Prepare for growth in the new year

As 2017 draws to a close, it’s time again to clean house and prepare for the new year. This annual ritual includes:

  • clearing the file cabinets of closed transaction files and making room for new ones; and
  • rolling out a new business plan to get a head start on the new year.

Storing and organizing files to close out the year

You are required to retain real estate transaction documents for three years from the transaction closing date (or the listing date if a transaction was not completed) when the documents were:

  • used in a transaction requiring a real estate broker’s license; and
  • executed or obtained by the you or your agent. [Calif. Business and Professions Code §10148]

Upon notice by the Department of Real Estate (DRE), you will need to make these records available for examination, inspection and copying by a DRE representative.

Keep paperwork pertinent to specific clients in each of their own folders or binders. Store these files somewhere safe where they can be easily accessed, such as a clearly labeled file cabinet in the office or an off-site storage facility.

If you have a larger office and generate significant amounts of transaction paperwork, you may consider using an off-site storage company which automatically shreds documents after a designated period of time.

Electronic storage

Storing a year’s worth of paper files an off-site location may be costly. If you need to store a large amount of files, consider using electronic storage to retain and store copies of all documents executed by you and your agents in connection with any transaction performed under your supervision.

Copies of real estate documents (i.e. listings, purchase agreements, deposit receipts, canceled checks, trust fund records, etc.) may be stored electronically if the following requirements are met:

  • the electronic storage is non-erasable and does not allow changes to the stored document or record;
  • the stored document is made or preserved as part of your regular course of business;
  • the original record was prepared by you as the employing broker or your employees at or near the time of the event reflected in the record;
  • the custodian of the record is able to identify the stored record, the mode of its preparation and the mode of storing it;
  • the electronic storage contains a reliable indexing system that provides ready access to a desired document or record, appropriate quality control of the storage process, and date-ordered arrangement of stored documents; and
  • you retain copied and stored records for three years. [California Bureau of Real Estate Regulations §2729(a)]

You also need to maintain a means of viewing these stored documents at your office, and provide a paper copy of any document or record requested by the CalBRE. [CalBRE Regs. §2729(b)]

Setting and achieving annual goals  

To get a head start on 2018, set goals and create a new business plan early, preferably before the end of the year.

As the employing broker, much of your success depends on your agents’ production. As part of your business plan, assist your agents in creating their own individual business plans to improve their production.

When creating a 2018 business plan, licensees who want to improve and grow their business need to:

  • review 2017’s production;
  • set goals for 2018;
  • create an organizational plan to achieve these goals;
  • create a time schedule for the execution of the plan;
  • evaluate past performances and production and make improvements; and
  • analyze growth.

Review your 2017 production

Critical to success is a review of the past year’s production. It helps understand where business came from and areas that need improvement. To determine 2017 strengths and weaknesses, the following need to be analyzed:

  • total income generated;
  • total expenses paid;
  • total transactions closed;
  • total appointments attended;
  • monthly web site traffic;
  • average fee earned per transaction;
  • number of days worked;
  • hours spent in lead generation and prospecting; and
  • total contacts made.

Depending on your field of expertise, other numbers to consider may include:

  • listings taken and sold;
  • buyer acquisitions;
  • loan applications taken; and
  • units leased.

Set your goals for 2018

Next in your business planning process is to determine what you want to accomplish in 2017. Set specific goals in the following areas:

  • total income to be received;
  • adjustments made to specific expenses;
  • number of employed agents and broker-associates;
  • number of transactions to be closed;
  • number of appointments to be set;
  • total number of contacts to be made;
  • hours to be spent in lead generation activities; and
  • marketing necessary to meet objectives.

Help your agents break down their goals into monthly, weekly and daily benchmarks. Have them categorize them by transaction type (i.e., goals for number of listings sold, buyer/tenant transactions, mortgage originations, etc.).

Next, analyze expenses. What does it cost you per transaction to operate? Are you and your agents operating at a profit or is all the income received being spent on business operations? Budgeting and controlling expenses is just as important as setting production and income goals. [See RPI Form 504]

Expand your in-house services to facilitate your agent’s transactions, such as:

Create a plan to achieve set goals

Your business plan needs to be achievable. Use ratios based on 2017’s production numbers to set goals you are likely to attain based on market trends anticipated for 2018. Analyze the following income-related ratios to set 2018 goals:

  • contracts-to-transactions closed;
  • appointments-to-contracts signed;
  • contacts-to-appointments; and
  • lead generation hours-to-contacts.

Work your numbers backwards starting with your income goal. Based on your income goal, determine the number of closed transactions needed, appointments required to achieve goal for closed transactions, etc.

Create a schedule for executing the plan

Based on each individual’s plan, a unique schedule needs to be created. Each employed licensee needs to determine what they need to do on a monthly, weekly and daily basis to achieve their goals. A schedule allows execution of the plan through constant and repetitive daily activity. Key activities that need to be included in a schedule are:

  • prospecting/lead generation time;
  • lead follow-up time;
  • administrative time for working on files, marketing campaigns, etc.;
  • appointment prep time such as previewing properties, data research, preparing comparative market analyses (CMAs);
  • appointment time; and
  • self-improvement and education such as daily affirmations, practicing scripts, reading real estate news, attending seminars and completing continuing education.

Most importantly, personal time needs to find its way into this schedule. “You” time for family commitments, personal holidays, vacations and other planned time off is just as important as production time. This eliminates the one dominant excuse for not following a daily schedule.

Critique and improve

Honestly critique yourself and your business associates. What were your strengths and weaknesses in 2017? What could you be doing better, or more of? Identify the challenges in your business plan which will require a special effort and the daily steps you can take to meet them. As you move forward through 2018, what new challenges will you encounter? What adjustments need to be made to remain focused on achieving set goals?

Keep track of your numbers and those of your agents. Review your business plan weekly, and make sure your agents stay on track.

Make adjustments to your plan as you go. A business plan is not set in stone — it’s a work-in-progress. Things change, and you simply change with them to take full advantage of the change. If you or your agents fall behind, make corrections. If you find yourself ahead of your goals in the short run, do not ease up as your long-term performance is the test of success, and annual real estate transactions are highly cyclical.

Keep the momentum going forward and challenge yourself and your associates by increasing your goals. This leads to efficiencies in your brokerage, and ultimately income growth.

Analyze your growth

Analyze your financial growth regularly, with a comprehensive review on an annual basis. Create a habit of an in-depth review of your income and expense sheets to monitor your financial health, both for your business and for your family. Calculate your net worth monthly using a balance sheet, setting current values to assets. Then compare your net worth to previous years. These periodic financial reviews will cause you to make adjustments in your personal finances and investments. [See RPI Form 209-3]

Prepare for tax season

Another necessary year-end task is to begin sorting through your receipts in preparation for tax season.

Importantly for self-employed brokers, the tax landscape in 2018 requires you to look at what state income taxes and property taxes you owe for 2017. Consider prepaying them in 2017 to avoid the $10,000 cap on federally deductible state taxes imposed by the new tax bill.

As a real estate professional, you are entitled to dozens of possible tax deductions. Real estate business expenses are deductible if they are:

  • ordinary and necessary;
  • directly related to your business; and
  • reasonable in amount. [26 United States Code §162]

During the year, it is important to constantly keep any receipts or other paperwork pertaining to your business, such as:

  • car expenses (gas, repairs, mileage etc.);
  • business travel (airfare, lodging, meals, etc.);
  • office supplies;
  • advertising; and
  • gifts for clients.

Organize your receipts ahead of time. Track your expenses as you go. Leaving this task for the last minute causes you to miss out from benefiting fully on allowable business expense deductions.

If keeping receipts becomes overwhelming, consider hiring a bookkeeper to keep you organized. When totally consumed by productive work, your time is better spent earning additional income than being distracted by bookkeeping chores. Don’t risk overlooking deductible expenses you are entitled to incur before setting your taxable income.