Buying a 12-agent shop where three agents are 61% of the revenue

I've been circling a small independent brokerage in a secondary market for about four months and the seller finally sent real numbers instead of a summary page.

What I have:

12 licensed agents, 9 of them closed something in the last 12 months
gross commission income $1.9M trailing twelve
company dollar $340k, so about 18% retained after splits
add back owner comp of $95k, seller calls it $435k of "owner benefit" which I think is generous since he still lists personally and about $210k of that GCI is his own production
asking $525k, wants 40% down, willing to carry the rest over 36 months at a rate we haven't argued about yet

The part I can't get past: three agents produced 61% of the GCI. Two of them have been there under two years. Their independent contractor agreements have a non-solicit but I've read it twice and it reads more like a wish than a clause.

So the decision in front of me is how to price a business whose assets can text their sphere on a Tuesday and be somewhere else by Friday. I've sketched two versions. One is a flat lower number, call it $340k, with no earnout and I eat the churn. The other is $180k down plus 22% of company dollar from named agents for 24 months, capped at $520k total.

Seller hates version two, obviously. He says he's selling because he wants out of the churn risk, which is precisely the risk I'm asking him to keep.

I don't know if I'm overcorrecting. Anyone bought a book where the concentration looked like this?

Answer

1diane_kowalskiPassivePRO9

Version two is the right shape and the seller's objection actually proves it. He's telling you the churn risk is real enough that he wants it off his own balance sheet. That's the whole valuation argument in one sentence.

Two things I'd change though.

First, don't name the three agents in the earnout. Name a production floor instead. If you tie payments to agents A, B and C by name, the seller has every incentive to keep those three happy and no incentive to help you develop anyone else, and you also hand him a reason to argue about whether a departure was your fault. Tie it to total company dollar from the acquired roster excluding your own recruits. Cleaner to measure and it doesn't create a side game.

Second, get someone licensed in your state to read the non-solicit before you price anything off it. Enforceability of restrictive covenants against independent contractors varies a lot state to state and some states have been narrowing them hard. If it's unenforceable where you are, then it isn't a discount you're negotiating for, it's a fact about what you're buying, and the price has to reflect that the roster is fully mobile from day one.

The other thing sitting in your numbers is that $210k of the GCI is the seller's personal production. That is not company dollar at 18%, that's revenue that leaves with him entirely. Strip it out and your trailing GCI is $1.69M and your real company dollar is lower than the headline. I'd rebuild the whole model on the 11 agents who aren't him and see what the price looks like then.

4 replies

1joe_delgado5AP4CPRO6

18% company dollar is thin and I'd want to know exactly why before anything else. Is it a cap model? If agents cap at some number and then run at 95/5 for the rest of the year, your top three are producing most of the volume at almost no margin to you and the 18% blended figure is hiding that the marginal dollar from your best people is worth close to nothing.

Ask for the split schedule agent by agent and the cap reset date. I've seen a shop where the two producers hit cap in April and the owner spent eight months running an office for free.

Also arbor is right about the seller's own production but I'd go further. If he's carrying paper for 36 months and he's also the guy whose $210k walks out the door, he has a reason to stay engaged. Make some of the carry contingent on him referring his sphere to the house for a year. He'll say no. Start there anyway.

3aliyah_bAU2APRO6

Boring question from someone who has never run one of these. What's in the $340k of company dollar after actual costs? MLS and association dues for 12 people, E&O, transaction management software, whatever the office lease is. When I priced out just the fixed per-seat cost of keeping a licensee active in my area it was more than I expected, and that was before anyone answered a phone.

If the seller's $435k "owner benefit" is calculated before those, the number is fiction and you should ask for the actual P&L with the vendor invoices attached.

1Rena Expert

The valuation question turns on one assumption: whether you're buying revenue or buying infrastructure. Those price very differently.

If the 12 agents are a book of business, concentration risk dominates and arbor's structure is the correct response. Revenue that can relocate by email should be paid for as it arrives. If instead the brokerage owns something the agents can't take with them, a compliance and training function they actually rely on, a lead source the house controls, an admin staff that makes their files close, then a larger fixed payment is defensible because departures are less likely and replacement is faster.

Nothing in your post suggests the second case. You describe splits and headcount and nothing about what the firm does for the people in it. That is the diligence gap.

On the wider picture: brokerage economics are directly exposed to the post-settlement changes in how commissions are negotiated and disclosed, since firm revenue is a function of what its agents collect. Combined commissions have held steady through 2025, which has blunted the worst forecasts, and the firms gaining ground are those helping agents handle written buyer agreements and compensation disclosure rather than those running on headcount. A shop retaining 18% with nine active producers and no visible service layer is on the wrong side of that. Ask the seller what his agents get for the 82%, and if the answer is a brand and a lockbox key, price it as a roster purchase.

Flint's point about cap resets matters more than it looks. Get the schedule and rebuild the trailing twelve month company dollar month by month, not as a blended percentage. Two agents capping in spring changes the shape of the year entirely.

Confirm the non-solicit question with a lawyer licensed where you'd operate before you commit to either structure.