A thoroughly planned partnership venture can bring satisfying results for all parties.
By Regina Ludes
When Sherie Broekema, CRS, attempted her first professional partnership arrangement shortly after moving to Arizona early in her career, the results were disastrous.
“I had referred all my business to someone I liked, but they never followed up with my clients,” Broekema recalls. “I made a huge error in judgment. I did not choose someone who was competent.”
The veteran broker is enjoying better success today after husband-and-wife partners Tom and Janie Ebenhack joined her team in 2012. The couple, whom she met while working at the same brokerage, now handles residential sales for her buyers and sellers while she focuses on the senior market. “I don’t have to worry about my clients because I know Tom is taking care of them,” says Broekema, who is with Long Realty Company in Tucson, Arizona.
Some agents form partnerships to launch a new business, while others take on a partner to scale back on sales activities, ease into retirement or expand their service offerings to clients. However, many partnerships fail because either the partners have not thoroughly planned their business venture in advance or they did not choose the right partner. By following several key steps, from vetting potential partners and discussing each partner’s role and responsibilities, to getting legal advice and negotiating an exit strategy, agents can enjoy a lucrative partnership business for the long term.
Find the Right Partner
“Finding the right person is the first—and often the most important—step when forming a partnership,” says Samantha Chechele, a real estate and tax attorney based in St. Petersburg, Florida. Many partnerships fail because partners jump into the arrangement with someone they know and like rather than someone whose talents and temperament align with the needs of the business.
What agents should look for in a potential partner depends on what they want to accomplish in their business, adds Chechele. “If you are looking to share the workload, then agents need to look for someone with a similar work ethic. To balance out a team, look for someone who complements what you do. For example, if you are a marketing person who drums up business, look for someone to handle the backend, day-to-day operations,” she says.
For some agents, finding the right partner may take a few weeks. For Broekema, it took five years. During that time, she considered several potential partners, but none of them fit her criteria. “I thought this time I better find someone with the same work ethic and value system I have,” recalls Broekema.
Her partners Tom and Janie Ebenhack had already built a solid business of their own at Broekema’s brokerage. “They always followed up on all my overflow leads and worked well with my clients. Tom is strong in technology, while my strength is relationship building, so when we became partners, I became a rainmaker for the team. Every piece of business I generate goes directly to them,” Broekema explains.
Hash Out the Details
Where many partnerships fail is in the planning phase, Chechele says. “Agents need to put a lot of thought into a partnership, resolve differences and then get it all in writing,” she says. Finalizing the details up front can result in fewer problems down the road.
Before becoming partners, Scott Sammons, a CRS Candidate in Boulder, Colorado, and his partner Grant Muller, CRS Candidate, had multiple conversations to discuss the vision for their new venture, including how the business would operate, the responsibilities of each partner, and most important for both of them, how to keep innovating their business. The two met while working at the same brokerage until Muller left in May 2012 to start Spaces Real Estate. After finalizing the details of their business, Sammons joined Muller the following October, along with Sammons’ wife.
“It’s important to spend time learning how each person approaches problems. Because we worked together previously at another brokerage, we knew how the other person worked and it was easier to form a partnership as a result,” says Sammons.
Nuts and Bolts of Partnership Agreements
Whether hiring an attorney to draw up a partnership agreement or creating it yourself, here are some of the most common terms that should be included, according to Findlaw.com:
- The proposed name of the partnership business.
- The respective contributions and ownership percentage of each partner.
- How profits, losses and draws will be allocated.
- The authority of the partners — will the decision of one partner be binding on the entire partnership?
- The decision-making authority of each partner. Will one partner have the deciding vote?
- The management responsibilities of each partner. For example, who will handle bookkeeping?
- The exit strategies. What happens to the business in the event one partner decides to leave, becomes disabled or dies?
- How disputes will be resolved.
Meet with an Attorney
Once partnership details have been worked out, both parties should meet with an attorney who can advise them about the entity’s tax structure and set up a written agreement. While partnership agreements do not need to be in writing, many legal experts say it protects partners from potential disputes. “Without a written agreement, the terms of the partnership may not be enforceable,” Chechele says.
Sammons says their partnership agreement was easy to negotiate because he and Muller “shared the same vision for the company.” An attorney helped them set up their business entity and formalize their operating agreement. The partners also consulted with a risk management attorney and a marketing expert that Muller knew who helped them develop their brand.
After Broekema and the Ebenhacks consulted with company management and several other teams at Long Realty about how to proceed with their new partnership, Tom Ebenhack wrote up an agreement, which covers Broekema’s commission, how her expenses are covered and her role in the newly formed team.
Even after partners have agreed to the terms, they may need to modify or renegotiate terms as their partnership changes. Joy Carter, CRS, and her brother Jeff Booker with Great Florida Homes in Fort Lauderdale, Florida, modified the terms of their arrangement several times during the first four years in business together. Already a highly successful broker in 1996, Carter recruited her 19-year-old brother to handle some of her resale clients. “He had a new baby girl, so I gave him the security of a salary, but that added stress to our relationship,” Carter recalls. Once he became a full partner after four years, they agreed to divide income and expenses equally.
If there are any disagreements, Carter has the upper hand. “Because I’m older by 10 years, Jeff may flex more my way or convince me to consider an alternate way of thinking,” she says.
Agents should be prepared to deal with possible inequities in their partnership, even with a sibling. “There are times when one person carries the load, which can produce resentment. Agents should be patient during those times because the situation usually reverses itself at some point,” Carter says.
Have an Exit Strategy
What happens to the business if one partner decides to leave or suddenly dies? It’s important for partners to discuss the protocol for different scenarios and make it part of their agreement.
Sammons and Muller have talked about their exit strategy since the beginning of their start-up and have had a verbal agreement, which they are preparing to put in writing in the near future.
Broekema knows it will be time to exit the business when “I have no more business, or if people stop calling me,” she says.
Whether creating a partnership to share responsibilities and expenses or expand service offerings to clients, partnering agents who take the time to plan their business venture can enjoy business success and better work-life balance for many years to come.
Read more about building a successful partnership in The Partnership Charter, by David Gage.
