RES 497 Week 3 Assignment

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Feb 20, 2024

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Cooper Realty, LLC Elena A. Cooper RES 497 Strategic Management of the Real Estate Enterprise Margaret Vivoda October 23 rd , 2023

Introduction A business plan is a document that details a company’s goals and how it intends to achieve them (Hayes, 2023, p.1). The following paper is an explanation of the financial costs for a real estate brokerage startup. Cooper Realty has gone through all the expenses for the company to become a brokerage and their plan to thrive in the growing market. Start-up Costs Licenses In order to start a real estate brokerage office in the state of Virginia, you first need to get your real estate salesperson license. In order to get your license, you must take a 60-hour pre- licensing course. This course takes about a month and can range from $200 to $500 to complete. After you complete the course, you will then need to take the real estate exam. The exam will take 2 ½ hours to complete and cost $60. You will also need to pass a background check, which will take 4 to 6 weeks to complete and cost $52 to take. After all of this you can file for your real estate salesperson license and pay $170 when you file. After you have completed all of these steps, then you can start on the brokerage license part. To be considered for a brokerage license you need to be an active, full-time realtor for at least the last three years prior to applying for your brokerage license. Another stipulation before you can apply, is that you have to complete 180 hours of real estate courses. These 180 hours do not include the 60 hours that you completed for the salesperson license. These hours can cost you about $1100 to complete. After these hours are completed, you can take the brokerage test and if you pass you can apply for your license. Taking the test and applying for your license will cost $270.

The last license that you need to obtain is your business license. Some states do not have statewide license requirements, but if you work in certain industries you are required to have one. Virginia is one of those states. “Real estate brokers, engineers and home inspectors, for example, must obtain a state license” (Iwuozor & Main, 2022, p.3). The first step in getting your business license is to choose a name for your company. The author of this business plan has decided to name their brokerage. Cooper Realty. They have also decided to form a limited liability company (LLC) and will have to file the articles of organization with the Virginia State Corporation Commission. They will file for an EIN, or an employer identification number, this is used to file taxes and pay employees. After doing these things the owner can then get a business license. Real Estate Fees When it comes to starting a real estate brokerage there are different fees that you will have to pay before you can even open the doors. Multiple Listing Service (MLS) “is a database established by cooperating real estate brokers to provide data about properties for sale (Chen, 2022, p.1). This could cost a broker between $36 to $60 per month. Another fee would be the REALTOR association fee, which includes local, state, and national REALTOR association fees plus one-time application fee. This fee would cost the brokerage between $500 and $850 per year. Insurance In the state of Virginia, there are different types of insurance that are required for you to have before you can open the doors for business. The first thing that you need to get squared away in the insurance category is getting a business owners policy. A business owners policy can cost between $700 and $3800 per year. This type of policy includes general liability insurance,

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commercial property insurance, and business interruption insurance. According to TRUiC (2023), generally liability insurance protects a business from the financial burden that could come from claims arising from bodily injury, personal injury, or property damage (p.2). Business interruption insurance will replace some of the income you may lose for a period after a covered loss. TRUiC (2023) states that commercial property insurance is put in place to repair in case you must repair your building, tools, furniture, or any other physical object in the event of a covered catastrophe (p.4). The next type of insurance is worker’s compensation insurance. Being a brokerage, the realtors will technically be self-employed and will file 1099’s so they would not be able to file a claim for workers compensation, but there will be some employees that would be w-2 and they would be able to claim. These employees could include the manager and receptionist. The average cost of a workers compensation insurance is $45 per month. Another insurance that you need to have before starting work is errors and omissions (E&O) insurance. Errors and Omissions (E&O) insurance is a type of professional liability insurance that protects companies, their workers, and other professionals against claims of inadequate work or negligent actions (Frankenfield, 2023, p.1). E&O insurance can cost $500 to $1000 per employee per month. Office Space The next step to opening your own business is to find a place either to buy or rent. Cooper Realty LLC has decided to rent a space. Cooper Realty decided on 150 Riverside Parkway in Fredericksburg, Virginia. Suite 309 is 6933 square feet with 28 separate rooms and a reception area. According to LoopNet, it costs $18 per sq ft per year to rent the building. The rent for the suite would be about $10,500 per month. The owner would have an office, along with a

file storage room, printer room, and three conference rooms. This would leave 22 rooms for realtors. The brokerage would rent out 17 rooms to realtors that would want office space. They would have 3 rooms that would be set up for realtors to drop in and work. Renting out these spaces would help pay for the rent. Computers, furniture, and fixtures There are many things that the brokerage would need to buy to start their company. They would need furniture, like desks, chairs, tables, couches, etc. They would need computers and filing cabinets and even pens and paper. They would also need to get a copier, printer, scanner, and anything else that they would need to run the day-to-day business. Cooper Realty is allotting $50,000 for the company to be able to buy the things they would need. Anything that is left over from the initial startup will be placed in an account for when they need to buy other supplies. Marketing and advertising expenses When a company is first starting out, they need to be able to advertise their company. Cooper Realty will need to start before they enter the building, they are renting to be able to get realtors to be a part of their company. They will then need to advertise their business. They would also need to pay for signage for the building, business cards and flyers to promote the opening of the business. Cooper Realty will be allotting $10,000 to the initial setup of marketing and advertising. All unspent funds will be placed into an account for further marketing and advertising needs. Initial staff training and development All staff need to be trained. When it comes to a brokerage most of the staff would be realtors and they have already been trained. The only people that the brokerage would need to train would be the receptionist and the office manager. Cooper Realty can hire people with prior

experience, and this will cut down on the costs that they would have to spend to train new employees. Fixed Expenses Fixed expenses are expenses that need to be paid every month and are not expected to change. These expenses make it easier to budget because you know what the cost is going to be month to month. The following chart shows the fixed expenses for Cooper Realty by month, year, and two years. Expense Per Month Per Year Per Two Years Rent $10,500 $126,000 $252,000 License Renewal Fees n/a n/a $65 Post Licensing Education n/a n/a $200 E&O Insurance $60 $1,440 $2,880 MLS Fees $60 $1,440 $2,880 Business Owners Policy $317 $3,800 $7,600 REALTOR association fees $71 $850 $1,700 Workers Compensation $45 $540 $1,080 Variable Expenses A variable expense is an expense that can vary from month to month. These can vary from utilities and marketing to supplies. You can never plan for how much you will use throughout the month. Cooper Realty understands that these vary and has planned an allotment of money per month as a base for the expenses. See the table below for their expenses. Expense Per Month Per Year Per Two Years Utilities n/a n/a n/a

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Marketing/Advertising $200 $2,400 $4,800 Supplies $500 $6,000 $12,000 Plan To Cover Startup and Expenses The first thing that Cooper Realty plans on doing is getting a business loan. The brokerage would shop around and see which bank would work right for them. Cooper Realty would be looking for a loan of $500,000 to cover start up expenses and have some money in the bank for the first year. The owner would cover the cost for her real estate license and brokerage license, along with all the post licensing classes. The company is hoping to have half of the offices rented on the day they move into the office space to cover the rent and utilities for the upcoming months. Anticipated Revenue Sources There are many types of anticipated revenue sources. The major one would be from the rental spaces that Cooper Realty is offering to the realtors. The brokerage would supply a desk and chair and file rack for each office and charge a fee to cover the rental of the furniture and the utilities. The next revenue source would be commissions from the realtors. When realtors enter into an agreement to work for a brokerage, they agree that part of their commission would go to the realtor. A break-even point is something that is hard to figure out when you are not sure of how many people would be renting your space. I would assume that it would take a couple years before we are able to break even. Overall Viability The author would like to think that this company can make it in the real estate world. Cooper Realty will need to understand that they are not the only real estate brokerage out there and they need to be willing to work with their realtors and come up with a plan that works for

them. They need not base it off what everyone else is doing. Cooper Realty could go far in this market if they are always budgeting and sticking to their plan.

References Chen, J., (2022). Multiple Listing Service (MLS): Definition, Benefits, and Fees. Investopedia. Retrieved from https://www.investopedia.com/terms/m/multiple-listing-service-mls.asp Frankenfield, J., (2023). Errors and Omissions (E&O) Insurance. Investopedia. Retrieved from https://www.investopedia.com/terms/e/errors-omissions-insurance.asp Hayes, A., (2023). Business Plan: What It Is, What’s Included, and How to Write One. Investopedia. Retrieved from https://www.investopedia.com/terms/b/business-plan.asp Iwuozor, J. & Main, K., (2022). How To Get A Virginia Business License (2023 Guide). Forbes Advisor. Retrieved from https://www.forbes.com/advisor/business/virginia-business- license/ TRUiC Team, (2023). What is a Business Owners Policy? How to Start an LLC. Retrieved from https://howtostartanllc.com/business-insurance/business-owners-policy TRUiC Team. (2023). General Liability Insurance. How To Start an LLC. Retrieved from https://howtostartanllc.com/general-liability-insurance

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RES 497 Week 3 Assignment

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