What should you do if your broker goes out of business?

By Jim Gray - April 4th 2020

Even if the doors are open, the lights are on and he is smiling at you, you should start to formulate a Plan B, especially if you have active listings.

I know you’ve got your eyebrow raised right now. I know you’re thinking, “we’re all struggling, but my broker has been in business for 20 years. Besides, if he were about to shut his doors for good, I know he’d tell me.” You might be right. But what if you're not?

In the new world that Covid19 has created, it would be wise to consider the distinct possibility that your broker might be struggling financially more than he lets on. And he may be only moments away from going brutally out-of-business -- I mean lock-the-doors and take your active listings and commissions with him out-of-business. If you think there's no way this can happen to you, I'm sure many of you recall this episode of Million Dollar Listing NY, where Steve is rushing to the office to get what he can before the office closes permanently. Well, what happens if your broker goes bankrupt when your office is already closed because of Covid-19? The truth is nobody knows.

Think about this for a moment: Covid-19 has all but stopped every single normal activity we agents engage in on a daily basis to generate closings. As agents, we might have the ability to weather a shortage of closings -- the reason is, we don't have many fixed expenses -- and the fixed expenses we do have are pretty easy to cut. It’s easy to stop buying facebook leads, cancel client events, not put this month’s newsletter in the mail or simply get rid of the latest “shiny object” that you were using to grow or manage our business.

But what about your broker? What happens when all of the income that he was projecting to receive from the closings you and your fellow agents’ put on the books suddenly stalls or evaporates altogether because of the scourge of Covid-19? How easy is it for him to cut expenses? Can he “cut” the enormous lease expense on the office space? Not Likely. Can he cut all of the staff? Possibly. But he’ll still have to pay unemployment. Can he not pay all the equipment leases he has in place? Nope. And then there are utilities, marketing contracts, consultant obligations, technology fees, association fees and on and on. It is not unusual for a broker’s monthly nut to be in the tens of thousands of dollars. And, it is the small, independent local brokerages that operate on razor-thin margins that are most at risk.

So, here is the question you must carefully consider at this moment: how much money might your broker be losing every month right now? And, how long is he able (or willing) to sustain these losses? And finally (and most importantly) what happens to your existing business if (God forbid) he has to shut his doors?

Below are 5 simple things you can do right now to make sure your present and future business is protected if you elect to stay with your broker.

1) Read your independent contractor agreement. This is critical. You might not even know where it is at this moment. But, dig it out or ask your broker for a copy, and sit down and read it. You must become very clear on what happens to your listings, buyers who are shopping, your leads, or in-progress closings if your broker were to be forced into bankruptcy. It is not uncommon for all of that to be considered the property of the broker and could be tied up for months (or longer) in a dizzying array of legal proceedings. That's right - your lifeline to getting back to business and the people that entrusted you to sell or buy a house may not be able to proceed if you have certain language in your independent contractor agreement, and it won't be up to your broker to make it right once they're in receivership. You may even have to renegotiate your splits for existing listings with the appointed Trustee...when the courts open back up and have time to assign one.

2) If your broker owns the CRM technology you are currently using, find out immediately if you can get a direct account with the CRM provider outside of your broker. It is imperative that you take immediate measures to preserve your database of past customers and current prospects.

3) Speak with a real estate attorney about what specific precautions you might take to make sure that your listings, closings and commissions are protected in the event your broker declares bankruptcy. It is likely that your board of realtors furnishes a free legal hotline that you can call that can also advise you.

4) Begin to interview other brokers. This might be a tough one. You’re probably friends with your current broker. You probably don’t want it to get out that you’re “looking around.” But, to protect your current business and to ensure that you can continue to do business in the future, it is critical to have a viable Plan B in place. Just in case. You may only have 24 hours to switch your clients and transition your CRM database, and you owe it to yourself and your clients to know what your next best option is before it happens.

5) Flat out ask your broker how many days of operating cash they have left, and whether he would let you know if they were about to run out. I know this may sound scary, but this is your livelihood too. You need to be prepared, and if he really cares about you, he'll shoot you straight. And if he really care about you, he should be fine with you having a Plan B just in case the worst-case scenario plays out.

These are crazy times. Take care of yourselves and your family. If you need more personalized advice specific to your circumstances, let us know - send us a question or email us at [email protected]