Wednesday
July 26, 2017

Your Book of Business is Worth Money

      |
-A A +A

Your Book of Business is Worth Money

Even when you leave the business, opportunity knocks. Your client list, goodwill, and business equipment are valuable commodities. If it’s time for you to move on, don’t discard your gem of a business without compensation.

Thinking of retiring, moving to another market, changing careers? Then now’s the time to value your book of business--your lovingly tended list of clients and customers--and to draw up a sales plan to ensure that you receive your blood, sweat, and tears equity back in cash.

With the real estate industry’s continuing consolidation, your book of business is an extraordinarily valuable competitive tool—one other salespeople or companies may be willing to pay for. Don’t undervalue it, say those who’ve sold.

“I was one of those salespeople who didn’t think my book was worth very much,” says Tony DiCello, a $32 million producer in 1996 who sold his Boulder, Colo., book of 2,500 clients and customers almost two years ago when he got into real estate training. “As it turned out, I got a deal that was two to three times better than what I had imagined possible.”

Three good reasons to sell now

These are the golden years for the U.S. economy, and in most areas of the country, residential real estate looks particularly good. In fact, the NATIONAL ASSOCIATION OF REALTORS® reports that existing-home sales rose 2.7 percent in November 1998 to a seasonally adjusted annual rate of 4.9 million units, just short of the record seasonally adjusted annual rate of 4.91 million units set in July 1998, and home sales for the year surpassed 1997’s record-breaking sales total by more than 13 percent.

“We’re in a sustained economic recovery, which means home values have gone up quite dramatically, which means that commission revenues are going up,” says Scott Gabehart, president of VR Business Brokers in Scottsdale, Ariz., and author ofThe Upstart Guide to Buying, Valuing, and Selling Your Business. “In turn, that means what’s being paid for businesses and individual books is going up.”

Second, interest rates, which broke record lows in 1998, are expected to stay down in 1999. “If you’re going to sell, this is a great time,” says Gabehart—even more so if you think rates may creep up in the next year. “I’m of the mind-set that says, ‘Better safe than sorry.’”

On top of the economic reasons is a demographic one. The number of salespeople looking to sell may jump in the next several years, creating a buyer’s market. “The real estate industry is in its second generation,” says Bill Barrett, president of Bill Barrett Seminars in Rochester, Mich. “The average ages of real estate salespeople today are between 54 and 56. That means there are a lot of people who are 60, 65, or 70. Many of those people are looking to sell.”

You’ve got a lot to sell

So the market is ripe. Now what? Part of the key to receiving top dollar for your business: Realize that you’re selling more than a book. “We sell salespeople’s past customer and client list and their sphere of influence mailing list--people who aren’t clients but are valuable contacts,” says Robert M. Bohlen, a salespersonwith Prudential Preview Properties in Brighton, Mich.,and president of Bohlen & Associates, an international company that brokers real estate, medical, and legal businesses. He began helping individual salespeople sell their books of business almost two years ago.

“In addition, we sell their listing inventory,” he adds. “Generally, top salespeople already have an agreement with their brokerage that gives them ownership,but if brokers own the individual businesses [or inventories], we go in and purchase it from them.

“We also sell their hardware and software, signs if applicable, any other hard assets, such as office furniture, and the goodwill of the business, which is particularly important,” Bohlen says. “The goodwill value is based on salespeople’s status or reputation in the company." And although someone can't buy another salesperson's designations, Bohlen points up the importance of the seller's designations and NAR membership in establishing a book of business's goodwill value.

Say no to undervaluing your business

Ironically, although consultants maintain that the time’s right for salespeople to sell their business, most, like Tony DiCello, don’t realize their business has any value—or significantly undervalue it.

“Historically people have simply left the industry without turning their lists over to anyone,” notes Dorothy O’Kelley, a salespersonwith Mel Foster Co., an independent brokerage in Davenport, Iowa. “It has been a real waste, very unfortunate, because they’ve spent years building their business, staying in touch with those people, developing trust and a relationship.”

Two and a half years ago, O’Kelley and her husband acquired the 300-client book of a retiring salesperson, a longtime friend, and continue to work it. "The salesperson sent a letter to her clients saying she was retiring and recommending they work with us in any future transactions,” O’Kelley says. “In return, we paid her cash for her furniture and equipment, and we hired her licensed assistant to work for us. We also pay the former salesperson a residual fee from our commission, which declines as a percentage over a period of years.O'Kelley wouldn't specify the amount.

Mel Foster Co. is paid a fee for all of O’Kelley’s business, including the book she bought.

“We’ve gotten quite a bit of business from [the client list],” says O’Kelley, who notes that she and her husband did $11 million in 1998, up from $9 million in 1997, with help from the list. Her total client database now tops off at 1,200 names. Each year, though, the amount of business and referrals she gets from the list goes down a bit.

Nonetheless, she says, “I would consider buying a book again and certainly plan on selling mine when I retire. The transaction was new to the Davenport area, but since then other salespeople have called us asking how the deal was worked out."

A brave new world of business

If O’Kelley’s transaction was novel a couple of years ago, it may be more common today. Bohlen, for instance, says he has sold about 21 such businesses, including DiCello’s, since he started helping individual salespeople sell their books of business, usually to practitioners in the seller's community, about two years ago.

And he believes salespeople can negotiate deals even more lucrative than O’Kelley’s.

“I thought it was pretty silly that doctors or accountants could sell a share of a partnership but a real estate professional couldn’t do the same thing,” he says. "The prices we’ve gotten for individual salespeople have ranged from $50,000 to $600,000. [I] think any salesperson can sell his or her book of business, though obviously top performers receive more.”

Barrett notes that such deals are good for buyers, too: “If I were a buyer of a top real estate salesperson’s business and negotiated to give the seller a 25 percent referral fee over the first two years, I would think that’s a pretty good deal. Buyersdo the same thing if they get a referral from a corporation or relocation company, so why [settle for less]?”

How does a transaction work? In Bohlen’s case, clients continue to receive commissions for properties sold,in some cases for up to five years. He says he also structures his deals so that individual salespeoplecan receive from 20 percent to 50 percent in cash up front.

Bohlen, who receives a negotiable fee for his work, won’t reveal his proprietary valuation formula but says, “We calculate the present value of future business. We do two analyses of the business, one as a stand-alone entity, and another that integrates the seller’s business into a prospective buyer’s existing business. Both cover a three-year period, and we crunch all the numbers we need from tax returns and other data.”

An exercise worth repeating

The results, say several salespeople, have been worthwhile. One of Bohlen’s clients, Lisa Burridge, who had been a RE/MAX--Results Realty salesperson in Evanston, Wyo., for 15 years and had 2,500 names in her book, decided to move out of state in October1997.Four people bid, including one outside her market, and her business sold in less than three weeks. She receives several cash payments and a percentage of the commission on sales from her database of clientsfor the next few years.

“It was a seamless transition,” says Burridge, who recently returned to Wyoming. She's now a salesperson with Realty Executives in Caspar. “The salesperson I sold my business to had his best year ever in 1998, so he feels it was a good deal. And I’m working with Bob Bohlen in my new community with the goal of buying someone’s book here.”

DiCello, who's now establishing new offices for Keller Williams Realty in Arvada, Colo., had seven bidders for his business and closed the transaction in 60 days. “I sold it to the person whose personality was closest to mine and who I thought could do the best job for my clients and customers,” he says. “The deal involved cash up front and financing, and commissions to be paid to me for up to three years.

“I also need to do certain things for the buyer,” DiCello says. For instance, he sends postcards with his and the new salesperson’s names to his database of clients and customers to help him generate business, which means more referral fees for DiCello. “I don’t mind doing that because in the long run it benefits me.”

And isn’t that what selling your business should be about—a benefit to you?

Business Broker, Where are You?

For help in selling or appraising their businesses, “salespeople should pick up the phone book and look up business appraisers and brokers or call the local real estate school for recommendations on experts in the local market,” says Scott Gabehart, president of VR Business Brokers in Scottsdale, Ariz., and author ofThe Upstart Guide to Buying, Valuing, and Selling Your Business. A key thing to ask is whether they have any experience in valuing similar businesses.”

Finding that experience could be difficult because the concept of selling an individual’s book of business is [relatively] new. “There’s no real estate franchise that has established a formula for how salespeople can value and sell their individual businesses,” says Bill Barrett, of Bill Barrett Seminars in Rochester, Mich. If you're looking for help, contact these business experts for starters:

Bill Barrett, president
Bill Barrett Seminars
Rochester, Mich.
800/432-1977

Robert M. Bohlen, president
Bohlen & Associates
Brighton, Mich.
810/220-1500

Scott Gabehart, president
VR Business Brokers
Scottsdale, Ariz.
602/681-4357

Pick the Perfect Buyer

You’ve decided to explore selling your book of business. To put together the best deal possible, look beyond friends and immediate business associates, inside and outside your market, for potential buyers: Don’t hesitate to contact other salespeople to see whether they have any interest in buying, say those who’ve done it.

“I ask salespeople in my market whether they know someone who’s retiring or getting out of the business,” says Lisa Burridge, a salesperson who moved away from her company, RE/MAX--Results Realty in Evanston, Wyo., and sold her book of business, and who's now looking to buy another book.

“We analyze all the salespeople and brokerage companies in the person’s marketplace and canvass them to determine whether they have an interest in acquiring or growing a practice,” explains Robert M. Bohlen, president of Bohlen & Associates, a firm that brokers the buying and selling of real estate, medical, and legal businesses. “If they do, we have them sign a legal and binding confidentiality agreement before we provide them with any information. We then provide them with a computer analysis and history of the practice we’re marketing, entertain offers, and negotiate the transaction.”

Casting a broad net for would-be buyers doesn’t mean that a salesperson’s best friend or colleague at the next desk may not be the best buyer.Burridge sold to another salesperson in her RE/MAX office; Tony DiCello, with Keller Williams Realty in Arvada, Colo., didn’t sell to the highest bidder.

“When you do these transactions, you want everyone to be happy,” DiCello says. “So selling isn’t just a financial issue. There are many other factors that go into the decision about who the buyer should be. It’s not unlike getting married.”

1.5
Average: 1.5 (2 votes)
Your rating: None

Notice: The information on this page may not be current. The REALTOR® Magazine archive is a collection of content previously published on RealtorMag.REALTOR.org. The archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.