Looking to grow via acquisition? There are few basic rues that should govern this approach to growth.
by Steve Murray, publisher
Few brokerage firms are truly growing at the same pace as the market through organic means, such as recruiting and developing sales associates. Many are growing at about the same rate that REALTOR® membership is growing – about 3 to 4 percent per year. Most aren’t growing that quickly. Agent productivity runs about 8.6 transactions per REALTOR® per year and has been within a small variation of that number for the last four years. The peak was way back in the 1998-2002 era when it was above 10 transactions per year.
Benefits of Acquisition – Many brokerage firms that want to grow faster than the market turn to acquisitions or variations of this theme. There are many good reasons for this, including faster growth, elimination of competition, adding key office locations, spreading overhead over more units and enhancing profitability from core services such as mortgage, title and escrow. All have worked when a deal can be done at the right price and term without too much risk.
Basic Rules – There are few basic rules that should govern your approach to growth via this path. First, enlist the help of good counsel – accountants, lawyers and operations leaders who know how to put these deals together successfully. Second, while the numbers are important, it is just as important (maybe more so) that the cultures are harmonious and that the commission plans are not too dissimilar. Many people hurry through the due diligence on culture and commission plans without giving them full consideration. This is, in fact, where most combinations go wrong. Too much focus on the numbers and financials and not enough on the actual fit. Do remember that as much as leaders dislike change, sales associates and employees dislike it even more.
Lastly, while growth through acquisitions and mergers is fun and exciting, leaders should not ignore that recruiting and developing sales associates is fundamental to success. When you don’t have an effective program to grow in this organic fashion, you will keep on buying sales associates while losing them on the back end. The data from REAL Trends 500 and Up-and-Comers rankings have shown this over many years.
One Last Thought – Growing through acquisitions and combinations is no different than recruiting sales associates. After all, you’re recruiting and attracting whole companies rather than individual sales associates. The same courtship that goes on with recruiting agents should be used by leaders when approaching a favored company for a combination. As with recruiting agents, it is often not about the money but more about the intangibles of culture ad service. Keep that uppermost in your mind.^
This article originally appeared in the August 2016 issue of the REAL Trends Newsletter is reprinted with permission of REAL Trends, Inc. Copyright 2016.
The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.