There’s a saying, “There is no exit strategy for the typical real estate broker.”
Well okay… that might not be an actual saying.
But it’s clear that with the average age of real estate professionals in Canada hovering around the mid 50s, there’s concern around succession issues and retirement in this era of greying boomers. As the industry grapples with this, we are beginning to see some big changes.
Many owners lie awake at night feeling tethered to their brokerage and wondering who will be able to buy their company at a fair price when they retire. Who would step in if they get sick? What would happen if they got divorced? Will business fall off as they start to wind down their careers?
Sales reps are vulnerable in these situations and have their own nagging questions revolving around security and stability. Will I have a place to work tomorrow if the owner retires, dies, divorces or gets sick? Are the owners financially stable? Do they have staying power? Can they handle a downturn in the market? Will I have to leave and start from scratch somewhere else in order to move up and become a partner/owner myself?
“Many owners in this industry don’t have an exit strategy, because no one person can afford to buy their business for what it’s worth,” says Nick Lalli, who for over 20 years has been an owner/partner of Century 21 Heritage House, headquartered in Woodstock, Ont.
“There are not that many buyers. If you want top dollar, it can take years.”
Ever since Heritage House was formed in 1980, its solution to succession planning challenges has been to allow top sales reps to become partners. Lalli says this creates a secure career path for suitable agents and is also an attractive exit strategy and investment opportunity for owners.
“When people leave there is always a line-up for their shares, which is not the case when selling a brokerage,” says Lalli. “It’s much cleaner for succession planning.”
In his opinion, it’s also safer and “less scary” for young sales reps than going out and starting up their own business. At Heritage House, agents interested in becoming shareholders are encouraged to let management know.
“They don’t need $2 million in their pocket,” Lalli says. “We’re excited to grow our business by attracting experienced agents who see the opportunity and stability here that they won’t get at some brokerages.”
There are typically between 10 and 13 owners benefiting from Heritage House’s non-traditional real estate business model and its substantial local market share, he says. That’s expected to increase significantly soon. Heritage House has “a very aggressive” regional expansion plan now underway, Lalli says.
The newest partner is Roy Singh. The merger in December with his company (formerly Century 21 Home Realty) has opened up the Kitchener-Waterloo area for Century 21 Heritage House and boosted the total number of Heritage House agents to around 160.
Singh’s is the fifth company Century 21 Home Heritage has absorbed.
“It’s very expensive to run a brokerage and a broker’s responsibility is enormous,” Singh says. “I was taking money from my own production to keep the brokerage afloat.”
He was looking to grow his organization in a way wherein “one person – me! – is not 100 per cent responsible for running the operation,” he says.
At 54-years-old (exactly the industry average) he was not ready for retirement. But he “wanted the firm to have stability, longevity and a future exit strategy.” He also wanted to ensure that there were opportunities for his agents.
A conversation with Heritage House at a Chairman’s Circle meeting for Century 21’s top offices got the merger ball rolling.
“It made sense, says Singh.
He says that, initial “growing pains” aside, he and his sales reps benefit from Heritage House’s pooled resources, diversification and financial stability; the sharing of learned best practices, sales tools and systems; and the time the company’s management structure frees up to allow partner companies to concentrate on clients and strategy rather that getting buried in red tape and administrative issues.
“There is professional paid staff, who are not salespeople, doing most of the Heritage House admin functions,” Singh says.
For agents deemed the right fit, the “big plus” is the chance to become a shareholder – an opportunity not available at most other brokerages.
“What I love is that we have a partner retiring and his shares will be sold to three junior partners – all good, producing agents with talent,” says Singh. He says it’s “a fantastic way” to have a stake in a company, “instead of starting up your own and struggling for 10 years to become profitable, with sales suffering as a result of all the time it takes to attend to the business side” of things.
He says it’s important to have “young, new blood coming in and adding to the fabric of the organization.”
Signs indicate that non-traditional business models such as this are attracting attention. Lalli says Heritage House is increasingly getting calls from companies interested in the shared ownership concept.
His conclusion: “We likely will start seeing other companies adopt the concept of shared risk and benefits. I think it will become more and more important.”
Susan Doran is a Toronto-based freelance writer who has been contributing to REM since its very first issue.
