Put $40k into a friend's brokerage. The headcount was real, the company dollar wasn't.

The pitch was 11 agents, a recognizable local name, and a founder who'd been in the business 14 years. I looked at agent count and closings and thought I understood the business. I didn't.

Prior year: 63 closed sides, average commission per side $8,400, so about $529k of gross commission income coming through the door. Average brokerage share across the roster was a hair under 20% because the top three producers were on 90/10 and everyone else was on 70/30. That's roughly $106k of company dollar for the year.

Overhead: office lease $4,200 a month, so $50k. A transaction coordinator at $46k loaded. E&O, MLS participation, association dues, tech stack, another $30k or so. Call it $126k against $106k. The business was underwater before anyone drew a salary, and the founder was covering the gap out of his own production, which is why nobody noticed for two years.

I paid $40k for 25%. Nine months later there was a capital call and I put in another $9k because I'd already anchored. The shop merged into a larger firm 14 months in, the acquirer paid for the roster and the trailing pipeline, and my share of that came to about $11k. Net loss $38k plus the time.

What I'd do differently: underwrite company dollar per agent per month against fixed overhead per agent per month and ignore headcount entirely. Eleven agents producing 5.7 sides each is a roster, not a business. And I'd read the capital call language before wiring, not after.

Answer

2joe_delgado5AP4CPRO6

The split structure isn't what killed that shop, tally. 20% company dollar on $529k is thin but survivable if the overhead was half what it was. A $4,200 lease and a full time coordinator for 63 closings a year is a 200-side cost base sitting on a 63-side business. Those top three on 90/10 were probably the only reason he had a roster at all, so squeezing them wasn't available either.

I looked at a similar buy-in two years ago, 8 agents, and the thing that stopped me was asking for the closing log by agent by month. Four of the eight hadn't closed anything in five months. On the roster they counted. On the P&L they were E&O premium and a Zoom license.

2 replies

1devon_pierce Get yoursPRO5

What did the operating agreement say about capital calls? Mine is the same question every time someone shows me a minority stake in an operating business. If the majority holder can call and dilute you for not funding, the $40k was never really $40k.