16 Common Mistakes Brokers Make When Opening Their Own Firms

Brokers spend a long time honing their craft in the industry before striking out on their own. Their vast wealth of knowledge makes them great advisers to help investors explore investment opportunities.

However, when a broker decides to open his or her own firm, they overlook specific critical details. Opening a brokerage firm is different from investing, and applying the same thought to both results in frequent mistakes.

Luckily, these pitfalls can be easily avoided by asking the advice of more experienced individuals. To help new brokers considering opening their own firms, 16 professionals from Forbes Real Estate Council explore what these common pitfalls are, and how you can avoid them.

1. Doing It For The Wrong Reasons

Make sure you’re doing it for the right reasons. If you are simply thinking about how to save on commissions, think instead about how to leverage your existing firm as a platform for growing your business and growing your top line. – Mark Chung, Verdigris

2. Being Undercapitalized

A common mistake is being undercapitalized. It isn’t a problem unique to the brokerage world, but it is a classic startup business problem. Things are exacerbated when the business involves transaction-based compensation that takes months to secure and close, which is exactly what real estate brokerage is. – Gabriel Silverstein, SVN|Angelic


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3. Trying To Do Everything

From marketing, recruiting, bringing in business, working with clients themselves and more, brokers try to do everything themselves. An important aspect of success for brokers is knowing your specific area of expertise and focusing on that area while delegating out to employees or third-party companies the other aspects of the business. – Galit Ventura-Rozen, Commercial Professionals, Inc

4. Trying To Grow Too Fast

Be cautious about growing too fast. People do business with people that they like. While it’s tempting to welcome and take on any new agent, be mindful of what makes your brand and business unique and different. Attempt to set the bar high and attract A players who are committed to representing you and your values. – Jason Duff, Small Nation

5. Not Taking Time To Nurture Relationships

Brokers have to be masters at building relationships, and relationships take time. The mindset that “if you build it, they will come” is rarely successful with a new brokerage firm. A good broker will understand this and take time to nurture relationships (both existing and new). – Dave Marcinkowski, Madera Residential

6. Trying To Compete On All Things

One key to a strong start will be understanding the competitive landscape and within that, the firm’s unique position and segmented market. One common mistake is trying to compete on all things all the time as it’s tempting to do the same things other firms are doing. Over time, however, true competitive advantage lies in only a few things done differently, so focus on those constantly. – Clark Twiddy, Twiddy & Company

7. Hiring As Many Agents As Possible

It’s tempting to hire as many agents as possible for headcount and/or production. Low-producing agents can be a weight on staff and office space, while very high-producing ones may generate gross commissionable income (GCI), but less net income. Very often, the most profitable agents are the mid-level ones. They typically need less help than newbies and have lower splits than high producers. – Stacy Stateham, Stacy Stateham

8. Creating An Agent-Centric Brokerage

The most common mistake brokers make when starting their own brokerage is creating an agent-centric brokerage. This sets you up for irrelevance. Instead of putting the real estate agent as the focus of your brokerage, you ought to put the client at the center of business. Creating a client-centric brokerage will set your brokerage up for success. – Jonathan Harris, Scout Realty

9. Not Knowing Your Value Proposition

The biggest mistake brokers make is not knowing and executing on their value proposition. To create successful long-term realtors for your brokerage, you need to provide a value they are not receiving elsewhere and one they will only receive by working with you. That could be technology, leads, training or referrals. If that value is only high commission, they will eventually leave for a better offer. – Ralph DiBugnara, Home Qualified

10. Not Working With Mentors

Not working with mentors who have already done what they want to do is a common mistake I’ve seen. Success leaves clues, so just find one. Not establishing minimum standards for agents to adhere to production-wise is another mistake. You don’t need agents only hanging out, drinking the milk and eating the cookies. – Chris Prefontaine, Smart Real Estate Coach

11. Starting Your Brokerage With No Agents

The biggest mistake you can make is starting your brokerage with no agents. In my experience, the most successful brokerages are the ones that have received firm commitments from agents before opening. Open up your office with “eagles.” The caliber of agents you have on hand at the beginning speaks to the level of success your brokerage will have from day one. – Fiona Petrie, RE/MAX INTEGRA

12. Failing To Get Licenses And Infrastructure

We frequently see brokers that have great skills and contacts, but somehow fail to make sure they have the appropriate licenses and infrastructure to do business. The saying that the back office can’t make you money, but it can kill you is applicable here. Skipping time and investments in legal and accounting on the front end will certainly catch up to you and destroy anything you create. – Robert Jafek, Boomerang Capital Partners

13. Not Picking A Specific Niche

The biggest mistake I see is not picking a specific niche and just staying in your lane with that product type. Too many brokers try to be a “Jack of all trades, master of none” and it results in them being stretched too thin across varying product types. We do student housing and multifamily housing, and anything outside of those lanes, we refer to other brokers in our network. This allows us to be experts. – Sean Lyons, Jackson Dearborn Partners

14. Sacrificing Culture For Productivity

Brokers often feel compelled to drive maximum revenue from day one and will often sacrifice culture for productivity by buying tenured agents. Instead, recruit talent that fits the desired culture and nurture them as human resources for longer term loyalty and success. Taking the long view will pay major dividends. – Jeff Brown, Tahoe Mountain Realty

15. Focusing On Costs Rather Than ROI

Don’t focus on the cost of expenses rather than the ROI when it comes to business development and recruiting. Whether it is money or time that you need to invest, focus on what will yield the best ROI as opposed to how much of it you need to invest. On that note, it definitely takes money to make money in real estate, so make sure you have sufficient capital to invest into marketing, operations, etc. – Catherine Kuo, Elite Homes | Christie’s International Real Estate

16. Getting Trapped In Analysis Paralysis

One mistake I see is getting trapped in analysis paralysis. Most brokers that feel they are not ready or that they need to read one more book. You are going to fail; it’s part of the journey. Accept that, surround yourself with the right people and start now. The economy will never be right, your finances will never be perfect and you will never feel like you have enough time. Start now! – Brandon Cobb , TheHouseBuyinGuys

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