Am I a Buyer?

Previously, we discussed what a broker should consider when selling a brokerage. As promised, here is our take from the buyer's point of view.

Buying another brokerage is a great way to recruit agents all at once instead of piecemeal. However there are many pitfalls as a buyer if you aren't careful.

Here are a few things to consider when you buy a real estate company:

• Why do you want to buy another real estate company? Too often, I see brokers expanding for the sake of expanding and, many times, the results are disastrous.
• Have your considered the culture of the real estate company you want to buy? If you are a high-end boutique company trying to buy a discount brokerage on the other side of town with half your average sales price, that could be a problem. Although that might sound like an extreme example, I have seen it happen and it's not pretty. Culture is one of the most important things that are necessary for a successful merger or acquisition.
• Does your target have similar compensation plans? Like culture, if the two companies have radically different compensation plans, you are asking for trouble. Let's say you are a traditional broker with a relatively good company dollar of 25% and you are trying to buy a competitor that is very loose with his compensation including offering desk fees to some of his agents and has a 10% company dollar. How are you going to get his agents to take less commission or, conversely, what if you have to grandfather a few people and your agents start asking for the same deal?
• Are there potential synergies between the two companies? The best reason to buy another real estate company is to acquire profit. What if you could also increase that profit because you could close offices and/or reduce staff? This should be one of the big things you look for when you are creating a target list... how much financial synergy could there be?