Considerations for closing a brokerage office
Thursday, December 6, 2012
By Charles S. Bonamer
ORRA class instructor, "Brokerage Management"
One of the most difficult decisions for any brokerage owner or manager is the judgment call to close an existing office. Prudent business analysis may indicate that the highest and best use of the resources might be to discontinue an existing operation, whether it is the main office or an unprofitable branch.
I. The decision to close an office should be based on a financial evaluation. Is the office losing money? How much longer should the office remain open? When should office be cut?
A. Profitable but poorly managed offices may be faced with replacing existing management rather than shutting the office down.
B. Some brokers close profitable offices in order to consolidate operations.
C. The ego factor has to be reconciled with sound business sense.
II. Factors that may contribute to a decision to close an office include the following:
A. Lack of operating funds (under capitalization is the single largest cause of real estate brokerage financial failure).
B. Market conditions, increased competition, or other external factors.
C. Internal management problems.
III. Danger signs should be detected early:
A. Market share that is either decreasing or not increasing is a red flag. Simple indicators may show a problem as it develops:
- Pending listings and sales should be observed for trends.
- Recruiting difficulties or dwindling staff indicate a problem.
B. Management difficulties evidenced by attitude problems of the manager.
C. Expansion beyond the sphere of influence of the existing operation.
D. Target market not correctly identified.
IV. The solution may be to either close the business entity or consolidate services while streamlining profit centers. According to a study by the National Association of REALTORS®,:
A. A decision to continue operation, although serious difficulties exist, may be made.
- The branch manager might be replaced.
- Expenses may be passed on to the associates.
- The business many be consolidated within another company office.
- The office may be relocated in the same market.
- A competitor might be purchased and the offices merged.
- A franchise might be purchased.
B. Disposing of the entity may be the ultimate choice.
- The office (or company) might be sold to the branch manager or the sales associates.
- A competitor may be interested in purchasing the firm (or office).
C. A complete shutdown may be the last option available.
V. The distribution of the human and other resources must be carefully considered.
A. Personnel considerations are the most emotional and intense. Some staff members may transfer to other company offices. Others may move to other firms.
B. Paperwork must be completed. Branch office licenses must be surrendered. Transfer of staff or termination of company or location requires notification to the Florida Department of Business and Professional Regulations, Real Estate Division using the multi-purpose form.
C. Pending transactions may be services in another company office or by a title company or attorney.
D. The listing inventory is not assignable to another company unless the grantor is a corporation. An attorney should be consulted.
- Personal service contracts to individuals either remain with the same company, as licensed, or terminated upon dissolution of the real estate brokerage.
- Listings may not be included in a sale (unless the sale involves transferring the stock of an existing real estate brokerage corporation that will continue to operate).
VI. The decision to close an office (or company) should be made early enough in order for the company and staff to investigate options.
A. Ego factors should be minimized.
B. Once a decision to terminate operations is made, the act should soon follow.
Charles S. Bonamer is the instructor of ORRA’s Brokerage Management course, which is offered monthly and worth three continuing education credits. Class dates, more information, and registration are available via the online ORRA Education Calendar.
Reprinted from the Florida Real Estate Brokerage Management manual, by Charles S. Bonamer. Copyright ©1987-2012 by TRANS-EQUITY, Inc.