Transcription of:
How To Start a Real Estate Brokerage in California 2022
This is an overview of how to start a real estate Brokerage in California in 2020 to now I’m going to go through some slides that just have the key concept mentioned and then describe it a little bit more in-depth rather than have lengthy slides full of text so we’ll jump right into it so the first step is to get a broker license this is fairly obvious but it’s worth mentioning you need to either be a sales person for certain amount of time or I think the other way to do it is if you’re already an attorney but for most people once you’re a salesperson for a certain amount of time you can apply to the Department of real estate now some people the start brokerages hire a broker of record which is another option as well and that’s basically where you find someone maybe this person semi-retired but has a broker license and they can effectively be the broker of record for compliance purposes so once you get your broker’s license you can do business as a sole proprietor so when should that license you’re ready to go and you can operate as let’s say your name will say Jane Johnson, broker that would be her official name to do business and she can she is at that point table with her broker license to represent other people are people for the sale of their real estate their real property and collect a commission in the most basic sense of functioning in real estate that’s that’s the most simple way to do it that’s the most basic approach but things aren’t that simple in practice unfortunately and so that’s where we’re going to explore a little bit further so while the broker license is the minimum there’s a little bit more to talk about so we’ll go through another step here so you’ll choose your name and this is obvious of course but we should talk about why I text you a little bit more complex than it looks on the surface when you choose a name are you going to be a corporation or sole proprietorship that’s going to make a difference and maybe your corporation that has a soap that has a a separate business name so I’ll look up a real estate company sometimes and I might even be like a franchise real estate company let’s say a Remax or a Coldwell Banker and when you look up the corporation that owns it it might be called like XYZ homes or XYZ Realty Services doing business as Remax Platinum Superstars are we going to one of those names they come up with and I’ll explain and she part of this but you’re going to want to think about what is the concept are you just going to be Jane Johnson the broker that’s it just you as an individual or a are you going to build something a little bit bigger like a team or company name or something like that and and so with the empty part I’ll explain on the next slide but one last thing with mention with your name is that for your for your address this is going to come up because as you create a professional profile if you do it as an individual then you’re going to have to have your professional physical address and is it going to be a home address for you are you renting an office you want to take your privacy into consideration maybe you don’t want to be Jane Johnson, broker and have your home address on all of your paperwork and inevitably Zillow and all these real estate companies online or going to pick up your profile and put personal information on there so privacy is a a factor all right so you can be a sole proprietor and like I said you can just offer it is Jane Johnson broker but people typically like to have a business name so the next step in that evolution is to file a fictitious business name or a DBA doing business as with the county and it once you do that you’ll send the form to the Department of real estate and you can register you can add your DBA to your broker’s license so now Jane Johnson the broker can have let’s call it sunset homes or some day I’m just making up here but maybe she wants to operate at Sunset home so she’ll just get the DBA with the county you file it it’s 24tx depends on the county it’s all different you take copy that DBA a form from the Diaries website mail it to the DRE they added to your broker license and now you can operate as a business name some abstract name like Sunset homes instead of your own personal name but it can go a step further what if you want incorporate well then that makes you questions do you want to choose an entity you like a corporate How to choose an entity you like a corporation and if you do now I won’t go too far down the rabbit hole of Corporations but but one question that comes up is if you can have an LLC and have your LLC approved for a corporate real estate license with the California Department of real estate as far as I know the answer is no they want a regular Corporation now you can file and at your and have your corporation as a recognized under S Corp or C Corp election status and that’s their tax application to come with that and that’s a separate topic they should look up but either either way you can have an S corp or C Corp and both of those can be approved by the department of real estate when you do that the the idea is that with a corporation you get legal protection So in theory if you’re operating a Jane Johnson real estate and broker and you something comes up or there’s an error made or something but to say some sort of issue and it results in a lawsuit or some sort of Claymore some leader legal matter well they’re going to name Jane Johnston in the lawsuit she’s going to be named as a defendant the idea is that if Jane Johnson had instead of Credit Corporation Called Sunset homes Inc then the corporation would be sued rather than Jane now I have the name and it over the years has a defendant it just comes up when you do a thousand of transactions inevitably you’re going to get named on something and all they know if they named me as an individual but either way I don’t think I would stick because we’re talking business is a corporation so you still get that legal liability but you also get a little bit more privacy because it’s not just your name being mentioned and and there are there are there it does you allowed to allow you the ability to scale a little bit better as a corporate entity I bet there are some drawbacks to come along with it because incorporating is kind of like the 2.0 that’s the way I like to look at it when I used to operate as a kind of a single broker I would I was a stripper powder for a long time I had my own Eno insurance at as I started to grow do more business and then have other agents that in originally I just had some people kind of an inner circle that hunger license I mean now we have front yard for the agents but at that point you certainly want to cooperate if nothing more than just for the the legal protection that comes with having that corporate entity and doing business that way but let Starbucks on the drawbacks of incorporating we incorporate so that there are start up cost not a lot but it’s something worth considering and you can even those filing fees paperwork preparation depending on some agents are some people out there might use something like LegalZoom some websites I might just go to an attorney over the years I’ve just dealing with all sorts of compliance I’ve realized it just paying a little extra and having a tourney and working with an attorney to do everything right is worth it in my opinion and and then there’s also a minimum tax of $100 per year so no matter what each year you’re add to pay at least $800 to have that Corporation to perking California state income tax and actually that that that’s the minimum that there’s a number assessed on your your corporation’s Revenue I want to see at the top of my head to 1 and a half percent of Revenue so you have to pay to the state 1 and a half percent of of your taxable earnings I should say that the revenue taxable earnings or $800 whichever is more so no matter what your and she’ll at least $100 but it but it it could be more our company pays more just because of the amount of taxable income and so that’s another cost that you’re going to have to consider and and with the Department of real estate you guys should have to have you a separate corporate license so I’m a broker I’m the designated broker of the corporation I have my own broker’s license and without alone I could be a sole proprietor broker but because we operate as a corporation I have a a corporate license where the corporation is gets its own license with a department of real estate so even though I’m that on the broker of that Corporation the department of real estate makes you get two separate licenses with with two separate licensing fees and then in addition to that So that’s why I said corporations are kind of a 2.0 approach I personally think that if you’re going to scale you need to do it with a corporation but you’re incurring a a big headache of compliance and paperwork and accounting and extra fees so it’s it’s a it’s a it’s a lot more work but its necessary what once you hit a certain level in my opinion and so that’s just an addict name a few of the drawbacks and I’m not trying to talk you out of anything and I’m not going to advise you to do anything in particular I’m just I’m just telling you what I’ve gone through because I’ve been licensed for at this point now of over two decades and and I’ve done and I’ve worked as a sole proprietor as a broker and salesperson under another broker as a corporation you name it I C corporation S corporation if I were to CPAs and attorneys for many years and I’ve experienced at all so I’m just kind of sharing sharing my experience with you so hopefully the years of trial-and-error for me will save you time and in this explanation you really need to have eno Insurance errors and omissions insurance I’ll tell you a story about when that that was valuable for a company in the recent future but any reputable Brokers going to have it you know and think of you know as a catastrophic insurance policy this isn’t health insurance we’re using every time you go to doctor you know it’s different it’s it’s it’s it’s almost like I don’t want your life insurance that’s a bit of a of a dramatic analogy but it’s something used when you are dealing with a large and expensive legal issue now many people don’t know is that you know is not required by law in California but just the way things are it is very foolish to not have it it’s it’s it’s it’s a high-risk proposition for driving uninsured you might get away with it for a while it you know but if you got an accident on a car accident and you’re not insured that that could be financially catastrophic for for you or you and your family so are missions in my opinion is an absolute necessity and with within a row so I’ll tell you a quick side note about how we use it because we went many many years and we do hundreds and hundreds of transactions each year and we never had two felony no claim then we recently allow us to recently this was a few years ago but we got named in the lawsuit that was totally bogus had nothing to do with us it’s the craziest part it was a matter between two parties long after they had done a transaction together and the way a lot of attorneys work is the name everyone they can and it had this approach with a shake a tree and see what falls out of it so we are named and I work with a a very reputable attorney and I showed him what the situation was and showed him the complaint and he told me to look provided provided your agent did nothing wrong provided that you are completely innocent of any allegation involving you in this dispute between two parties relating to a real estate transaction if it providing all that completely innocent you’re looking at paying $40,000 in attorney’s fees to make this go away I mean just from just the whole process of of of a fighting this you know it took to make it go away so his advice was just file a claim with your you know insurance if you know sadly a lot of attorneys I know that this is kind of the name of the game and so sometimes I get these money-grabbing emails from attorneys were they like you know how do you say some just completely outlandish just ridiculous and absurd thing and then just say please forward this to your Eno attorney in so that you know that they know that you know companies are more likely to settle in there trying to there trying to just go for a money quick money grab anyway I don’t mean to digress largely are on this you know tangent but it’s it’s important because a lot of Agents don’t realize that they are rolling a dice with every transaction and as a broker where I’m privy to see hundreds of transactions come across my desk every year I see the cases where may be an agent doesn’t do a lot of volume but it’s named in a lawsuit and goes through a financially or has to face the risk will financially devastating scenario I knew that I see you know it’s completely essential because it it puts a cap you basically pay the what what’s effective leave the deductible on it and then you’re covered up to a million dollars after that show you starting a brokerage you need to know that what even if you’re Jane Johnson sole proprietor the broker or you’re starting some Corporation and you want to recruit hundreds of Agents you need to have this and one last thing about you know it goes up the more production you do so the very first you know policy I probably spent I don’t know maybe just over $1,000 and I thought that’s it you know it’s it’s you know that’s what you know costs and then when our production picked up considerably the bill our annual you know bill went up thousands of dollars in in premium and then continue to climb and it climbs up until you’re paying it just had a large amount you know premium every year so this is an expense that is necessary it just a cost of doing business but it seemed that definitely needs to be factored in no matter the size of your your organization then you need to ask yourself are you recruiting this makes a big difference because it affects how Nimble you are if you’re recruiting you need to have a policy and procedure manual that is part of your independent contractor agreement you need to have a checklist of required documents you need to build a very strong and regimented system that can be enforced that make sure you have that ensures that you have records for three years of all the paperwork not just required by the state of California but you really need to understand what good practices are as a broker because if a transaction closes in a crucial documents left out you’re going to be in big trouble here in be in big trouble with the parties that are in a dispute and you’re in a be in big trouble with the Department of real estate I’ve gone through audit Department of real estate I’ve had several different occasions over the years with Department of real estate has investigated an agent and it doesn’t make the agent a bad person in fact sometimes agents that are the complete clean get investigated it just maybe someone got angry about a transaction and and wanted to report the agent cuz they thought they got the cut they got the raw end of the deal or something and and so the department of real estate has to take these these complaints seriously investigate and investigate them and as the broker you get dragged into this because you’re these letters notices that are that request that you present paperwork and you need to make sure that your files are squeaky clean and that you have a list new understand how they work and how they mitigate your liability in your agent size ability and that you are enforcing that near your getting these all this paperwork from your agents I can’t emphasize enough you cannot play around with compliance you have to operate by the book it will catch up with you if you don’t you that’s why I’m saying that’s why I’m making this videos to explain that you re you really need to have a solid foundation in terms of how you build this and not cut Corners because if you do cut Corners you’ll pay far greater in the future and it it’s it’s not worth it it’s so if you’re recruiting you need you really need to have a system and dial it in that you can enforce that’s extremely compliance orientated because sooner or later what you do is going to be scrutinized and put under the magnifying glass and if everything’s not in order then you’re going to get in trouble and I should say okay one last note about this just on the top of my head as a broker in their challenges that you’re going to have to ask yourself how much time you’re spending on recruiting how much time you’re spending on running the operation with compliance and following up and I mean so what happens when an agent gives your file and a bunch of documents are missing and the agent isn’t returning your calls you mean you need to account for every scenario and on top of it what brings in the revenue is it you doing business is it an agent that you recruited is it something else in your office I mean you have to you have to balance all these different elements in your brokerage so I would I would keep your growth under your control so that you can manage the structure effectively so that you don’t get so bogged down in paperwork and compliance that you don’t recruit or you don’t do you stop doing deals personally I mean I did I did transactions for years to help at 11 I did I did transactions 4 years to help out of Revenue to the company I so the company could build up its infrastructure and and that we could pick and choose and if agents seem like they were complaints or and who we can remove them from the team so you really need to factor into the full scope of everything that you’re going to be doing because if if you start ignoring her and neglecting a certain part of your business it’s going to make the rest of it suffer once all that’s done you need to ask yourself about joining a local Association Association of Realtors Lennox Spanish for a second when I mentioned earlier in that early slide. At its most Berry essential form all you need is a broker license to conduct real escapes real estate transactions in California that’s it that truly is your license now by the state to do it how that becomes more complex is that you realize that you need access to the MLS you need access to a lock box or lockbox key Dean access to forms and there’s basically a monopoly that controls those those resources for agents and how it works is there are local board of realtors all over there’s too many in my opinion there’s an abundance of them that all feed into a state board of realtors that feeds into a national board and it’s an all it’s an all-in-one proposition where you’re you’re joining Everything All or Nothing where you you have to join and you join local board and they bundle your state and National dues all together and that’s how you can access these resources agency is are you required to do it no but if you don’t do it you’re going to have a very challenging time conducting business and if you want to recruit agents forget about it and you cannot join or you cannot not join an order for agents because the first conversation that I had with an agent is how they’re going to access those tools and you as a broker must be a member of the State national and even the local board in order for that agent to join as a member show me where a member of many boards now because we have to be since our agents are members of those boards but that’s something else you have to factor in it’s very important because forbetterforworse you joining these boards is basically enteral with managing a brokerage now if not I mean virtually all legitimate agent sir are members of boards and if they’re a member in order for them to hang their license with your brokerage you need to join so that’s another Factor worth considering so art our company is 100% commission brokerage and agents pay $49 a month there’s no transaction fee and that includes your email insurance so if you’re interested look us up I mean you can do this on your own I highly recommend exploring this adventure I mean I went on it all things considered I mean years later if I had to do it over if I was going to sell real estate on my own I would definitely Outsource it to a low-cost broker I would find somewhere I can run my transactions through and I treat them like a kind of back office resource I’d say do you offer Brokers support yes or no do you pay for my Eno Insurance yes or no what else you know what what can I count on you can you can I run my transactions through you and you have a compliance infrastructure and think of it as Outsourcing that part of their business out because in real estate it all depends entirely on you marketing to clients if you sell real estate yourself and this was at kind of the same mistake but something that I did too long to sell real estate and do broker compliance is overwhelming and exhausting if you’re going to do brokerage build the brokerage and focus on operations if you’re going to sell real estate Outsource the broker compliance side of it and focus on getting clients and closing transactions bring clients in and doing deals that’s the life blood that’s the oxygen of your business of The Brokerage and if you if you’re doing. And you’re recruiting agents into in compliance with your a tear your hair out after a while it’s it’s it’s just overwhelming it’s too much anyway so if you have questions please comment and I do hope you found this helpful thank you for watching