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May 29, 2015

Building a Team Part 2. The Sub Brokerage

by mark mclean

sub-brokerageIn my last blog post I talked how teams are becoming a popular option for experienced agents in Toronto. Operating a team is not for the faint of heart. Successful team leaders need to have faith in the abilities of their teams and give them free rein to work for the benefit of the team, while poor team leaders spend more time managing than doing what they do best….sell.

Ultimately leaders build teams for two reasons; increase awareness of their brands and make more money. The sub-brokerage model, currently being developed in Ontario, might help teams with the second point but does nothing to help point one. So what is a sub-brokerage?

To explain sub-brokerage one needs to have a brief understanding of the Tax Fairness for Realtors Act, 2014. The proposed act would allow real estate salespeople to form personal corporations just like Ontario doctors, lawyers, social workers, architects, engineers and accountants. While Realtors are allowed to incorporate in other provinces, the Ontario Real Estate and Business Brokers Act, 2002 currently prevents salesperson incorporation. Despite intense lobbying by both OREA and TREB, the Real Estate Council of Ontario isn’t close to changing their position in the immediate future. To speed up the process, some brokerages are offering a hybrid model which would allow an agent to set up their own brokerage but use the services of the parent brokerage such as accounting and trust accounts. Imagine I currently work for ABC Realty Inc Brokerage, under the rules of a sub-brokerage I would incorporate a new brokerage called “ABC Realty Mark McLean Team Ltd, Brokerage”. Confusing? As the only shareholder of this corporation I have many of the tax advantages of a corporation. For a top performing agent, a sub-brokerage allows a team leader to retain money in their business as a tax deferral strategy.

But Team Leaders need to recognize that sub-brokerages may in fact create confusion with the public. Using the example above, I have worked very hard to develop “The Mark McLean Team” at ABC Realty. This is MY brand. Now I am striking out on my own as the Broker of Record (if you are a sales representative you will have to complete your brokerage course) of a sub-brokerage of ABC Realty, Inc. Legally my brand name has changed. It is still too early to tell if additional problems will arise since we are only now entering into unchartered waters with the sub-brokerage model. From the outside it seems like a complicated process. The team leader will have to essentially build a brokerage from the ground up with the exception of hiring front and back office staff or managing trust accounts.

Like my first post, my concerns revolve around team management. Creating a sub-brokerage means that you are now responsible, on every level, for your team. While the “parent” brokerage might look after your accounting you may take on additional responsibilities. In addition, the parent company might want some say in how you run your business, that very request could create an added tension. Understanding the additional challenges should be an important factor is your decision.

In the third, and last part of this series on team building I will talk about choosing your team.

mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.

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