Owning a Real Estate Brokerage: Risky or Profitable?

real estate brokerage

Food, shelter, and clothing – these are the basic needs of every individual. Fulfill one of them and you’ll never run out of business. A real estate brokerage offers similar promises. However, it is a complicated business and comes with its risks.

The US real estate brokerage market is about to grow over $1 trillion within the next decade and having a tiny slice of that sounds like a promising real estate business. However, you need to be aware of the pros and cons of this lucrative business before diving into it. 

Pros of owning a real estate brokerage 

1. Increased Earnings

When you own a real estate brokerage firm, you’re highly likely to increase your income. A small yet successful brokerage rakes in hundreds of thousands of dollars in revenue while large firms bring in millions. Your success depends on the team of real estate agents you hire, and the commission fees you can negotiate with them.

For instance, the best agents can provide your clients with the best recommendations for choosing a property instead of chasing instant profits and that keeps your business solvent. It’s also important to have high-value clients and premium properties in your portfolio by cultivating meaningful and long-lasting business relationships within your community.

2. Increased Profit Margin

After accounting for administrative expenses and other operational costs, brokerage firms still get to keep a hefty chunk of their revenue as profits. When service industries have razor-thin margins, this one rakes in double digits in profits. That means if an agent sells a half-a-million-dollar property, he or she secures a profit margin of around $50,000 or more.

After taxes, split with the agent, and other fees, you’re still left with a decent margin to grow your business. That’s why hiring more agents for an increased number of deals with a smaller profit on every deal seems like a probable real estate trend in 2024. 

3. Freedom and Flexibility

When you open a real estate agency of your own, you’re the boss and that unlocks more flexibility and freedom when it comes to working hours. You can also decide to extend this flexibility to your team. Instead of assigning them with fixed working hours, create quotas and targets for them and incentivize them accordingly.

Real estate agents spend most of their time building relationships at odd hours. They may need to play a golf match with potential clients in the morning, show properties during the afternoon, and dine with clients in the evening. That’s why flexibility is key to productivity and profitability.

Risks of real estate brokerage:

1. Uncontrollable Market Forces

Every real estate brokerage isn’t successful. You’ll face several hurdles in your way and some of them include uncontrollable market forces. For instance, real estate prices are predicted to increase in 2024 and that makes it a great year for starting a real estate business. However, bank defaults, economic tension with rival countries, and a recession may change things very quickly.

Apart from that, there are legal risks. A buyer who feels wronged or unsatisfied may drag you to court or you may face severe charges and fines due to a compliance mistake. That’s why a real estate brokerage is a profitable yet tough business to survive in.

2. More Responsibilities

While you worked as a real estate agent, you may need to take more responsibilities as a s founder or partner of a real estate brokerage. They include administrative tasks, training new agents, handling payroll, renewing brokerage licenses, and so on.

Owning a real estate brokerage can be profitable as long as you play your cards right. It’s important to be aware of the risks so that you can stay prepared for them and build safety nets around those contingencies.

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