How to Select the Right Office for Your Real Estate Brokerage

When planning for your new real estate brokerage, you will need to select the ideal office to nurture a budding business. Why? The office space you select can make or break your brokerage. This is because the office has a lot more impact on the success of your brokerage than you may think.Over the past 26 years, either for coaching clients or personally, I have either repositioned or opened over 20 brokerages. In each case, I had to determine the right office space. What I have found is there are eight things you must take into consideration in order to select the right office for your real estate brokerage.If you are still pondering if your real estate brokerage should be a virtual brokerage, a co-working office, or if you should lease your own brick-and-mortar office, then you need to read my previous article, Will Your Real Estate Brokerage Need a Brick & Mortar Office in 2021, where I tackled just that topic.Here are the eight things you must take into consideration to find the right real estate brokerage office.1. Your Brokerage’s Mission & VisionBegin with the end in mind. You wouldn’t tell a client to buy a home with the intention of them having sell it and buy a new home in just a few short months, would you? Of course not, because the cost of them having to sell, buy, and move defeats the point of owning a home.The same is true for leasing an office. The cost of moving, the deposit, tenant improvements (TI), furniture, equipment, and signage is too high to have a planned obsolescence in the near future. Not to mention the message moving offices sends to the long-term customers your agents are nurturing.To prevent moving too soon, you must think with the end in mind. This is why you must be clear about the mission, vision, and values (MVV) for your brokerage before you set out to find the right office space.Your brokerage’s mission is the difference your brokerage wishes to make in your community, demographic, or industry, and the vision is the picture of what it looks like when your brokerage realizes the goal it wishes to achieve. If you haven’t created the MVV for your brokerage yet, stop reading this right now and read my guide How to Create an Inspiring Mission, Vision & Values for Your Brokerage. This is a crucial first step for starting a brokerage or any small business.Unless you are building a virtual brokerage, you wouldn’t want to sign a long-term lease for a 600-square-foot office if your vision is to have over 50 agents in the next 24 months.The mission and vision for your brokerage will guide all the following decisions you must make when selecting the optimal office to fit your brokerage.2. The Type of Agents You Wish to AttractSomething many future broker owners forget when launching their brokerages is that most real estate brokerages exist to support the agent, and the agent’s job is to serve and support the customers. The way I represented this concept in my brokerage was to say, “The agent is our customer, and the client is the agent’s customer.”You must consider the type of agent you wish to serve and attract to your brokerage. It really is as simple as that. Your office will be a giant advertisement for agents to come join you, whether you want it to be or not. What does that strip mall office with fluorescent lights and a drop ceiling say to potential new agents? If you were designing a pay-per-click (PPC) ad to attract agents, would it look like the visual equivalent of that office?Different agent types also have unique needs from their brokerage office.New, Newer & Low-producing AgentsFull-time agents who produce less than 10 transactions a year typically need access to training and more one-on-one time than higher-producing agents. If your brokerage model is to have a large number of new or lower-producing agents, then plan on having, or at least having access to, a training room. This will allow you to manage a structured training schedule that won’t interfere with the higher-producing agents.Mid-level to High-producersAgents who produce between 10 and 50 transactions a year are more likely to need access to marketing and transaction management support. Plan on about 20% of them also wanting to have a shared or private office to work from.Top Producers & TeamsTop producers and teams need a larger private space to host their staff and licensed team members. This can be demanding for a small brokerage on a tight budget. The challenge that small brokerages face is providing the necessary office space and keeping their expenses within the budget.3. The Services Your Brokerage ProvidesYour real estate brokerage office’s main function is to support the agent so they can serve their customers. Each brokerage model offers their agents different services depending on their value proposition. The more services you offer your agents, the more space you will need to support the staff to fulfill their needs.If your brokerage’s value proposition is to provide limited, a la carte services or virtual services, then you may not need a lot of additional space for staff. On the other hand, if your brokerage’s value is to offer one-on-one marketing support, you may need private offices for your staff, like a transaction manager and listing marketing coordinator.4. The Location of the OfficeLocation, location, location, right? Well… Maybe! Location is important, but it may not be as important as some of the other considerations. I have seen very successful brokerages thrive in less than optimal office buildings.There is no such thing as a “best location” for a real estate brokerage. What you are seeking is the best location that will fulfill your vision for your brokerage, and that is right for the ideal agent types you wish to attract and isn’t too much of a burden on your budget.Other Location ConsiderationsOf course, there are a few other things to keep in mind with your office location. These include:Easy AccessWant to attract busy, producing agents? Then consider first floor locations with abundant parking and easy access to highways. This will allow agents to quickly come and go in between appointments.Local AmenitiesAn office that is near the amenities that make life generally better will not only attract agents, but will increase their willingness to work from the office. This is because having the convenience of restaurants, coffee shops, gyms, and bike and walking trails will make coming to and working from the office a convenience, not a hindrance.Visibility & SignageIf your intention is for your location to attract walk-in customers, you may want to consider locations in high-traffic areas. If you want your location to promote your brand in a specific town or community, it helps to have either a location that is visible, like a corner location on the boardwalk, or a Victorian home that everybody is familiar with. Don’t overlook the benefits of a visible office or high-traffic location. In hot neighborhoods like Williamsburg in Brooklyn, a ground floor retail office can see 20 or more walk-ins on a busy Saturday.Office Location Within the BuildingIf your brokerage value is to provide more administrative services, competing on price, or there is little to no expectation for the majority of your agents to come into the office on a regular basis, then you may consider office locations that are less expensive.The cost of office space greatly decreases as you increase to higher floors in an office building. Beware that top floors and breathtaking views can also demand a premium price. Another way to save on lease rates is to consider office buildings that are B- quality and lower. These are usually offices that are a little dated or not in ideal locations as it relates to ease of access.I caution you to remember that the way to win at the real estate brokerage game you must be able to inspire the “right type of agents” to your brokerage who will also “want to affiliate” with your brokerage. And cutting corners with the location, visibility, access, or desirability of your office can result in the opposite effect. It is easy to lose sight of this when you are looking at the available options for your brokerage, but you must stay within your budget.5. Make a Budget & Stick to ItA good rule of thumb for how much of your budget to spend on your office space is to spend no more than 30% of your brokerage expense budget. The total lease cost should include any additional fees or expenses that may be charged or passed through to you by your landlord.The risk of going above 30% of your expenses can result in you not having enough money left for day-to-day operations, innovations, and future opportunities. It’s the equivalent of being house-poor.Additional Commercial Lease ExpensesIf you’re not familiar with commercial leases, be aware that there are additional expenses that you may be responsible for. Some commercial leases also charge Common Area Maintenance (CAM) fees or have additional expenses associated with the property that are passed through to you. These additional expenses include the following:OfficeCleaningOffice Repairs and MaintenanceWaterElectricityGasInternetProperty InsuranceGeneral Liability InsuranceCity TaxesBuilding and Common AreasWaterElectricityGasBuilding Repairs and MaintenanceProperty TaxesInsuranceSecurityParking Repairs and MaintenanceSnow RemovalLandscapingTrash No matter what type of commercial lease agreement you are signing, you must review the entire lease for these additional fees. Don’t hesitate to ask for proof to show you what you can expect to pay in addition to your base rental rate.6. The Size of the OfficeThe #1 reason new real estate brokerages struggle to be profitable—or even ultimately fail—is because they leased a space that is too large, thinking “If I build, it they will come!” Real estate offices are not like a traditional business; agents don’t come in every day. In fact, your office will only be at full capacity when you are having a training event, team meeting, or social event. The rest of the time it will be at 20% capacity.The size of your office is determined by the number of agents you wish to support, the types of services your brokerage provides, and, of course, your budget. A good rule of thumb for the size of a real estate brokerage office today is 30 square feet per agent or 1,500 square feet for 50 agents.The “30-square-foot rule” assumes that 80% of your agents will be working via mobile or from home. It also requires you to be efficient with your space and allows you to stay within your budget.With more agents working virtually than ever before, you may consider starting your brokerage with less square footage than the 30 square feet per agent. You may have to find new and creative ways to lay out your brokerage office’s floor plan so you can accommodate more agents with less space.7. The Floor PlanReal estate brokerages have unique challenges when it comes to finding adequate floor plans. This is because unlike most office workers, real estate agents don’t come to the office 9-5 Monday through Friday. Additionally, traditional offices recommend 100 to 300 square feet per employee, while real estate offices are closer to 30 square foot per agent.Where a traditional business may have six to 10 employees in 2,000 square feet, you may have 60 agents plus staff in the same square footage. You need to be aware that this can cause issues when you have your training, team meetings, and social events, such as agents finding parking or a place to sit. You may even violate fire restrictions by exceeding the number of people allowed in a space.Features to Consider for Your Brokerage’s Floor PlanReception areaConference roomAgent flex work areaTraining roomPrint, copy, and binding areaBreak roomKitchenRestroomsOperations Manager’s officeManaging Broker’s officeSign storageBicycle storagePrivate/shares agent officesCommon area building featuresIf the ideal office doesn’t provide the right floor plan, you can have the landlord make modifications or concessions in the lease so you can change or update the floor plan to meet your brokerage’s needs.8. The Terms of the LeaseThe final consideration you must make is the terms of the lease. Sometimes you may find what seems like an ideal office, only to find that the lease terms are less than desirable. Before negotiating the lease for your new brokerage, know what terms you can live with and what terms you can’t accept—and be willing to walk away!Improvement AllowanceAn improvement allowance is money that is provided by the landlord that is applied to the tenant’s finishes to the office. This can include money for updating the offices, paint, carpet, kitchen, and even HVAC. Be aware though, that this money is not free. It is baked into the lease rate and the term of the lease. Savvy landlords may also restrict what repairs contractors are permitted to do to the office. This limits your ability to do updates “on the cheap” with your own contractors.Lease TermAvoid long lease terms that are longer than you expect to be in the property. If your brokerage is brand-new, you may want to start with a term less than two years. Once you have established your brokerage, an eight to 10 year lease can lock in a low lease rate for the future.Rent IncreasesSome commercial leases will offer a very low or no rent the first six months in order to get you in. Then, later in the term of your lease, the rental rate greatly increases beyond your ability to pay. It is easy when you are starting your brokerage to convince yourself that in a year or two, your brokerage will be making money hand over fist.Coming from experience, even if you are growing rapidly, a sharp increase in your rent can wreck your profitability and send your brokerage into a tailspin. Select an office with a predictable lease rate and don’t be overconfident with your projections.Personal GuaranteeA personal guarantee is a clause that says if for some reason your brokerage doesn’t have the ability to pay the rent or even fails completely, then the landlord can pursue the guarantor (in this case you) for the lost rent plus any additional incurred expenses.Avoid personal guarantees at all costs. Business is difficult enough, and they can fail for all kinds of reasons. Some are in your control and others are outside of your control. The last thing you need is the fear of a personal guarantee looming over your head.FlexibilityAlso look for terms that give you some flexibility. Real estate is notoriously boom and bust. Therefore, real estate brokerage leases need more flexibility than a traditional business. If your real estate brokerage takes off, you may need the ability to expand within the same building or sublease your space to another tenant so you can move to another location.Early TerminationIf your brokerage struggles or fails, you may need the option to cancel the lease so you can move on without the fear of future lawsuits or bankruptcy. This can be done by negotiating an early termination fee into your lease. This is typically equal to three to six months of rent plus repayment of any improvement allowance and discounted rent.Bottom LineYour lease may be the most important detail and the greatest financial risk you will take opening a new real estate brokerage. Take your time and look for the right opportunity that checks all the right boxes.If you haven’t written and negotiated over 100 commercial leases, then hire a commercial real estate professional who has. The success of your business and your future financial security depends on your ability to negotiate the right terms of your brokerage’s lease.