Buying a real estate brokerage, appraisal or title business in Florida

This covers three related businesses. Brokerages earn commissions on home and commercial sales and leases. They pay most of each commission to the sales associate (agent) who did the deal and keep their share, plus any fees agents pay. Many also manage rentals. Appraisal firms bill per report, mostly for lenders through appraisal management companies, plus estate, divorce and tax appeal work for individuals and attorneys. Title agencies search public records, issue title insurance as agents of an insurer, and run closings, earning a share of the premium plus closing fees.

Almost all of this revenue is paid per transaction, so it rises and falls with the number of homes sold and refinanced. Little is under contract. The value is in the people and relationships: agents who choose to keep their license with the firm, appraisers whose names are on the reports, experienced closers, and referral ties with lenders, builders and attorneys.

• Brokerage: productive agents who have stayed for years, rather than a long list of inactive licenses, and a name and lead sources that belong to the firm.
• Appraisal: several licensed appraisers, a mix of lender and private clients, and a clean review history.
• Title: referrals from many lenders, builders, real estate offices and attorneys; experienced closers; and clean escrow records and underwriter audits.
• Revenue that held up reasonably well in a slow year.
• Rental management accounts under signed agreements, which add steadier monthly fees.
• Good systems for documents, escrow and record keeping.
• An owner who isn't the biggest producer.
• Licenses, registrations and errors and omissions coverage (professional liability insurance) that are current, with no history of discipline.

A brokerage company must register with the Florida Real Estate Commission (part of the DBPR) and keep at least one active broker among its officers, members or partners (section 475.15, Florida Statutes). Every broker at the firm must be an officer, director or partner, and sales associates and broker associates can't hold those roles (rule 61J2-5.016). We found no rule requiring owners to be licensed, but anyone who controls more than 40 percent of the voting stock is screened for past discipline, felonies and unlicensed practice (rule 61J2-5.014). Confirm your plan with the DBPR and a real estate attorney. The broker must reconcile escrow accounts in writing every month (rule 61J2-14.012).

The DBPR licenses or certifies appraisers (part II of chapter 475). Appraisal management companies register under part III, listing anyone who owns or controls 10 percent or more.

The Department of Financial Services licenses title agents and agencies. An agency's application names its majority owners, officers and directors, and each office needs a licensed agent in full-time charge (section 626.8418). Florida attorneys don't need a title agent license, but a separate title agency owned by an attorney must be licensed (section 626.8417). Ask the department what a change of ownership requires.

• The housing cycle. Look at revenue in the slowest recent year, not just the best. Title and appraisal work tied to refinancing can fall fast when rates rise.
• People. Agents and appraisers can usually leave whenever they like. Find out who produces most of the revenue and what would keep them.
• Escrow and trust accounts. Read the monthly reconciliations, underwriter audit reports and any complaints to the commission or the department.
• Claims and fraud. Errors and omissions insurance history, title claims, and controls against wire fraud at closing.
• Referral arrangements. Federal law (RESPA, the Real Estate Settlement Procedures Act) restricts paying for referrals of settlement services. Have an attorney review any marketing or joint venture agreements.
• Franchise. If the brokerage operates under a franchise, check whether the agreement can move to you and on what terms.
• Florida insurance. Ask how often trouble getting property insurance has delayed or killed closings.

• Who are your top agents, appraisers or closers, and how long have they been with you?
• How did the business do the last time home sales slowed down?
• Where do most of your deals or orders come from?
• Has an escrow account ever been short or failed an audit?
• Have you had any errors and omissions claims, title claims or wire fraud attempts?
• If you're part of a franchise, can the agreement move to a new owner?
• After the sale, who would serve as broker of record or agent in charge?