There are disadvantages to working as a sole proprietor real estate company, compared to operating in a partnership or corporation. They are as follows:
Disadvantages of a Sole Proprietor Real Estate Company
A common disadvantage of a sole proprietorship is limited financial resources, since there is only one person investing in the business, which is yourself. As a real estate company, your limited resources hinder your ability to obtain a competitive office location, market your business and attract clients. In addition, you have limited ability to aggressively market home listings for sale and participate in networking opportunities such as real estate associations, etc.
Even if you are successful in selling homes, operating as a sole proprietor means that you have to pay more taxes than you would as an agent of a real estate company. Aside from paying taxes on your commissions, you would have to pay the employer’s share of social security and medicare taxes. Approximately 40% of your income, depending on your tax bracket, will go towards payment of taxes.
A major disadvantage of a sole proprietorship is unlimited liability. Not only your business assets, but your personal assets are also at risk if your business is sued for negligence, fraud, injury or damages. Any error that you commit that causes financial damages to a client or third-party could trigger a lawsuit. You don’t have the buffer a limited liability company or corporate real estate business would have.
Low Brand Recognition
In real estate, major national and regional agencies dominate the market. Home sellers usually want the advantages of listing properties with famous companies that offer greater exposure through multiple listing services, print advertisements, and internet presence. As a sole proprietor you have to deal with low brand recognition that’s why you have to exert extra efforts to increase public awareness to your business and attract customers.
The abovementioned points are the disadvantages that you would face if you set up a real estate company as a sole proprietorship. If you still decide to open as a sole proprietorship, then you have to implement countermeasures to alleviate these disadvantages.