Over the course of our 40+ years at RTC Consulting, we’ve brokered and/or advised on over 900 transactions in the residential real estate industry.  We usually represent the sell side of the deal and work with firms that range in size from small, one-office, 10-agent shops to the largest in the nation. 

We’ve learned a few things along the way, and if you’re thinking about selling your real estate brokerage firm, whether next month or five years from now, one of our biggest pieces of advice can be captured in two words: clean data.

Clean data vs. dirty data

So what data should be clean? All of it! This includes financials, organizational documents, agent productivity reports, operating metrics, vendor contracts, lease agreements, employment agreements, insurance documents and more. 

This data becomes important at various stages of a transaction, and when it’s time to produce it, the process is radically easier if it is clean and organized. Dirty data is either unorganized, incomplete, incorrect or flat-out missing, and we’ve seen dirty data prolong, complicate and, in some cases, kill too many transactions.

Be data-ready at all stages of the transaction

Different stages of the transaction will require different levels of data, usually ramping up the load and getting more granular as you run through the process. From a data lens, transactions can be broken out into three different stages: valuation, due diligence and contract.

1. Valuation – The valuation stage can also be considered the preliminary due diligence stage. The valuator needs to understand ownership structure, ownership compensation, corporation type, operational metrics, agent productivity, lease obligations, employee roster, affiliated services relationships, market share and, most importantly, financials among a comprehensive list of items and information. 
   
   Firms must be prepared to present this data in an organized fashion, and it’s imperative to have historical support on certain items so the valuator may understand operational and financial trends.

2. Due diligence – Most of the data on hand from the valuation should be sufficient for purchasers to complete their preliminary due diligence and put an offer on the table.  Once an offer is accepted, the full due diligence stage commences. Sellers must be prepared for complete transparency and to provide the innermost details of their company.
   
   In addition to what’s already been provided buyers may ask for such items as company operating manuals, agent level commission/fee breakdowns, tax filings, litigation information (if applicable), debt/bank details (if applicable), segmented income statements by month and by office, trial balances, capex schedules and much more. 
   
   Be prepared to answer questions and provide support on specific line items on your income statements, balance sheets and even the general ledger. Having this data at your fingertips will help keep the process streamlined and keep you on schedule for your targeted closing date

3. Contract – Once due diligence is completed, it’s time to provide whatever data may be missing and/or required in the ‘Disclosure Schedules’ attached to the purchase agreement. Disclosure schedules essentially memorialize or qualify key aspects of the business. Included would be vendor contracts that exceed a certain dollar amount, detailed descriptions of real property and fixed assets, intellectual property information, current listings and pendings, insurance documents and more.

The bottom line is whether you’re a broker/owner of a small firm who does everything yourself or the owner of a larger firm with a support staff, I would encourage you to ensure that your data is clean, organized, easily accessible and as accurate as humanly possible.  Data cleanliness can make or break a transaction!

Scott Wright is a partner with RTC Consulting, a real estate brokerage valuation and M&A consulting firm.