Real Estate Team Valuations

The market for teams continues to evolve. REAL Trends merger and acquisition consultants have advised, valued or brokered several transactions in the last six months.

By Steve Murray, publisher

Here are some things we’ve learned in attempting to build the value of a team (or a brokerage for that matter):

• Value is driven by the consistency of results and growth of results.
• Value is created when a residential brokerage business results are based on the production of many and not an individual or a small number of people.
• Value is driven by solid operating and personnel policies.
• Developing excellent reports that detail the operation of the business and legal agreements which are used to run the business are vital.
• A team’s business is primarily based on the leader’s sphere or relationship business, so the value will be lower than where this is not the case.
• When a team’s business is primarily based on a client procurement system outside of its sphere or relationship business, the value will be higher than otherwise.  When a team has developed a means of getting clients, whether online leads or direct mail and a means for converting those opportunities to closed business; then that team has built higher value.
• The relative level of value can also be measured by how easy or hard it is for some other team or individual sales associate to replicate the client procurement and conversion system. If it’s difficult; value will usually be higher.

Finally, as with valuations and deal structures for brokerage firms, the terms of a deal can affect the valuation of teams. There is likely more risk in the purchase of a team that produces $4 million in gross revenues than a brokerage that does. So, a team wishing to sell or purchase another team will likely offer less in terms of cash and more in terms of contingent payments based on performance over time.  While some brokerage firms and a few teams have paid higher prices and better terms for high-producing teams and individuals, they are accepting a higher risk to do so.