A Word About Commercial Property Brokers

Tom Derkas
Aug 25, 2017 · 4 min read
Chapter 1

Using a qualified commercial property broker will save you time and money. Not only will your broker do much of the grunt work involved in the leasing process, they also have a deeper market knowledge and better market information. By using this guide, you will be better able to manage your broker and your transaction. You will have a better understanding of the process and know what to expect. This will put you in control of your transaction and, since you are the one who lives with the lease, control is exactly what you need.

As you start the process of finding a commercial space you will encounter commercial brokers, some of whom will offer their services to you. It is vital that you are clear on whom the broker is representing in your transaction. Real Estate brokers are either specialists or generalists. In leasing you need to be work­ing with a specialist if you are using a broker. Essentially, com­mercial leasing brokers fall into two categories: full service bro­kers who can serve as agents for both landlords and tenants; and tenant only representatives (“tenant rep”). The last is a minority in today’s market as most brokers offer full service assistance.

You are also likely to encounter the in-house building repre­sentative who is not an agent of the owner but is an employee. Employees do not have a fiduciary duty to any party in the trans­ action, often are not real estate licensees, and act in the best inter­ests of their employer. When encountering anyone representing a property of interest to you, be sure to ask if they are an agent or an employee of the owner.

It is likely that if you interview several brokers before begin­ning your search for new space, you will encounter both the full service broker and the tenant rep broker. The key to selecting any broker is experience. Often the tenant rep’s strongest selling point is that because they represent you, they can get you the best deal. A thorough understanding of how agency affects the lease nego­tiations will clarify this statement.

The source of an agent’s compensation, if any, does not sole­ly determine agency. Agency is an action. That means, if a real estate licensee acts as someone’s agent, they become their agent. A broker owes their principal a fiduciary duty, or in other words, an absolutely faithful duty to perform in the best interests of their principal and to do no harm. They also have a duty of honest and fair dealing with all other parties in the transaction. Dual agency occurs when one agent works for two opposing parties in the same transaction, in this case the landlord and tenant. Dual agency must be disclosed and all parties must agree to accept the dual agency scenario. Any broker, even a tenant rep, can inadver­tently become a dual agent in a transaction by performing an act for the other party.

Whether a broker works for a full service brokerage or a ten­ ant representation brokerage, the agent’s fiduciary duty is always to their principal. Either can inadvertently end up as a dual agent in a transaction . That is why experience is the most important factor in selecting a broker. In evaluating experience, consider both the depth and the volume of experience. A full service broker, because they often represent several local properties, receives as well as initiates transactions. They develop strong prob­lem solving and negotiating skills because they are experienced with both sides of transactions. Furthermore, full service brokers will often work on more transactions annually than their tenant rep counterparts.

Brokers are paid upon the completion of the transaction , and not paid if the transaction fails for any reason. There are two ways that commissions are calculated, a percentage of the rent for all the years of the lease or a certain number of dollars per square foot, based upon the lease term. When the commission is a per­centage, the amount payable declines with the length of the lease, so that the first three years might be five to six percent, and the next two years at three to four percent and so on. On a fixed amount per square foot it might be one dollar per square foot, per year of the term, up to five years, then forty or fifty cents per square foot for any additional years.

If you plan on using a broker, I suggest you select one qual­ified specialist in the area and type of property you desire and enter into an exclusive agreement with that broker. Since the bro­ker is only paid when a transaction is completed, your agent will be better able to dedicate his time to your assignment if he knows you are committed to working with them. I also suggest that you put your agreement in writing and include the right to terminate the agreement on five to ten days written notice. In this way, you can end the relationship quickly if your broker is not doing an outstanding job for you. Brokers are very useful and can save you time and effort and that translates into money.

)
Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade