Broker Chapter 3 Owning, Managing and Supervising a Real Estate Office 1
Learning Objectives Describe what considerations are involved in developing a business plan and what types of initial start-up costs are involved in opening a real estate business Describe factors to consider when projecting income and expenses of a real estate business and list typical fixed and variable expenses incurred by a real estate business. Compare the advantages of purchasing a franchise versus remaining an independent broker 2 2
Learning Objectives Distinguish between cash basis accounting and accrual basis accounting Describe considerations when hiring sales managers and personal assistants and when recruiting sales associates, and identify IRS treatment concerning employees versus independent contractors Describe the considerations regarding development of employment agreements, including the various commission structure plans and what fees and payments typically are deducted from the associate s commission 3 3
Learning Objectives Describe the considerations regarding development of employment agreements, including the various commission structure plans and what fees and payments typically are deducted from the associate s commission Identify important topics to include in a training program for sales associates and what should be included in a policy and procedures manual 4 4
Capital and Start-up Costs Sufficient capital to cover start-up costs and to supplement income for a given period of time At least 6 months of operating expenses 5 5
Capital and Start-up Costs Initial start-up costs include Attorney and accountant fees Office setup and occupancy Office equipment and furniture Signs and lock boxes Board of Realtor and M.L.S. fees Office supplies Promotional materials Advertising, direct mail, and a grand opening costs 6 6
Estimating Income and Expenses - Factors to consider Projections will depend on Scope of company operations Market area and general market conditions Number and projected productivity of sales associates Income sources Licensee/employee compensation 7 7
Developing a Realistic Business Plan Provides direction for an organization Basic Information to Include in Your Business Plan (see page 68) 8 8
Fixed Expenses Occupancy costs Salaries Payroll costs Equipment costs and maintenance Furniture rental Liability insurance Property insurance 9 9
Variable Expenses Commissions A direct deduction from gross commissions Company dollar provides for Operating expenses Broker s profit 10 10
Variable Expenses Advertising Institutional is designed to make the public aware of the firm Specific or product advertising is for one property e.g. ad for a duplex M.L.S. listing fees Telephone Office supplies Printing 11 11
Franchise vs. Independent Firm Advantages of purchasing a franchise Built in referral network Formal training programs National recognition Advertising assistance Management and sales training program Technology benefits 12 12
Franchise vs. Independent Firm Advantages of remaining independent Lower overhead Increased operational freedom Local personality Reduced start-up fees 13 13
Tax Considerations Bookkeeping system (cash vs. accrual method) Recognition of income and expense categories Cash Income when it is received Expenses when they are paid Accrual Income when it is earned Expenses when they are incurred 14 14
Independent Contractor Major requirements: Sales associate must have a license Compensation must be based on production not on hours worked Written contract (IRS requirement) Sales associate responsible for paying federal income tax (no withholding) 15 15
Staff and Sales Personnel Support staff Receptionist Accounting staff Support staff Real estate sales associates Number of associates relates to budget Total transactions needed divided by average sales per agent indicates number of agents required Space limitations Hiring part-time associates Need for a sales manager Occupational licenses 16 16
Staff and Sales Personnel Unlicensed personal assistants and clerical assistants Broker legally and financially responsible for the actions of personal assistants Unlicensed May not be paid a commission May not be classified as independent contractors Licensed personal assistants can only be paid commissions by the broker 17 17
Staff and Sales Personnel Recruitment and selection Set recruiting goals Sources for new sales associates Media advertising Career nights Pre-licensing schools Support personnel Personal contacts Applicants for licensure Referrals from sales associates 18 18
Staff and Sales Personnel Application process Equal employment opportunity laws ADA requirements regarding hiring personnel Application forms Verifying license status References Interview Procedures 19 19
Employment Arrangements and Agreements Tax considerations IRS treatment (employees vs. independent contractors Nature of the independent contractor relationship Factors that describe an employee relationship Noncompete clauses (consult with an attorney) Hours and working conditions 20 20
Reporting Payments Employees vs. independent contractor Record names and Social Security numbers Employees must complete W4 Withhold taxes, Social Security and Medicare Deposit unemployment taxes File form 941 File quarterly Unemployment Each employee must receive a W-2 by January 31 Each independent contractor must receive a 1099 by January 31 File forms W-2, W-3 with the Social Security Admin And 1096 with the IRS by Feb 28 21 21
Compensation of Sales Associates Methods include Straight salary 100% commission with management fee Straight commission with split Commission with bonus Graduated commission 22 22
Staff and Sales Personnel Commission reductions include Fees and payments Franchise fees Sign fees Other fees 23 23
Training Sales Associates Company policy and procedures Technical skills Listing skills Selling skills Technology skills 24 24
Policy and Procedures Manual Define the company's function Types of property Property management policies Brokerage relationship policy Statement of company's objectives Business philosophy Ethical code 25 25
Policy and Procedures Manual Items to include Company status, history, philosophy and goals Responsibilities and requirements of associates Organizational chart Job descriptions Office procedures Employment policies (including compensation policies and employment agreement) Listing and sales policies Buyer representation Property management provisions 26 26
Sales Manager Responsibilities Supervision and control of sales staff Monitoring sales activities and evaluating performance Ensuring compliance with office policies Assisting sales associates with transaction problems Supervising advertising Assign floor duty to those requesting Assuring compliance with rules and regulations Conduct regular sales meetings Monitor listings and pending contracts 27 27
Sales Meetings Regular time and place Review Recent sales and listings Changes in price, terms and so forth Sales activity Company sales and productivity goals Recognition of associate's accomplishments Communication between workforce and management 28 28