How would you feel if you spent 10, 20 or even 30 years building a business and after all your efforts, you have nothing to show for it? Unfortunately, that happens to many real estate agents because they don’t understand how to build value within their business. When determining what a business is worth, consider the following factors:
- What are the physical assets of the business i.e. land, inventory and office equipment?
- What is the goodwill value of the company?
- What are the projected profits of the company based on its past history?
These considerations are much easier to determine for agents that have already developed a successful business. For established and successful agents, value is determined by three primary factors:
- The database of information that an agent has on past clients, prospects and their sphere of influence
- How strong relationships are between the agent and their past clients, prospects and sphere of influence
- How much success the agent has had based on the above relationships.
Now let’s look at the problem. If an agent wants to sell their business, they can’t sell the value attributed to how people feel about them. The value is in the experience and database of information the agent has compiled over the years. If the agent has diligently entered great information about their buyers, sellers, farm and all their contacts, the agent can bring in a junior partner willing to split commissions when the agent wants to sell. In other words, the agent can partner with someone else for several years and still be compensated for doing significantly less work because they are helping the new agent integrate into the sphere they’ve already developed. Contact management systems such as Top Producer and IXact are great tools for managing databases.
If the agent doesn’t have a database, it’s much less likely that another agent will want to share business with them and split their commissions. Ultimately, the question you should ask yourself is: “Am I my building value in a business that I can sell to another agent at some point in the future?”