4 Steps to Buy or Sell a Retiring Agent’s Real Estate Business

Anyone who’s worked a good part of their adult life to build a business doesn’t just close up shop, lock the door, and walk away into the sunset to retire on an island, leaving all of their assets behind and customers lined up at the door, earnestly, waiting to get inside.

No. Now, that would be insane.

What they do is leverage the value of what they have built while creating an opportunity for someone else to benefit from their hard work–by selling that business.

As real estate agents, we’re no different. Of course, not all of us own a brokerage and lead a team, but that certainly doesn’t make our business any less valuable.  No one has laid out this concept quite like Nick Krautter, an agent since 2006, author of The Golden Handoff and CEO of City & State Real Estate in Portland, OR and Vancouver, WA.

In 2010, when a successful agent at his brokerage was phasing out, Krautter seized the opportunity to buy that agent’s book of business. Since then, he’s bought five or six other agents’ businesses. They’ve been so profitable that he developed a framework for how to do this so that it’s a win-win for both agents.

“Initially, it was huge because when I started doing this, you know, I was what? Four years in the business and we were doing around $8 to $12 million in sales a year. And adopting those clients, I mean, it was…when I teach this, I say it’s a way to exponentially grow by referral. And that’s what happened. Because back then, I didn’t have 22,000 people in a database. I mean, I had 150, right? And so, for me to call my client list wasn’t that big of a deal. You know, I would just start at the top and work my way to the bottom. And two weeks in, I talk to everyone. But then all of a sudden…so that first database, that was 300 people. So, I would bet that by the time we adopted Renee’s database, which was 2010, I bet it doubled our business.”

In our recent two-part series (part one and part two) on The Walkthrough™, the way Krautter breaks down how to adopt or sell a retiring agent’s business is reminiscent of a game of Monopoly, divided into neatly-categorized segments for all of the players involved, along with directions and advice on carefully-strategized moves at every stage of the game.

Right now, there is no shortage of agents reportedly dealing with burnout after a record couple of years of real estate sales across the country. We’ve seen it happen before.

According to the NAR, 338,000 realtors retired between 2007 and 2012 after the Great Recession and the market crash.  And while we can’t predict the future, many agents may be looking to retire altogether.

Unlike the game of Monopoly, however, Krautter strongly recommends that when making the decision to adopt a retiring agent’s business, never start by just “rolling the dice.”

Step #1: Choose the right agent 

“If you’re a retiring agent, and you’re interviewing different people, if you couldn’t honestly say, ‘I will hire this person to sell my house, when I’m ready to sell it,’ then don’t — that’s the wrong adopting agent,” says Krautter. “You need to absolutely believe that this is someone I will hire when I need to buy or sell. If you’re not licensed — if in the future, you’re not doing anything at all, this just has to be someone you would hire. And otherwise, why would your clients work with them?”

Krautter says that the best place to start looking is in your own office. Managers are usually aware of where their agents are in their careers, and letting them know that you’re interested in buying someone’s business will create incredible opportunities to connect with an agent that you already know and is less of a gamble because you’ve, most likely, had a working relationship with them. In addition to that, you will have access to the broker’s analytics to see what you’d be getting yourself into with whomever you choose to partner.

There is no limit to the players in this game, either. Who you choose can even be someone who is currently actively selling, but is in the process of phasing out. You might agree to take over some sellers, or do whatever business they no longer want to do, and when they are ready to call it quits, you will be the one on the receiving end of the golden handoff.

Step #2: Make sure it’s a good fit

Now that you’ve found your partner, you have to have a meeting of the minds. Take a look at how they market themselves, and whether it’s similar to your own marketing and communication style. Another crucial thing is that you look at their database to assess the amount of repeat and referral business they have. Krautter says that it should be at least 50% of their business.

He recalls a conversation he had years ago with a top agent in his office. While this agent was consistently one of the top three agents, his percentage of referrals was only about 5%. For Krautter, this was a red flag.

“Because, how much relationship value does he have with those people, if they’re not coming back and working with him? And they’re not referring. His business was very, very good about getting new leads in the door and getting them closed. But there was not a lot of trying to build relationships and maintain relationships long term. To me, it’s a red flag. The higher the repeat and referral percentages, I think that the more value you’re gonna have in that, in them referring you and their endorsement,” Krautter says.

Step #3: Draft a crystal clear agreement

Just like Monopoly, the rules are clear when it comes to how much money the players earn for all deals. The same applies here. Krautter recommends a three-year agreement between you and the retiring agent. It’s essentially a referral agreement with a 70/30 split in year one, with you receiving the higher percentage. Year two, it’s 80/20, and year three is 90/10. This leaves no room for confusion, and manages everyone’s expectations. Krautter advises against paying out lump sums because you never know how the market is going to swing in three years’ time, and either party could end up being on the losing end.

It’s imperative that this contract be extremely specific in a few areas. One of them is the level of involvement that the retiring agent is going to have.

There are three common levels.

1. Totally done – the retiring agent is just that. Done. They walk away never to be heard from again.
2. Consultant – the retiring agent continues to take initial calls with important clients before they refer them to the adopting agent.
3. Delegator – the retiring agent remains more involved in servicing clients.

Krautter prefers number two and three.

“I would say, generally, just as a rule of thumb, the more engaged and helpful and supportive the retiring agent is in helping you and bringing more value to that client list and adding people to it, keep paying them for that. I mean, my dream scenario is that they’re helping me do more. I would much rather pay 25% forever and have 10 new clients a year that I wasn’t gonna get than get 100% of a database that is limited. I think the more supportive and engaged they are, the more the money could be in the longer term.”

The second thing is to spell out clearly is what, exactly, you’re adopting. Whether it’s only the “A-list” clients or the entire database, Krautter says that it has to be specified. But, he prefers to adopt the entire database.

Marketing is just as important and must also be included in your agreement. The contract should state how the retiring agent and the adopting agent will market together, and even the frequency with which the retiring agent will, for example, make a video with the adopting agent.

“It’s one thing to say, ‘Hey, I promise to stay in touch with your people and market to them,” and it’s a different thing to say, “I will call them twice a year. They’ll be invited to one educational event and one fun client event a year. We will email them market updates monthly, and we will send them our newsletter monthly, quarterly, semi-annually, once a year,’ whatever it is,” Krautter says.

And, don’t forget about tangible items like lock boxes, signs, phone numbers, and websites. Krautter suggests paying a flat price for those.

Lastly, it’s important to point out that the retiring agent has other obligations to uphold. They must agree to maintain a license for the entire length of the contract, inform the adopting agent when they are contacted by clients, and re-endorse the adopting agent when the need arises.

Step #4: Make an official announcement

You can’t expect adopted clients to automatically know that you’re taking over for the retiring agent. The retiring agent has to be committed to this part of the process in order for the golden handoff to work properly.

The first step is for the retiring agent to make personal calls to their core group of clients to announce their retirement and that they already have someone in place to help them. Nick’s script for that call goes like this:

“I’m retiring from the business, but I wanted to make sure you had a great agent to help you. And so, I’ve connected with Nick, and he’s gonna take great care of you. I’ve known him for 10 years. He’s amazing. He’ll be calling you and following up and touching base. And, you know, let me know if you have any questions or needs, but you’re in good hands.”

After that, the clients get a letter with a similar message. The adopting agent sends it, but the letter uses the retiring agent’s stationery and return address. It’s written in the retiring agent’s voice, and includes the adopting agent’s contact information. Once the letter is sent, the same message is emailed to all of the retiring agent’s clients.

At this point, Krautter suggests making a public announcement on social media, perhaps via a Facebook or Instagram Live video.

The final step is for the adopting agent to follow up with a phone call to the same group of core clients that the retiring agent called earlier. In doing so, the adopting agent fulfills the promise the retiring agent made in the script above. The whole idea here is to make it as likely as possible that the retiring agent’s clients will stick with you.

Coming Soon: Second edition of The Golden Handoff

Krautter told us that he’s currently working on the second edition of The Golden Handoff, adding things he’s learned since the book first appeared in 2015. He hopes the updated version will be available by the end of this year.

If you want to create a steady stream of referral income for yourself, all you need to do is follow these steps that Krautter lays out in his book. When buying or selling an agent’s business, you can both become winners. Because you’re not starting by just rolling the dice, you have a plan of action that will keep you ahead of the game until the retiring agent is out of the game.

Header Image Source: (Carrie Allen / Unsplash)