A practical LOI guide built for buyers and sellers of independent and franchise-affiliated real estate agencies — covering GCI-based earnouts, agent retention protections, broker license contingencies, and SBA financing structures.
Acquiring a real estate brokerage requires an LOI that goes well beyond standard purchase price and closing mechanics. Because brokerage revenue is tied to individual agent production, commission splits, and local market conditions rather than contracted recurring revenue, the letter of intent must establish clear protections around agent retention, normalize the distinction between owner production and true brokerage income, and address state broker licensing requirements that could prevent the buyer from legally operating the business. For deals in the $1M–$5M revenue range, LOIs typically reflect purchase prices of 2x–4x seller's discretionary earnings, with earnout provisions tied to trailing gross commission income (GCI) performance and agent roster continuity over a 12–24 month post-close period. SBA 7(a) financing is commonly used to fund 75–85% of the purchase price, making clean financial recasting and lender-ready documentation a prerequisite before an LOI can be signed. This guide walks through each section of a brokerage-specific LOI, provides example language, and highlights the negotiation points most likely to determine whether a deal closes successfully.
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Identifies the buyer entity and seller entity, specifies whether the transaction is structured as an asset purchase or stock purchase, and clarifies which assets or equity interests are included in the transaction scope. For most independent brokerage acquisitions, asset purchases are preferred by buyers to avoid inheriting unknown liabilities including E&O claims, state commission complaints, or agent disputes. Stock purchases may be considered when franchise affiliation agreements require it or when the brokerage holds a long-term office lease that is not easily assignable.
Example Language
This Letter of Intent is entered into between [Buyer Entity Name], a [State] limited liability company ('Buyer'), and [Seller Entity Name], a [State] corporation ('Seller'), with respect to Buyer's proposed acquisition of substantially all operating assets of [Brokerage Name], including the brokerage license, agent independent contractor agreements, trade name, client and referral databases, technology subscriptions, and goodwill associated with the brokerage business ('the Business'). This transaction is contemplated as an asset purchase. The Seller's personal real estate production volume and associated commission income are expressly excluded from the acquired assets and from the normalized earnings used to determine purchase price.
💡 Sellers of franchise-affiliated brokerages (RE/MAX, Keller Williams, Century 21) should confirm whether the franchise agreement is assignable or requires the buyer to execute a new franchise agreement, as this materially affects deal structure and timeline. Buyers should insist that personally-sourced listings and closings from the seller-broker be carved out of the financial representations, since those transactions will not transfer with the business. If the deal is structured as a stock purchase, buyers must conduct deeper diligence on pending E&O claims and state licensing history, as all historical liabilities transfer with the entity.
Purchase Price and Valuation Basis
States the proposed purchase price, the valuation methodology used to arrive at that figure, and how seller's discretionary earnings were calculated after removing owner production income. Real estate brokerages in the lower middle market are typically valued at 2x–4x SDE, with the multiple driven by agent roster diversification, revenue concentration risk, and the presence of recurring ancillary income such as property management or referral fees.
Example Language
Buyer proposes a total purchase price of $[X], representing approximately [2.5x–3.5x] the normalized Seller's Discretionary Earnings of $[X] as recalculated by Buyer based on Seller's financial statements for the trailing 36 months ending [Date]. Normalized SDE excludes: (a) commissions earned directly by [Seller Name] as a producing agent; (b) one-time or non-recurring income items; and (c) above-market compensation or personal expenses run through the business. Buyer's valuation assumes a diversified agent roster generating at least $[X] in annual GCI attributable to agents other than the Seller, and the continued operation of the brokerage's property management division generating not less than $[X] in annual management fee revenue.
💡 The most contentious valuation issue in brokerage acquisitions is the separation of owner production from brokerage earnings. Sellers who personally generate 30% or more of total GCI will face significant pushback on purchase price, as buyers cannot underwrite that income as transferable. Sellers should prepare a production-adjusted P&L for at least three years prior to listing. Buyers should request agent-level production reports broken out by year to independently validate the brokerage's non-owner GCI. If the brokerage has property management or desk fee income, these streams should be valued separately and may support a higher blended multiple due to their recurring nature.
Earnout Structure Tied to GCI and Agent Retention
Defines the portion of the purchase price contingent on post-closing performance, specifically tied to gross commission income targets and the retention of key producing agents. Earnouts are nearly universal in real estate brokerage acquisitions because the primary revenue-generating assets — agents — are independent contractors who can leave at any time. A well-structured earnout aligns the seller's incentives with successful transition and protects the buyer from overpaying for a book of business that may walk out the door.
Example Language
Of the total purchase price of $[X], $[X] (the 'Base Payment') shall be paid at closing, and up to $[X] (the 'Earnout Payment') shall be paid over a 24-month period following closing, calculated as follows: (a) Agent Retention Earnout: $[X] payable if no fewer than [8] of the [12] agents identified in Schedule A remain active and producing agents of the brokerage through the 12-month anniversary of closing, measured by at least one closed transaction per agent during the period; (b) GCI Performance Earnout: $[X] payable if aggregate brokerage GCI for the 12 months post-close equals or exceeds [85%] of trailing 12-month GCI as of the closing date, excluding any GCI attributable to Seller's personal production. Earnout payments shall be made within 30 days of each measurement date.
💡 Sellers should push to include a carve-out that credits them for GCI generated by new agents recruited during the earnout period, not just retained agents, to avoid being penalized for natural attrition offset by new hires. Buyers should ensure that the seller's non-compete and cooperation obligations during the earnout period are explicitly tied to earnout eligibility — if the seller recruits agents away from the brokerage after closing, earnout payments should be forfeited. Both parties should agree in advance on the accounting methodology for GCI attribution, particularly for team transactions where a team leader may split GCI across multiple licensed agents.
Broker License and Regulatory Contingency
Addresses the requirement that the buyer hold or obtain a state broker's license to legally operate the brokerage, and establishes timelines and fallback provisions if licensing is delayed. This is a unique and often underestimated risk in real estate brokerage acquisitions. Many states require a licensed broker of record to be in place at closing, and SBA lenders may require proof of licensure before funding.
Example Language
This LOI and any resulting definitive agreement are contingent upon Buyer (or Buyer's designated broker of record, [Name]) holding an active, unrestricted real estate broker's license in the State of [State] on or before the anticipated closing date of [Date]. Buyer represents that [Name] currently holds an active broker's license in [State] and has no pending disciplinary actions before the [State] Real Estate Commission. In the event the designated broker of record is unable to serve in that capacity at closing, the parties shall negotiate in good faith a transition period not to exceed 60 days during which Seller shall remain as nominal broker of record under a management agreement, provided that Seller is compensated at a rate of $[X] per month for such services and indemnified by Buyer for any liabilities arising during such period.
💡 Buyers who do not currently hold a broker's license in the relevant state must begin the licensing process immediately upon LOI execution, as processing times vary significantly by state and can take 60–120 days. Some buyers designate a licensed employee or partner as the broker of record rather than obtaining a license themselves — this should be disclosed to the seller and addressed in the LOI to avoid last-minute surprises. Sellers should insist on indemnification provisions if they are asked to remain as broker of record during any transition period, as they retain legal liability for brokerage operations during that time.
Exclusivity and No-Shop Period
Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit, entertain, or respond to offers from other potential buyers. This protects the buyer's investment of time and due diligence costs during a period of significant operational disruption.
Example Language
Upon execution of this LOI, Seller agrees to a 60-day exclusive negotiating period ('Exclusivity Period') during which Seller shall not, directly or indirectly, solicit, initiate, encourage, or enter into discussions with any third party regarding the sale, merger, recapitalization, or other disposition of the Business or its assets. Seller shall promptly notify Buyer of any unsolicited inquiries received during the Exclusivity Period. The Exclusivity Period may be extended by mutual written agreement if due diligence is ongoing and both parties are negotiating in good faith toward a definitive purchase agreement.
💡 Sixty days is standard for brokerage acquisitions given the complexity of agent-level due diligence, financial recast, and licensing verification. Sellers should resist exclusivity periods exceeding 90 days without meaningful milestones tied to buyer performance — for example, requiring the buyer to deliver a fully executed SBA lender commitment or signed purchase agreement within the exclusivity window. If the buyer is using SBA financing, both parties should factor in the lender's timeline, as SBA approvals for brokerage acquisitions can take 45–75 days and may extend the exclusivity period beyond what was originally contemplated.
Due Diligence Scope and Access
Defines the categories of information the buyer will review during the due diligence period, the timeline for document delivery, and the seller's obligations to provide access to agents, financial records, and operational systems. For real estate brokerages, due diligence is heavily focused on agent-level production data, commission split agreements, E&O history, and state compliance records.
Example Language
Seller shall provide Buyer with access to the following materials within 10 business days of LOI execution: (a) Three years of profit and loss statements and federal tax returns for the brokerage entity; (b) Agent-level production reports for all producing agents for the trailing 36 months, identifying each agent's GCI contribution and commission split arrangement; (c) Copies of all independent contractor agreements currently in effect with active agents; (d) E&O insurance declarations pages for the current and prior two policy years, including any claims history; (e) State real estate commission license history, including any complaints, investigations, or disciplinary actions; (f) Office lease agreement and all amendments; (g) Technology and MLS subscription agreements, including costs and transferability; (h) Property management contracts, if applicable, including fee schedules and duration. Buyer shall have 45 days from receipt of a complete data room to complete due diligence and provide written notice to Seller of any material issues or adjustments to the proposed purchase price.
💡 The most sensitive due diligence item in any brokerage acquisition is agent-level production data, because sellers are understandably concerned that sharing this information could alert key agents to a potential sale. Buyers should sign a robust NDA prior to receiving agent-level data and should agree to limit internal disclosure to advisors on a strict need-to-know basis. Sellers should redact agent names in initial production reports and share identified data only after both parties have agreed on deal structure. Buyers should also request access to the seller's CRM and transaction management platform to verify closed transaction data against what is reported in agent production summaries.
Confidentiality and Agent Communication Plan
Establishes how the potential sale will be kept confidential from agents, staff, and competitors during the LOI and due diligence period, and outlines a mutually agreed plan for communicating the transaction to agents at or near closing. Agent attrition triggered by premature disclosure of a sale is one of the most common deal-killers in brokerage acquisitions.
Example Language
Both parties agree to maintain strict confidentiality regarding the existence and terms of this LOI and the proposed transaction. Neither party shall disclose the potential sale to any agent, staff member, referral partner, franchise representative, or competitor without the prior written consent of the other party. The parties shall jointly develop a written agent communication plan no later than 15 days prior to the anticipated closing date, which shall include: (a) key messaging about ownership continuity, commission split structures, and technology systems; (b) a timeline for individual or group agent meetings led by both Buyer and Seller; and (c) retention incentives, if any, to be offered to top-producing agents at or immediately following closing. Any premature disclosure by either party that materially damages agent retention shall be treated as a material breach of this LOI.
💡 Sellers should push to be the primary voice in agent communications at closing, as agents' loyalty is typically to the broker-owner rather than the brand. Buyers benefit enormously from having the seller introduce and endorse the new ownership in agent meetings. Consider structuring retention bonuses for the top 3–5 producers payable 6–12 months post-close contingent on continued active production — these can be funded from the earnout proceeds or structured as a separate line item in the closing budget. Franchise-affiliated brokerages should confirm whether the franchisor must be notified of the ownership change and whether agent franchise agreements transfer automatically or require individual agent acknowledgment.
SBA Financing Contingency
States that the buyer's obligation to close is contingent upon obtaining SBA 7(a) financing on specified terms, and establishes a deadline for lender commitment to keep the timeline on track. This section is critical for brokerage acquisitions under $5M where SBA financing is the dominant deal structure.
Example Language
Buyer's obligation to close this transaction is contingent upon Buyer obtaining a commitment for SBA 7(a) financing in an amount not less than $[X], at an interest rate not to exceed the current SBA maximum rate, with a loan term of not less than 10 years, on or before [Date, typically 45–60 days from LOI execution]. Buyer shall submit a complete SBA loan application within 10 business days of LOI execution and shall provide Seller with written updates on lender status every 14 days during the contingency period. If Buyer is unable to obtain an SBA commitment within the contingency period despite good-faith efforts, either party may terminate this LOI without liability, provided that Buyer promptly returns all confidential materials provided by Seller during due diligence.
💡 SBA lenders evaluate real estate brokerage acquisitions with heightened scrutiny because commission income is transactional and market-dependent rather than contracted and recurring. Buyers should be prepared to demonstrate that normalized SDE after removing seller production is sufficient to service SBA debt — most lenders require a minimum 1.25x debt service coverage ratio. Sellers can accelerate lender approval by preparing a clean, lender-ready financial package including recasted P&Ls, three years of tax returns, and a business description that clearly separates brokerage split income from owner production. Buyers using a seller note to fill the equity gap should confirm with their SBA lender whether the seller note must be on full standby for the SBA loan term, as this affects the seller's cash flow post-closing.
Non-Compete and Transition Assistance
Defines the geographic and temporal scope of the seller's non-compete obligation, and specifies the seller's post-closing transition role including agent introductions, client handoffs, and operational knowledge transfer. For brokerage acquisitions, the seller's non-compete is closely tied to earnout eligibility and must be carefully scoped to prevent the seller from recruiting agents or soliciting clients after closing.
Example Language
Seller agrees that for a period of [3] years following the closing date, Seller shall not, within a [25]-mile radius of the brokerage's primary office located at [Address], directly or indirectly: (a) operate, manage, or hold a financial interest in a competing real estate brokerage; (b) solicit, recruit, or induce any agent of the brokerage to terminate their relationship with Buyer; or (c) solicit any client or referral source of the brokerage with whom Seller had direct contact during the 24 months preceding closing. Seller agrees to provide transition assistance for a period of [90] days post-closing, including agent introductions, client communications, participation in team meetings, and knowledge transfer regarding vendor relationships, MLS operations, and compliance procedures, at a rate of $[X] per month or as otherwise agreed by the parties.
💡 Sellers should negotiate carve-outs that permit them to continue practicing real estate as an individual agent — not as a broker-owner — if they wish to remain active in the industry post-sale. Buyers should ensure the non-solicitation of agents clause extends to the seller's spouse or business partners who may recruit agents on the seller's behalf. The geographic radius of the non-compete should reflect the brokerage's actual market footprint rather than an arbitrary distance — for hyper-local brokerages with a defined neighborhood niche, even a 10-mile radius may be commercially reasonable, while regional brokerages may require a broader restriction.
GCI Earnout Measurement Methodology
Buyers and sellers frequently disagree on how gross commission income is calculated post-close, particularly for team transactions, dual-agency deals, and referral fee arrangements. The LOI should specify exactly which transaction types count toward GCI targets, whether referral fees paid out to external agents reduce the measurement, and what happens if the buyer changes commission split structures during the earnout period in ways that alter agent behavior and production volume.
Owner Production Carve-Out from SDE
The seller's personal production as a licensed agent must be explicitly excluded from the normalized earnings figure used to set the purchase price. Both parties should agree in the LOI on the exact dollar amount of owner-produced GCI for each of the trailing three years, so there is no dispute during due diligence about the baseline earnings the multiple is applied to. This carve-out is also critical for SBA lender underwriting.
Agent Retention Threshold for Earnout Eligibility
The number and identity of agents whose retention triggers earnout payments should be negotiated carefully. Buyers prefer to define a specific list of named top producers in a schedule to the LOI, while sellers prefer a percentage-based threshold that accounts for natural attrition. A balanced approach identifies the top 5–8 producers by name with individual retention milestones, while using a broader roster percentage for the remaining agents.
Franchise Agreement Assignment or Re-Execution
For franchise-affiliated brokerages (RE/MAX, Keller Williams, Century 21, etc.), the LOI should address whether the existing franchise agreement transfers to the buyer or whether the buyer must execute a new agreement with the franchisor on potentially different royalty and fee terms. This is a material term that can significantly affect post-close profitability and should be resolved before the LOI is signed rather than surfaced during due diligence.
Seller Note Standby Period for SBA Compliance
When a seller note is used to fill the equity gap in an SBA-financed deal, SBA rules typically require the seller note to be on full standby — meaning no principal or interest payments — for the duration of the SBA loan, which can be 10 years or more. Sellers should understand this constraint before accepting seller financing as part of the deal structure, and both parties should confirm standby requirements with the SBA lender prior to LOI execution to avoid restructuring the deal at the eleventh hour.
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Independent real estate brokerages in the lower middle market typically sell for 2x–4x seller's discretionary earnings, with the multiple driven by agent roster diversification, the presence of recurring revenue streams like property management, and how much of the GCI is attributable to agents other than the owner. A brokerage with $600K in normalized SDE — after removing the owner's personal production — and a well-diversified agent roster of 10+ producers could reasonably support a $1.5M–$2.4M purchase price. Brokerages where the owner accounts for 30% or more of GCI will receive compressed multiples, often at or below 2x SDE, because buyers cannot underwrite that income as sustainable.
In most states, yes — the entity operating a real estate brokerage must have a licensed broker of record, and that individual must hold an active, unrestricted broker's license in the relevant state. Some buyers designate a licensed partner or employee as the broker of record rather than obtaining a license themselves, but this must be arranged before closing. SBA lenders may require proof of licensure as a condition of loan funding. If you don't currently hold a broker's license, begin the application process immediately upon LOI execution, as state processing times can range from 60–120 days depending on your state.
Earnouts are standard in brokerage acquisitions because the primary value of the business — the agent roster — consists of independent contractors who can leave at any time. A buyer who pays full price at closing and then loses the top three producers within six months has dramatically overpaid. A well-structured earnout ties 15–30% of the total purchase price to post-closing performance, typically measured over 12–24 months, using two metrics: agent retention (do the key producers stay?) and GCI performance (does the brokerage maintain its revenue baseline?). The seller is motivated to facilitate a smooth transition because their earnout depends on it, which aligns incentives during the most critical post-close period.
Yes, real estate brokerages are SBA 7(a) eligible, and SBA financing is the most common deal structure for acquisitions in the $1M–$5M revenue range. SBA lenders will typically fund 75–85% of the purchase price, with the remaining equity gap filled by a buyer down payment and potentially a seller note. The key underwriting challenge is demonstrating sufficient debt service coverage from normalized brokerage earnings — after removing owner production income — with a minimum 1.25x coverage ratio. Lenders will scrutinize agent concentration risk and may require the buyer to document a retention plan for top producers as a condition of loan approval.
The most effective protections include: (1) structuring a seller earnout tied to agent retention so the seller is financially motivated to facilitate a smooth transition; (2) negotiating retention bonuses for the top 3–5 producers payable 6–12 months post-close contingent on continued active production; (3) ensuring all agents have current, signed independent contractor agreements on file before closing; (4) having the seller personally introduce and endorse the buyer in agent meetings at closing; and (5) including non-solicitation provisions in the seller's non-compete that prohibit the seller from recruiting agents to a competing brokerage after the sale. No structure eliminates attrition risk entirely, which is why buyers should underwrite the deal assuming some agent turnover and ensure the business is profitable even if 1–2 producers depart.
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