Throughout my 10+ year career as a commercial real estate (CRE) broker I have represented numerous companies from small start ups to international Fortune 500 firms. During the initial “interview” or “pitch” of my services the basic same questions are asked no matter what size business I am pitching. There is one question though that is asked the most by smaller businesses and not the larger firms, at least in my experience.
The number one, two part question when pitching my services and benefits to a small business is:
“What is the cost of your services and how will it affect my deal?”
Well, of course I get paid. No one does nothing for free, though my services are usually free when I represent a business as their Tenant Representative. I say usually cause there are the rare or unique situations where it is not. Those of course are fully disclosed and negotiated ahead of time. For this blog post let’s focus on the 98% of the time where my services are free to the business.
As a CRE broker and representing a business in a lease or purchase we are paid by the Landlord or Seller. Just as in the case of residential real estate. Now the actual fee is negotiated. By law there is no “standard”. Each CRE firm can set a rate in which they feel their services are worth and each Landlord or Seller can determine what they wish to pay. In the end it is negotiated between the CRE broker and Landlord/Seller.
Small businesses understand this, but the second part of the question is “how does it affect my deal?”
This is an understandable concern. Many may believe that if they negotiated the deal direct, without a broker, they will be able to acquire a better lease rate since the Landlord does not have to pay commissions. From my experience this is not truly the case.
A CRE broker in most cases forces a Landlord to lower their rental rates, add incentives and possibly add Tenant Improvement dollars to a deal. Reason: the broker knows the market, knows the competition and understands the economics of the deal. Also in most cases Landlords have already hired a broker to represent their property so in those cases the broker for the Landlord will acquire the full fee instead of splitting it with the business’s broker.
This is probably one of the key points. A Landlord who has a broker representing their property is already in contract to pay a fee, a business having a broker representing their interest ensures they are getting the best deal possible. Jason Piazza wrote a great blog article on TheBrokerList.com in April 2013 detailing 5 Reasons to Hire a CRE Professional.
So in closing, the cost of not hiring a CRE broker could be more than monetary value. Having a CRE broker offers you and your company expertise, strategic advice and a representative looking out for your best interest.
How has your experience been with a Commercial Real Estate broker working on your behalf?