boles and other respondents stressed that the person coming in must be compatible if the transition is to be a successful one.

“To be ultimately successful, the transition must be client-centric and for it not to be about the money or growing one’s book of business,” he said.

The client-centric transition is highly rewarding and sees everyone winning due to its continuity.

Step 2: Find good examples of agent business transitions in your market

For those veteran agents looking for inspiration, it’s a good idea to look around you — in your local market or further afield — for good examples of successful real estate business transitions.

A number of respondents were building saleable businesses in various ways and were happy to tell how they were doing it.

“We have a team and are putting systems into place to make the team, brand and database saleable when we retire,” said one respondent.

“I am building a team that will sustain itself without my consistent attention. In addition, my company, eXp Realty, has a strong team-building structure to help maintain ownership through stock and revenue sharing,” said an experienced agent from Phoenix, Arizona.

This entrepreneurial agent from San Jose, California, planning on moving on to other things in 5 to 10 years’ time, has it all mapped out.

“It will take three to five years to build systems, and an administrative hub and agents locally and in other locations. At that point I should have a business worth buying. I am also building software to support this which I will use in my business and sell. That will become my next business.”

Owning websites and a strong lead database will make a business well placed for sale, said an entrepreneurial type from Arizona.

This Ann Arbor agent is approaching it like any other business: “I’ve hired a CEO who will continue to run my team after I step away from primary production. My business had been set up to continue without me at the helm; however, I’ll still be involved in the background.”

One newer agent from Blaine, Minnesota, plans to eventually start a brokerage rather than starting a team because it “feels more scaleable and saleable.”

An experienced South Carolina broker, expecting to be in the industry for a further 10 to 20 years, said he has always considered an exit strategy from the beginning.

“The company name may not based on my identity; you can Google phone numbers that can be forwarded. It’s about building the brand, not the individual.”

You may not be planning to sell anytime soon, but having the disciplines in place will save you a whole lot of headache down the track.

“I have no intention to sell, but saleable business metrics still apply: repeatable, scaleable, consistently increasing revenue and a database of ‘reference-able’ customers,” said one well-prepared respondent.

You need a system

It takes work, systemising what you are doing.

According to this Denver, Colorado, respondent with one to four years left in the industry: “We worked for two years with this goal in mind — really cleaning up our bookkeeping practices and documenting as much as possible of our systems and processes.”

This self-aware Connecticut broker knows what needs to be done. “I must prepare it by making the business more system-based and having a really great database as opposed to a disorganized system that only I can understand.”

For a book of business transition to go well, it takes consistent follow-up from the outgoing agent after the handover and real care in making the right match in the first place.

It has to be proven to be a very steady business with referrals, said one respondent. Leads are so cheap now from online sources that buying someone else’s relationships and expecting them to benefit you in the same way is harder to justify.

A certain amount of follow-up after the transition is advised, and ensuring that the agent who got the database does the work and is honest in any transactions is important, noted one respondent.

“When I transitioned out of the Portland area, I had to keep in touch with the database I sold to ensure I was getting the referrals. Agents forget where they get referrals from,” said this seasoned California agent.

Several noted that in order to collect referrals, an agent still needs to have a license.

It was not surprising, then, that the majority (68.7 percent) wanted to keep their real estate licenses after retiring, with just 6.25 percent saying “definitely not.” Meanwhile nearly 46 percent planned to maintain their database after they formally retired.

Cases where the outgoing agent has had a hand in training the incoming incumbent were cited by respondents as likely to go well.

This Florida agent with just a few years to go said: “Many people just refer their database out to another agent outside their company. I am hoping my two existing agents, whom I personally have trained and work with as a team, will take on my database and pay me a referral fee. My two agents are on board with this plan and like the team approach we currently have going.”

An experienced Westport broker had seen it done well where brokerage firms were sold to larger players, such as NRT.

The right equation, said one respondent, was a four- to five-year transition planner with the new buyer making a substantial down payment and the seller financing the balance.

“I’ve seen several go well, locally,” said an experienced North Virginia agent. “Some were purchase price-based; others were a percent of every transaction. Both seemed to work.”

This New Hampshire broker has had a good experience with a sale to Keller Williams.

“I sold my company to Keller Williams almost two years ago. It was a very good culture match and went well. Still is.”

Culture is crucial. This positive example, which played out in Colorado, shows the importance of finding a like-minded buyer.

“I owned a boutique brokerage of 80 agents, and I’m watching how others our size made the transition.

“For us, maintaining the culture and spirit of our team after the sale was critical. We purposely searched for a buyer that felt the same way. Just sold the whole thing.”

Family handover can be the most seamless

For those who already had a buyer in mind — and nearly 28 percent in our survey did — many of them had a family member they were planning to pass the business onto.

A number of respondents felt that those passing on their business to children had the best chance of success.

“Parent-to-offspring, things tend to go very well. It’s very prevalent. Most others are shaky. People all know several Realtors,” said one respondent.

“With family-owned brokerages, the children are groomed to take over the business and the perception by clients is that Mom or Dad still own it,” commented another.

For others, without a family member to hand over to, they might have a type of person in mind.

“I have a buyer ‘persona’ in mind, not a specific buyer. I will market it on bizbuysell.com and word-of-mouth,” said this successful broker from Austin, Texas.

Meanwhile, if you are a young agent hoping to buy a book of business from a retiring agent, make an effort to get to know some in the office and sell yourself to them. You may have something to offer them.

This Washington agent, preparing to retire in the not-too-distant future, said: “I looked around for the past few years and chose a new agent who was self motivated, outgoing, under 30, well-versed in social media, and offered to mentor her for the next few years to be sure she was up-to-speed to take on my client base.”

Lay the groundwork for a successful transition years in advance

If you really want to successfully transfer that book of business, a point made by a number of respondents was to make the transition out of the industry gradually — for the sake of the agent taking over, the clients and the brokerage.

More than 20 percent of respondents felt that the handover would take less than a year; 14 percent thought it would be closer to a year, and 13 percent estimated that two years would be wise.

This Cambridge, Massachusetts, agent is setting things up well in advance, which is what many advise.

“I’m looking to hire an assistant now who wants to take over business in five years.”

An Indiana broker, planning to sell his whole database and part of his business, has identified his successor even earlier than that.

“He has been working for me about 10 years. I paid for him last year to go through the Realogy Ascend program.”

This broker has made his successor a general manager (GM) and has put him in charge of recruiting so that he will already have a great relationship with many of the agents.

A well-organized experienced Florida agent has laid out the game plan:

“It will be a three- to five-year graduated sale, and a certain percentage of the gross revenue would come to me each year. By referring out business initially and eventually selling my database, gradually, I hope to find a good agent to work with for a year or two and sell the business to them after the transition,” she said.

Step 3: What not to do — when the transition goes badly

For ideas on what not to do, these veteran agents and brokers had plenty of stories. Hanging on for too long was seen as a common mistake.

“I have seen owners of brokerages try to hang on when they should have sold. Within a year or two, their business is worth nothing. I see that over and over again. Sell when it is hot, not when it is cold,” said a seasoned South Carolina broker.

“I have also seen brokerage owners just close down and not sell. They have a meeting and tell their salespeople to go wherever. That is a mistake. Many could have sold for something and rolled into another company.”

“I have also seen brokerage owners just close down and not sell. They have a meeting and tell their salespeople to go wherever. That is a mistake.”

Another striking example of what not to do from a respondent: “I know an agent who got into a multi-year litigation because the retiring agent started practicing real estate in a new area and went back to marketing her old database while claiming the team that took it over was underpaying her.”

Leaving town the day after you hand over is not such a good idea either.

“A colleague sold her database with installment payments and left town. She did not keep in touch, and one day the buyer just stopped making payments, then folded up. She was not able to restart the database and lost all her contacts,” said an Arizona agent.

As a business-owner who employs independent contractors, meanwhile, you have little control over their movement — and this can backfire in a business sale for the buyer. Your agents can be as hard to pin down as your sphere of influence.

“I have seen several brokerages sell and all the agents walk within a couple of weeks because they were not happy with the transition. As a broker, it’s very difficult to sell other agents that are independent contractors,” noted this experienced Florida agent.

Teams, which can work well with a book of business handover, also have their downsides.

“Team leaders may assume they will be able to sell all of the team’s database, while team members are more likely to siphon off that database and form their own team,” warned a Dallas-Fort Worth broker.

A number of those surveyed had rarely seen a real estate transition go well, which was worrying, they felt.

“I don’t see too many, and this concerns me,” said a San Jose agent. “This is why I am building the software company. I hope to provide support to agents who want to be worth more than their last sale at retirement.”

“I have not seen any happen let alone go well. People in our market just leave the business,” added a respondent from Green Bay, Wisconsin.

Perhaps even worse than bad examples are ones wherein a good agent simply walks away from the business.

“We had one agent with a booming business retire and not make adequate plans to pass off his client database; thus most of those people went to another local Realtor without a payout to the agent,” said a respondent.

“An agent in my office just up and retired, walked out and did nothing at all with his book of business. That’s not the way to go,” added another.

Spare a thought for the buyers of a database, too.

“I have bought one database, and for two years it was a good thing, making money. But in the third and fourth year I did not meet the minimum and I paid out-of-pocket for the minimum payment. I’m currently renegotiating the minimum payment. We both thought it would be a better deal,” said this Philadelphia broker.

Meanwhile, this is not the attitude to take.

“I would like to sell it but I think that most agents would not want to buy it, even though I am been extremely successful. They feel that those people would use someone else if I left,” said one successful California agent, aged 70.

The to-do list

Clearly, there is plenty of work to be done.

Start looking for good junior agents to partner with if you are nearing your time in the industry — that is, with five years to go, ideally.

Remember that those whom you have helped train are more likely to transition well and systemise what is working well, as well as building a history of your success and showing how you have grown every year.

To brokerages, start the conversation with your agents, awkward though it may be.

And start introducing junior agents to any ranking agents who have indicated a desire to go in a few years’ time.

To those “hanging on,” remember: There are many anxious to step in your shoes and have their turn.

As a young Atlanta agent said: “For the love of God, just let go and go be happy on an island somewhere!”

To those looking at retiring sooner rather than later, remember you just might miss this business.

“Technically I’m ‘retired’ now, but it didn’t take!” said one agent who sold her team to her son for a seven-figure sum in 2005.

“The idea was I could then retire. That lasted a week, and ever since I continue to work and also mentor.”

Another North Virginia broker with a strong work ethic added, “I’m 80 years old, have held every real estate position including three levels of senior management and have never considered retirement. This is simply too much fun.”

* Inman conducted the survey between Feb. 10 and 13, 2017. There were 448 respondents: 250 agents, 177 brokers, 4 coaches or trainers and 17 respondents who identified as “other.”

Email Gill South

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