Exiting your business or adopting someone else’s business can be a difficult but profitable part of your business life. In this episode, we learn the best tips on handling this event and how to monetize your database of clients. Renee Williams interviews the author of the book The Golden Handoff, Nick Krautter, as he talks about adopting a business, the process of exiting your business, and taking advantage of your client database. This is a great episode for REALTORS® looking to exit or adopt another agent’s business.
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Monetize Your Database When You Retire With Nick Krautter
How To Use The Golden Handoff To Your Advantage
Here with us is Nick Krautter. He’s going to tell us all about The Golden Handoff. I first heard about you on Club Wealth back in 2019. You were on episode number 63. I listen to it feverishly, ran out and bought the book immediately. Tell us about you and why you wrote the book.
I’m out in Portland, Oregon and I started doing real estate in 2006. It was always interesting. There are always people coming and going. There are always new agents and a lot of turnover in real estate, but in 2009 and 2010 right at the bottom of the recession, it changed. All of a sudden, some good agents were changing careers, moving and getting out of real estate. Our average price was around $200,000 at that point, then it went down quite a bit. It was tough. There were a lot of short sales and foreclosures. A lot of people got out for those reasons. There was a woman who had the office next to me. She's in the book. She was a real person. I still manage her database. She got back into nonprofit fundraising and had a second kid. The workload and everything were too much.
The book came from me initially helping her. I took over her business and it went well. She confided to me a year later that her husband had lost his job during the recession. The income they got from referral fees from The Golden Handoff that we did was how they were able to stay in their home. It was paying their mortgage while he looked for a new career. That made me even a bigger believer. I knew I was working for me, but to see how powerful that was for the retiring agent. In this case, she was still working but that money was important to her and her family. After that, more people would come to me when they were getting out of the business. We built a process that everyone out there can learn, use and it works. It’s repeatable and not overly complicated. If you know about referrals and calling your clients back, you can do well at it.
This is what I noticed in reading. I’ve gone through the book a couple of times. I’ve got my favorites but I want to talk about each part or at least we’re going to list them out for the readers. Part one is The Relay Team, part two is The Starting Line, part three is The Starting Gun, part four is The Golden Handoff, and part five is The Finishing Line. Starting with part one, The Relay Team. Tell me about choosing and adopting an agent. How does that process? What does that look like?
There are a couple of important things. I’m going through this process myself for part of my business. I went through and made a list of the top twenty agents in my market that I know that I think would be a fit. Part of that, I met with a title rep I’m close to who knows more people than I do because they work with everyone. I said, “Is there anyone I’m not thinking of that you think would be a good fit?” We are a referral-based team. We’re mostly in the close-end market in Portland on the residential side of our business. I’m going through that, talking and meeting with people. You want to know that they know how to do real estate and that they’ve got experience. You don’t want to pick a new person and trust that they are going to figure this out with your clients.
Number two, they have to be willing to grow. Surprisingly, I've talked to some very talented, successful agents that don't want more clients. There are 300 or 400 persons fear and they do as much business as they want. They are doing $20 million to $40 million or $20 million to $50 million a year in sales. They don't want to go to $100 million in sales. To double that, you have to hire people and add staff. You got to make sure that people want to do that. You got to be careful because people like to say yes to things. You don’t want someone to say yes but not say yes to the work. The second thing is they are going to show up, do the marketing, make the calls, host the classes and client parties, and do all the stuff that works. That is why your clients work with you and why their clients work with them.
The other thing is they have got good energy and you like them. I always say, "It doesn't need to be a copy of you. It needs to be someone good at adapting their personality to the client." It doesn't mean that the person that I work with might have a very different personality than I do, but they have to prove that they can work with a broad client base. Finally, ethics. You only want to work with people that do the right thing because you are referring all your clients to them. You need to be able to trust them. Your clients need to trust them. They are going to be a big business partner. There is a lot of money involved in this and you want to make sure that you are getting paid what you’re worth.
Finding and adapting an agent sounds like it takes time. You need to plan. It sounds like you got to plan ahead.
Ideally, the more time you have, the more you can get to know each other. I’ve been in real estate in Portland for many years. A lot of these people I know very well. Some of them I worked with for years. Not only do I know them by their reputation in the market, but I know a lot of them personally. For a lot of people depending on how long you have been in the industry, you might already have someone you are working with. It’s not uncommon that people will have someone that they have cover for them when they are on vacation. There might be some real obvious fits and it comes down to the size of the business. My database is very large and for some people, that's very overwhelming. For me, I need someone that has the ability to use technology to stay in touch with people but also willing to make calls. Very few times those are the same people. Usually, you have people that only want to use technology so they don’t have to call people or they want to call people but they only want to have 200 or 300 people to touch base with. You can only call so many people in a year.
What if I’m on the other side? What if I am an agent and I feel like I’ve got 10 or 15 years left, and I want to find a retiring agent, what should I be doing or looking for?
Tell your team leader, broker, market center administrator, office administrator or whatever you call it at your company, the person that knows all the agents and is in charge of that. Let them know that you want to adopt businesses and help agents who are retiring. They are going to be the people that know first when people are on their way out or slowing down, Broadly in the market, you can use analytics to see, "Who was in the top 100 that's now down at the bottom of the top 200?" They went from $50 million to $30 million, which has gone from $50 million to $40 million to $30 million to $20 million. They are at $20 million or you could look at it as dollar volume or units. It doesn’t matter.
It’s who’s doing less now than they used to. That’s a sign that someone is phasing out and they are retiring at work. The problem with that is if you were doing 100 transactions a year and now you are only doing 30, it doesn’t mean that there are only 30 transactions to be done. Those 70 deals are being done by other agents and you are not getting anything for it. Work with an agent earlier before you phase out while you are still going full speed. It makes the process work much better for everyone.
Still under part one, the database. I’m doing director of operations stuff for different teams. I worked with teams who felt like their database had a lot of value but they weren't nurturing the database. It had outdated information or hadn't kept in touch. If you sold a house to somebody seven years ago and they are still in your database, that doesn't necessarily make that a valuable unit in the database. In the book, it says, "Data equals value. The value of an agent's current business is directly related to the income of her business. The more clients and information there is in the database, the more valuable it will be to an adopting agent.” One more thing, “Be careful though. The database loses value over time without an adopting agent to call and actively market to the clients.” I love that. Can we talk a little bit about data and value?
Whether you are phasing out and you are not calling your own clients as much as you used to, or whether you retire but then a year later hand off your business, 10% of your clients are going to move every year. If you are not engaged with them every year, probably you’ll lose about 10% if you are not talking to anyone. It's more than that because you are missing out on referrals and things like that. Having correct current data is important because if I can't call someone, it's worthless. If I have no way to connect with them, it doesn’t matter that they are in the database. It’s like they don’t exist. The flip side is if you have the right information but you haven’t called them in seven years since they bought. The good news is maybe they haven’t moved. If they haven’t moved, it’s a good time to reconnect.
What I see often is that when someone does a golden handoff and they transition their business to an adopting agent who’s going to take over, it reinvigorates because all of a sudden, you have an excuse to call everyone, send everyone an email or a letter, and share what’s going on in your life as a person. Remember this is a person-to-person business. Clients care what their agents are up to, where they are retiring. They are usually very grateful that there’s someone that’s there to help them if they need a referral for something or they want to move in the future without having to go find a new agent. There’s no judgment in that. Whatever you’ve done is what you got. Even if you called and keep in touch with everyone, you are going to lose clients. There’s no perfect system. It’s doing the best you can to maintain those relationships, and be top of mind when they are ready to buy or sell.
Moving on to part two, you talk about the starting line. I liked the levels of involvement because not everybody wants to have the same level of involvement. Some people want to be very hands-on. Other people want to completely disconnect, totally take their hands off and retire. Can you talk about the three different levels of involvement?
The first one is totally done. That's someone ready to turn their phone off, shut down their email, move to Florida and live on the beach. When you are going to take over a business like that, you need to make sure you spend more time on the front end because you will have less ability to get feedback and information later on. You probably need to do more notes and take a little bit longer going over the database, then you’ve got a consultant. They might take some calls, do some vetting of the client needs before they hand them off to the other agent, and then there’s a delegator that’s still pretty involved in lead generation. They are just not showing the houses or going to the listing appointments. Maybe in extreme cases, they might go to an appointment but they are probably going to client parties. They are involved in marketing. They might even be doing lead generation where they are still trying to help nurture their database, which is now part of their adopting agents’ bigger database, just to try to keep all of it together and create more business for both agents.
Diving a little bit deeper. In the book, you have some specific examples of ways that you worked with agents who were retiring or making the decision to have less involvement. Can you tell us about maybe 1 or 2 of those specific details?
We worked with a woman who was retiring and she didn’t keep her email going. She kept her phone but in that case, you want to try to keep the email going and redirect it to you. If someone randomly emails, you get it. If they have a website that they are not going to maintain, buy the URL and redirect it to your website. Those are some things you would do to not lose those ways that people can connect with you. On the flip side, if someone’s a delegator, they are probably keeping their website live. They have an active license. We had one where they had a website that got good site visits.
They had a lot of traffic and so they had their own IDX system set up and they would send stuff over to us when new people signed up. They were sending new leads and staying in touch with past clients. When I felt like I was going to be competing for a listing, they would call as well and say, “Nick’s great. He knows what he’s doing.” They support me and help sell me as well if I felt like I needed a little extra boost. Those are some of the differences.
As far as the money is concerned, I know that was part of the relay which was part one, but as I’m determining my level of involvement, how do we make the decision on what the referral fees look like?
The model in the book is a three-year plan. It’s a 30% referral fee for the first year, then 20%, then 10%. The reason being that when I start and take over a business, my success has more to do with the retiring agents' jobs that they have done, their success and how they have maintained relationships. As time goes on, someone hires me in years 3 and 4. It's more based on the work I'm doing and my team is doing to stay in touch with them. If someone’s going to stay involved long-term, help lead generate, send clients over and help nurture their database, typically, I would say that we do a normal referral fee. They keep an active license and they stay engaged. That goes until they retire.
You then start that step-down program once they are fully removed from lead generation and production activities. The only other thing to consider is one thing that’s coming up more and I’m sure you’ll see this if you are talking to people that have larger businesses is doing a slower transition or a merger. It isn’t a one-time like, “Here’s the database. Now you are in charge.” There are more steps to that even with an agent who’s completely done but simplifying it. If you have someone that’s going to stay engaged and still is selling, it might be something where they join your team. You have to decide who’s covering what expenses and how you are sharing revenue. The more risk and more expenses you are taking on, the more revenue you should get as a general business rule. The thing that’s magical about The Golden Handoff and that people often overlook is that when you are active, everyone is thinking about their gross numbers but they have all these expenses. Your net is significantly lower than your gross and your tax rate is high.
When you are retired and just getting referral income, you have no overhead or expenses. You are not managing any risk or any business costs. The money you get in those referral fees is like net income. Depending on how big your business is or your team, the referral fee might be better than the profit margin for some people and teams. You said you look at P&Ls all the time. I bet you have seen that, depending on how much money you have on overhead with staff, marketing, rent and all of those things. Even for a solo agent that’s doing all of the work themselves, doesn’t have an assistant, isn’t using expensive systems and isn’t spending a lot on marketing, you still have desk fees and all these other things to maintain and pay for. For most retiring agents that the income you get from referrals is all net income, it might be very close to what you were actually netting when you were actively selling. A lot of people overlook that.
When we are letting go of the business, are we selling the entire hard assets as well as the database systems and team? Is all of that included in The Golden Handoff?
In the Contract chapter I talk about people that have larger businesses where they might have other assets, but 99% of the time it’s just lockboxes. Maybe you have some websites that are productive and you have to decide who’s taking over management and cost for those. It isn’t usually a lot of hard assets. The only other thing is I own the office building that we operate out of. If someone was going to come in and take over everything, then we would have to have a discussion of, do they want to buy the building or do they want to stay on as a tenant? As the retiring agent, you need to decide if you own the building, do you want to sell it or do you want them as a tenant? Having the tenant and the income is probably part of your retirement plan like it is for me.
If you sell it, you need to go find some other building to buy to get the rental income to pay for your cost of living. Those are the only other major things. The other stuff if you have a bigger team or business is how are you going to merge in your staff and agents with the other team? At the end of the day, the adopting agent has the final call on who stays and who goes. You always hope that you try to keep the best people, but sometimes the adopting agent might be more comfortable with their person or have a better relationship. It has to be their call because it’s going to be their business.
As far as the letting go piece, that was one of the last pieces that you talked about in part five. What has been your experience in doing this that you see as the biggest issue with retiring agents letting go?
I’ve had a lot of agents that go retire for 1 or 2 years, and they realize that they enjoyed being in business more. They come back and want to be active agents again. I would have that conversation with everyone even if they say that they are never going to sell a house again. A year in Palm Springs, Florida might change their mind. They might decide, “This is fun.” People moved and then they decide to move back. “The grass is always greener” kind of thing. That’s where I’ve seen that people have trouble letting go. For most people, this is probably not going to be the only part of their retirement plan. It’s definitely a booster. It should help everyone retire sooner or with more money at the time they choose.
It’s tough to make this a lifelong thing unless you have a very large business. That’s not handing it off. That’s going from a manager to an owner and having someone else to manage your business. That's a totally different conversation. You have to look at this as a piece of the puzzle. I do a lot of work with NAR and its financial wellness program. I'll be speaking at the NAR convention in San Diego. This is a good piece for realtors because it's an asset that all of us have overlooked as an industry and it has a lot of value. I would encourage everyone to go to GoldenHandoff.com. There’s a calculator there that you can mess with. All you need to know is your average commission and how many of your clients each year are repeat and referral clients. That will give you a good indication of what your business is worth in dollars and cents away.
Is that the best way to get in touch with you for us to reach you?
The website has all my information. It’s Nick@GoldenHandoff.com if you want to email me. I’m always happy to answer questions and help people along. I get a lot of people who reach out. It’s always cool for me to hear stories from people that are having success with this. I asked the people to read the book or listened to the book on Audible. You have read it a couple of times and I love that you’ve got it all marked up, dog-eared and Post-it notes. I do the same thing with the books that I read. The idea was I wanted to try to answer all the questions in the book so that you have the whole roadmap. Every once in a while, there’s a question that comes up that isn’t addressed there. I’ll give my opinion on how I would do it. The idea is hopefully if you read the book, you are going to get all your questions answered and have a clear roadmap whether you are adopting a business or retiring.
There’s a workbook that goes with that.
We had a lot of requests for me to coach people and help transition groups. I’m still running a real estate brokerage and a life outside of that as well. We published a workbook edition. It’s all the checklists, interview questions, scripts, dialogues and the contract. It's all the pieces I use and the process. I tried as much as possible to put together every piece that I would use if I was going to personally help someone transition a business or buy or sell it. Each workbook has the whole process for both agents. Each one is really two. You get all of the processes for the adopting agent and all of it for the retiring agent. That’s available. If you go to the website, it will take you right to the page on Amazon, so you can get it anytime you want.
Nick, thank you so much for your time and for sharing all of this good information with us. You can get it at GoldenHandoff.com or on Amazon.
That’s the fastest way to get it. There’s also an audible if you like to listen to books while you’re driving around to appointments. You get to listen to me for a couple of hours talking about it. We are working on an online training program in which we’re going to do an even deeper dive on each step of the workbook and walk people through that process, and make sure that your handoff is a big success.
I’m going to be in touch and let you know how it’s going with my clients who are using this because we are definitely going to be using it.
Thank you so much for having me on the show.
Thanks for your time, Nick.
Bye.
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About Nick Krautter
Nick Krautter is the author of The Golden Handoff: How to Buy and Sell a Real Estate Agent’s Business and a top Realtor since 2006 in the Portland, Oregon market. Nick is an avid golfer, writer, reader, talker, and still gets up early, excited about what each day holds.
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