Let’s face it – it is difficult to buy, sell, lease or manage commercial real estate properties without the help of an expert. Would you go to court without an attorney? Then why would you negotiate a lease without an expert representing you?
Hiring a good licensed commercial real estate agent is your best bet against losing thousands of dollars you will likely spend when you make costly mistakes, or miss out on solid commercial real estate investing opportunities.
That is why finding and hiring the right commercial real estate agent should be your first priority. This critical step can make or break your commercial real estate venture. And, as important as these issues are, there is simply much more to a good commercial real estate agent than finding the right property and negotiating the deal terms.
A good commercial broker negotiates your lease correctly. A great one is your watchdog even after your lease is signed.
A good commercial agent will also assist you:
- Whenever you have a dispute with your landlord.
- In reviewing what a lease clause means.
- Auditing invoices from your landlord for issues like annual operating expenses, and so many other areas that usually arise over the course of a lease or after a purchase.
This agent should be your partner for all matters concerning commercial real estate, especially pertaining to the original transaction that this agent made with you. If your agent can’t perform these services because his knowledge is limited or he doesn’t want to take the time to do so for you, it would be in your best interest to find one that can.
Most agents do not have the full knowledge required to represent you best so be careful to choose the right agent. Too many agents make their commission initially on a transaction and then do not help or check in with their client later to see if they can help them further although they may not be able to help them because of their lack of knowledge or experience. Check references to find out if your prospective agent gives good follow up service throughout the terms of your sale or lease and has the knowledge and resources to do so. Choosing the wrong agent now can cost you money, time and headaches later.
The differences between residential and commercial brokers — and why it matters
Not all real estate agents are created equal.
- Residential real estate agents, sometimes known as Realtors, are qualified to sell houses and other small residential dwellings but are not usually qualified to give advice regarding commercial property. Residential agents normally have little knowledge of and experience with commercial properties. This lack will end up costing you time and money as well as increase your legal liability.
- And likewise, a commercial agent may not be the right choice to represent you in selling or purchasing a house as they are not usually experienced in such matters.
- Using an experienced and trusted third party such as an attorney, accountant, and a real estate agent as an intermediary in negotiations is a time-tested and proven method of obtaining the best deal. (That’s why so many prudent businesses still use these methods today).
- Always use a reputable, licensed, trained and experienced commercial agent regarding a commercial real estate transaction.
There are three types of agents:
- “Buyer Agent” (also called “Tenant Agent” or “Lessee Agent”).
- “Seller Agent” (also called “Landlord Agent” or “Owner Agent”).
- Dual Agent (where both seller and buyer, or landlord and tenant, are both represented by the same agent).
If you are in the market to buy or lease a property from an owner, it would be advisable to use a Buyer Agent. If you are in the market to sell or lease a property you own to others, it would be advisable to use a Seller Agent.
Some Seller Agents only represent owners and some Buyer Agents only represent buyers (or tenants). But some do both.
If you happen to be working with a Seller Agent, never disclose to them any information that they will use to their advantage against you, such as the top dollar you are willing to pay or any other critical terms for any property you want to lease or buy.
Remember, a Seller Agent represents the seller (owner) and is hired to maximize the profit of the seller and look out for the seller’s best interests. The Seller’s Agent does not represent you and does not have your best interests in mind. This is why you need a Buyer Agent when you buy or lease.
However, there are instances where one agent can perform what is called a Dual Agent Representation where both the owner and buyer or tenant are represented by the same agent. Brokers like this arrangement because they usually make a larger commission.
The problems with Dual Agent Representation
However, it is not easy to perform such a dual representation.
- The agent is not allowed to favor one party over the other in the transaction; if the agent does so, the agent could be held liable for any damages caused by the agent to either party.
- Because of these issues that can create a conflict of interest, some parties in a transaction do not allow dual representation so they can ensure their best interest is in mind at all times.
- There are some states that do not allow dual representation.
- If you called a Seller Agent that represents an owner to lease or buy space, he has worked with this owner for sometime and has a strong relationship with this owner, do you think this agent is going to be able put your interests first and above that of the owner? If not, chose an agent that only represents you and has only your best interest in mind.
Warning signs that you have the wrong agent
Warning signs that a particular agent may not be the best choice for you because he is putting his interests above yours include
a) you are only shown properties that this particular agent has advertised or listed for lease or sale and not those advertised or listed by other owners or agents or
b) you are only shown properties that pay this particular agent the most commission regardless of whether there are other properties that might be of interest to you.
Make sure that your agent is showing you all of the properties that might be of interest to you by requesting him to do so and letting him know before you hire him that the aforementioned situations aren’t acceptable.
The broker or company that the commercial agent works for is also very critical to your success. A good agent has an experienced and intelligent broker that checks over all of his work to ensure not only that it is accurate but to make suggestions that favor you. Many real estate brokerage companies are so large now or the broker is so busy that these brokers don’t even look at the transaction details and don’t get involved during the process at all. The broker is usually the most experienced agent in the office and you should require that he reviews your transaction details.
Finally, a good agent should reward you (his client) for making referrals to him and pay you a reasonable referral fee in comparison to the amount of commission earned and size and complexity of the transaction once the transaction is completed.
It’s important to know that the terms “commercial property” or “commercial real estate” mean all types of properties (other than single family dwellings and small residential buildings) such as office, medical, dental, industrial, warehouse, retail, shopping centers, hotel, vacant land and even apartment buildings.
Services offered by the best commercial agents
With the above in mind, here are some other major services that a good commercial agent offers:
1. Agents Obtain a Higher Selling or Lower Buying Price
There is a great misconception regarding buying, selling or leasing commercial real estate on your own. Buyers and tenants often think that by not using an agent they will save money and time and that an owner will make them a better deal because the costs are lower since they don’t have to pay the tenant’s/buyer’s broker a commission. History has shown that this does not happen and most people regret trying to handle the transaction themselves.
Two critical items to keep in mind:
A) The owner has his best interest in mind and not yours and
B) an owner (or buyer or tenant) will sometimes tell you he will make you a better deal if you don’t use a broker
Most of the time what does happen is that the landlord or owner simply keeps the commission and doesn’t credit the tenant or buyer for it at all and the tenant or buyer pays a higher price and receives worse terms overall because they simply don’t know any better. What is also very important to understand is that owners usually always pay the agents involved in a transaction a commission so the buyers and tenants don’t have to pay this fee.
This knowledge is a tremendous advantage for the buyer or tenant since they receive a great and necessary service and don’t have to pay for it. Owners and their agents and/or employees who sell or lease their buildings highly prefer it when a prospect like you calls about buying or leasing space in their buildings and doesn’t have an agent representing them. Owners especially like it when existing tenants in their buildings try and negotiate the deal on their own without the use of a good broker. You simply won’t get the best terms possible. So, “Buyer or Tenant Beware”.
Good commercial agents are often able to negotiate the highest price for your commercial property sale or lease to a tenant or alternatively, the lowest price for the buyer or tenant to buy or lease from an owner.
If you lack knowledge or in-depth experience with commercial real estate, which most people do, enlisting the help of a quality agent could be immensely helpful. This agent will belong to exclusive local and national databases and is trained to use these databases online to buy, sell and lease properties. They will also know the latest comparables for both sales and leasing for similar types of properties in the same geographical area and can tell you if the current market is stable or going up on down. Use their experience to your benefit.
2. Commercial Agents Create More Advertising
Good agents know the real estate market well and are able to maximize the exposure of your property listing by using the right advertising methods to achieve the best results. Agents are an established source for information for commercial real estate with many information distribution channels to get the message about your space available to the market. Agents have many established and proprietary websites, advertising media and information distribution channels that the market relies on when searching for this information that are not available except to commercial agents. On any given day agents get many inquiries from many sources about commercial space availability.
Since advertising is typically one of the highest expenses related to selling or leasing properties, hiring the right agent can save you quite a bit of money, time and energy and bring you much peace of mind.
As an owner you can market your own space but it can be very time-consuming and expensive. It’s not just the cost of the signs and ads to consider, but also the lost opportunity cost. What is your time worth?
And if you are a business owner and real estate isn’t your primary business, what does it cost you as a real estate owner or tenant to take your focus off your business to learn the real estate leasing, sales, or buying game? ($100-500/hour times how many hours?) If you limit your marketing to just local papers, accessible Internet sites and sign calls you are probably missing out on the best deals.
Due to the fast-changing market, the data on available listings available to you is not 100% accurate. There are times when you need the most current information about what has sold or leased or is for sale or lease, and the only way to get that is with an agent. They provide you with information about the latest sales price data, vacancy and absorption rates, comparative tax, labor costs and many other types of information to help you make informed decisions.
Agents have connections with other agents, property managers, lenders, buyers and many other commercial real estate professionals. Because of this, it is easier for them to sell through word of mouth advertising. When working with an agent, deals may be put on the table that would not be otherwise available to you. A good proactive agent will many times use a target market approach to market a particular property. The agent determines who the most logical user for the space is and develops a marketing campaign to expose the property to those most likely users or to find just the right space that fits your criteria and use. A good agent will mount an active campaign to get the job done.
3. Legal Advantages of Using a Commercial Agent
Agents are able to bring legal expertise to the table. A good agent will be able to read and interpret legal documents, has a number of years experience helping clients with commercial property contracts and has the ability to close the deal for you. This agent also understands potential property restrictions and finds any other potential problems with a property.
However, a prudent agent will always recommend that you have their work reviewed by a good real estate attorney. It is wise to have someone like an experienced real estate attorney (and not just a general type of attorney that doesn’t specialize in real estate and doesn’t have many years of specific real estate experience) checking over all of the details. Two sets of experienced eyes are always better than one and the agent and attorney come from different but important perspectives and form the best team.
Depending upon the complexity and size of the transaction, many savvy commercial agents will offer their clients a review of the agreed upon contract by a recommended real estate attorney as part of the commission they receive or for a small additional fee to their client.
Other legal benefits include:
- Learning about new developments that might affect a properties value or use. A good agent will know of proposed new developments that might affect different properties in which a buyer or tenant is interested. Whether these developments are positive or negative can be valuable in weighing different options.
- Knowing what the language and comments mean in a lease or sale or purchase contract and knowing how to change it in their client’s favor. A smart agent will also suggest creative clauses such as options to buy, terminate early, renew, free rent, operating expense exclusions and in many other critical areas that will save you money, give you flexibility and peace of mind, and favor you for your specific needs.
- Reputable and prudent agents carry insurance policies called Errors and Omissions Insurance that cover the agent for liability in many instances if they make an honest mistake in a transaction. This allows their client to be protected from financial errors that might occur that were caused inadvertently by the agent.
- Many states like California also have special funds that a client of a licensed agent can sometimes tap into if the agent does something illegal or if the agent simply goes out of business and it adversely affects the client financially. These funds have limits but at least they exist and are helpful.
4. Agents can save you money and time
If you’re considering negotiating your commercial lease or purchase without your own broker, here are some important questions to ask yourself:
- What if it takes you extra months to lease the space yourself?
- Do you know when buying, leasing or selling a building that the process usually takes 6-9 months and sometimes more? It takes time to find, view and consider all of your options. If you wait too long before beginning the process, you limit your choices and increase your costs.
- What do you lose in lost rent and expenses for the empty space that you are still leasing?
- Do you have the forms and knowledge necessary to negotiate the legal documents? In addition to paying too much for a property, contract mistakes here could also cost you tens of thousands of dollars or more.
Buying or selling or leasing a commercial property can be very exhausting and complicated especially if you don’t have much time and patience to do the negotiations on your own. Hiring an agent is definitely the solution to this problem because you will simply select the best choice among the options that will be presented to you from the agent. Less effort will be required on your part but the work will be done better and more efficiently. Your agent will take care of all the searching and bidding so you can do other things more important to you.
If you are a tenant, an agent can help you resolve disputes with your landlord and negotiate on your behalf for operating expense invoices, who pays for repairs, contract language interpretation and more. Conversely, if you are a landlord, a good agent can help you do the same thing for you and deal with your tenants on these types of issues.
Agents can also refer you to other critical professionals that you may need for your property transaction, such as real estate lawyers, appraisers, property inspectors, environmental firms, accountants, architects, general contractors, loan officers and many others.
A good agent can even help you find another good agent in another area of the country where your transaction is taking place and check on this agent’s work to make sure it is done properly. This is to your benefit since it won’t normally cost you any fee (agents commonly work together like this and split the commission paid by the owner and even if that is not the case it would probably be prudent to hire a good agent as a consultant at an agreed upon fee) and your agent can interview this new agent and spend the time on the transaction as your consultant so you don’t have to.
You just need to specify your preferences to your agent and he or she will find you the most profitable deals and alternatives so you’ll have plenty of options to choose from.
Experienced commercial real estate agents can also help explain to you the present market lease trends and the current demographics.
The agent will give you a straightforward competitive analysis of different commercial properties that fit your purpose and budget. Professional commercial real estate agents give you all this information so that you can anticipate opportunities, gain a competitive advantage and implement the best possible real estate approach.