Starting your own agency? Here’s what you absolutely need to know

Many real estate agents have a long-held dream to start their own agency. But it’s not as simple as handing in your resignation and getting down to business. In fact, before you get into the nitty gritty, there’s one big decision you need to make, and that’s what structure you plan to use. O*NO Legal-The Real Estate Agents’ Lawyer Founder Kristen Porter shares the ins and outs of going out on your own.

When you’re starting your own agency, there are a lot of different factors you need to consider.

The main one? Which startup route you’ll take to establish your agency.

There isn’t a one-size-fits-all method to starting your own business, and there are various structures you can choose from.  

Running solo

The first option is to literally go it alone. That means, no help from anyone. But even if you do go down this route, there are two different ways to structure your solo business – as a sole trader or a company.

Sole traders are the least complicated when it comes to the initial set up. Sole traders own and operate the entire business.

This type of structure is inexpensive to set up and maintain, and there is less compliance, legal, and reporting requirements.

You’ll be the boss, retain ultimate control, and keep all the profits. It sounds appealing, and it can be, but becoming a sole trader comes with ample risk.

In fact, it’s probably the riskiest option of them all – especially when it comes to your personal assets.

A sole trader assumes unlimited liability – therefore, you will be responsible for any debts and losses your agency suffers.

That means both your business and private assets could be in danger if something were to go wrong, including your home.

The next option is to set up a company, which is considered a separate entity. That means it can hold its own assets, be sued, and can sue others.

Companies are owned by shareholders, also known as members, and must have at least one at any time. If you establish a company, you can be the only shareholder, meaning you still own the entire business.

As a shareholder, you generally can’t be held liable for the company’s debt. This is because the company can incur debt in its own name.

However, if you do go it alone, then you’ll also need to be the company director – this is the person who is responsible for the daily operations of the agency. If you breach your legal obligations as a director, then you can be held personally liable for the debts the company ensues.

In the long run though, establishing a company will limit your liability and therefore protect your assets.

Teamwork makes the dream work

If you’re not game to go out completely alone, you can start a business with one or more others, and one common way to do this is through partnerships.

In a partnership structure, two or more individuals will carry out the business together with the losses and income distributed equally.

There are limited legal, reporting, and compliance requirements for partnerships – but each state and territory has their own partnership laws.

Like sole traders, partnerships are generally easy and inexpensive to set up, but the risks are similar too.

Liability is unlimited, meaning the personal assets of all partners will be at risk if things go wrong with the business and its assets.

Worse still, if one partner cannot pay their part of the debt, the other will have to make the remaining amount first and then take legal action against that partner to be compensated.

For this reason, the partnership business structure is slowly going out of favour, with most businesses now opting for a more asset-secure structure, such as a company.

Taking advantage of an established brand

A third option is a compromise – technically running your own businesses but without starting from scratch.

This can be done independently, like when you purchase a rent roll, or with a network, like going into a franchise.

Through a franchise you’ll be able to operate your real estate agency under the brand of another agency or business.

This means, you can launch your business by buying an already established and operating brand. You’ll know exactly how the business is operating and how successful it can be, rather than going into a new business completely blind.

On top of that, you won’t have to spend big on marketing to build brand recognition. In other words, you’ll have the benefit of owning and running your own agency, but with the comfort and safety net of an experienced support network.

For example, through a franchise, you won’t have the stress of having to develop your own training, policies, agreements, systems, and procedures as the franchise brand will have them ready for you.

As with anything though, there are risks, and one of the big ones for franchises is there can be large set up costs, however this is offset by the fact they are giving you everything you need to start your business.  There are also the ongoing costs in the form of royalty fees, which you’ll have to pay the franchise owner.

When going into a franchise you’ll be required to adhere to the guidelines set by the franchisor – this will limit your creativity and decision-making.

Buying a rent roll

When starting out, some agents decide to purchase a rent roll to ensure they have consistent cash flow.

A healthy rent roll can lead to an increase in your database, which can result in additional opportunities and a potential injection of income into your business, providing you with a stable, recurring income stream over time.

There are risks with going this route though, including falling victim to misleading or deceptive conduct, which results in you buying a lemon, rather than the business asset you were getting.

The vendor may exaggerate the value and condition of the rent roll, and if you don’t do your due diligence, you may end up spending your startup funds on the wrong thing.

Like any major decision, checking the fine print is critical, as is accessing the expert opinion of someone who knows what they’re talking about.

Going out on your own can be an exciting and worthy venture – if done right!

  • O*NO Legal will host a free webinar, From start to success: the legal ‘must haves’ for an unbreakable agency, on April 27 at 10.30am AEST. You can reserve your seat here.

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Kristen Porter

Kristen Porter is a legal practitioner specialising in real estate, property management and privacy laws. She is the founding Director of O*NO Legal The Real Estate Agents' Lawyer.

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