As a real estate broker, there may come a time when you might consider expanding your business into unfamiliar territory. This could involve venturing into new geographic locations or perhaps exploring different areas of real estate, such as commercial real estate, property management, holiday rentals, or the luxury property market.
There’s no doubt expanding your business can be an exciting time for a real estate broker. However, it also introduces new risks that you need to carefully manage to ensure your long-term success.
Here are some practical tips to help you mitigate the challenges that might come your way.
Understanding the Risks of Expanding into Unfamiliar Territory
Laws and regulations are substantially different across different jurisdictions
Ever heard the saying, “You don’t know what you don’t know”? If you decide to expand into a new geographic area, there may be local planning laws and regulations you are not aware of simply because it’s a new area for you. Even an inadvertent mistake could lead you straight towards a lawsuit. For example, if you or your licensees fail to disclose something you should have or you provide incorrect advice to a client or prospective buyer about local planning laws.
You may not have the required local knowledge
Communities are unique and each has very different characteristics and ways of working. It can be very difficult to sell real estate in an area where you don’t have considerable knowledge of the area. It’s also possible that licensees new to the area might say the wrong thing and provide the wrong information if they don’t realize it’s different in a particular community.
Different areas of real estate have different nuances
Just because you’re a real estate broker doesn’t mean you are an expert in all areas of real estate. If you’re expanding to commercial real estate, for example, you’ll find some of the laws and processes very different to those for residential real estate. Likewise, if you are expanding into property management, it is a very different ball game to selling homes.
Lawsuits often ensue when a real estate broker lacks experience or knowledge in a new domain. Ensuring you and your team have the required knowledge before you expand is crucial to minimizing your risk of lawsuits.
Tips for Expanding Your Real Estate Brokerage with a Risk Management Approach
It is possible when expanding into unfamiliar territory to minimize the risks. Adopting a risk management mindset and taking appropriate precautions are proactive steps you can take to keep you away from legal action.
Here are some practical tips to help you navigate your expansion:
- Do Your Homework
Before expanding, conduct thorough market research to get up to speed on your chosen new territory. This is relevant whether you plan to expand geographically or into other real estate specialties. Analyze the comps, the market conditions and trends, and look at the local demographics to assess the likely demand for your services.
- Assess the Risks
Identify any potential risks associated with your expansion. A risk assessment might include things such as knowledge gaps, perhaps having a lack of local contacts, or failure to keep up-to-date with the latest regulations. Ensure you develop (and document) effective mitigation strategies to address each risk. A thorough risk assessment can be a great tool to help you keep on track.
- Ensure You Regularly Review Your Risk Management Framework
Remember, risk management is an ongoing process — a risk assessment is not something you place on your bookshelf and never refer to again. Real estate brokers must continuously reassess the risks. Your risk management strategies will no doubt need to adapt over time. But, this process is a valuable learning opportunity that helps you to build a successful real estate business, not only today, but in the long term.
- Seek Expert Advice & Develop Partnerships
One of the most effective ways to mitigate the risks of expanding in unfamiliar territory is to seek expert advice from individuals who are familiar with the territory you wish to explore. Recruit or engage with local real estate professionals, real estate attorneys, or consultants working in the field who can help you. Consider collaborating with local organizations and groups. These people, collectively, can provide you with valuable insights including potential challenges you may not have yet thought of. They can also provide expertise, referrals to help kickstart your business, as well as useful local market knowledge.
- Keep Updated and Educate Your Team
Real estate brokers should keep updated on all of the laws and regulations across their entire portfolio of services. It might be a complex web of information if you work across multiple areas, but it is crucial to maintain an up-to-date knowledge of all of your obligations. Failure to do so can have a profound impact on your brokerage. It is also important that you continuously share new information with your team and provide them with opportunities to gain further insights and knowledge about any new areas of your business.
Remember, when you run a brokerage, you are ultimately responsible for what your team does, whether they are contractors or employees. Keeping them informed could help you avoid a lawsuit.
- Approach Any Expansion With Caution
It might be tempting to dive headfirst into a new, exciting opportunity. However, expanding too fast too soon can increase your chances of problems along the way. Instead, adopt a slow and steady approach to your expansion into unfamiliar territory.
Maybe test the waters first in a limited capacity. Then, as you gain experience, knowledge, and confidence, you can gradually expand your operations. A conservative approach will allow you to learn from any initial challenges that come up. It gives you the opportunity to make any necessary adjustments to the way you do business before scaling substantially.
Protect Your Real Estate Brokerage
While real estate brokers can navigate the challenges of expanding into new territories with greater confidence by implementing these tips, Errors and Omissions insurance is still essential to help you defend against a lawsuit. CRES Insurance is your insurance specialist for your real estate brokerage. Contact the team at 800-880-2747 to find out how you can customize an insurance policy — from Business Owners Policies, to Cyber Liability Insurance, to Workers’ Comp —to suit your needs today.
As part of one of the largest insurance brokers in the world, we have access to more options for your real estate brokerage than just about anyone else. Let us do the shopping for you, and find you the best coverage for the best price.