3 Tips for Selling Your Real Estate Brokerage

As Director of Business Development for Hawaii Life, a big part of my job is fielding inquiries from other real estate broker-owners who’d like us to purchase or absorb their company. Last year on LinkedIn, I wrote a detailed series about it. Here are my top three tips for selling your real estate Brokerage:

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1. Gather the Appropriate Paperwork

Have on hand the following items from the past three years and be ready to send them to the potential buyer as soon as you have a fully executed NDA:

  • Profit and Loss Statements. If you are selling partway through a year or fiscal year, you also want to be prepared with a current year’s P&L to date
  • Tax Returns
  • Commission schedules for Independent Contractors hanging their license at your firm, detailed information on employee salaries, benefits provided and job descriptions.
  • If you are conducting Property Management – Itemized Rent Roll and copies of current PM agreements
  • List of assets being sold
  • List of leases and other vendor agreements to be assumed by the buyer

2. Know Your Numbers

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EBITDA = Earnings Before Interest Taxes, Depreciation and Amortization

Why does this matter? Earnings and cash flow are not the same. EBITDA calculates how much cash is available to pay obligations long-term. All companies are not created equally, so the best way to evaluate different businesses on an “even” playing field is to evaluate the amount of income a company earns before these additional calculations.

Many Real Estate companies are owned by a sole proprietor or partnership, where expenses such as professional association dues, car leases, gas, travel etc. are being paid for by the company and show up on the P&L as a business expense. These are the types of expenses the buying brokerage wouldn’t normally cover.

Want a higher EBITDA? Find the top line number on your year-end P&L, Gross Profit. Find Net Profit at the bottom. Then look at all the expenses in between and decide which are real, company expenses, and which are owner expenses being run through the company. If you add those owner expenses back to Net Profit, it will give a more accurate picture of actual cash flow.

3. Understand the Escrow/Closing Process 

A signed LOI starts the process, the details are spelled out in the subsequent Purchase and Sale Agreement. Once the agreement is signed, escrow opens with a set time frame to get all necessary paperwork to escrow for closing.

Expect that the buyer will have at least a million questions during their due diligence period. Beyond asking for details about your paperwork, expect questions about your company culture, what people at your company know about your selling, employee roles, and be prepared to give your opinion about the integration process. If you are selling a Property Management company, the buyer may want to walk through the units you manage. It is known that the most successful mergers and acquisitions happen when there is an alignment in both companies’ cultures, but the buyer will also be focused how they can best incorporate your company into their existing structure and systems. The easier you can make that for them, the better off everyone will be, including you.

Read the PSA in detail. Understand the documents you will be required to provide prior to closing. Items like a Certificate of Good Standing, Bulk Sales Certificate, and Tax Clearance Certificate are government-issued documents that may take some time to obtain.

ps. If you want more info, or to discuss the possibility of selling your real estate business, please reach out:

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Lori Decker

March 26, 2019

Interesting Katie!

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