Posted by: BayAreaComRE | January 27, 2011

Guest Post: How to Choose a Commercial Real Estate Broker?

Why Use A Commercial Real Estate Broker? 9 Tips To Help You Find The Right One.

Duke Long has a strong online presence in the brokerage community, shares great material freely and wrote a blog that I really liked on the Bigger Pockets Blog. This challenges the entire industry to excel, which is one of the reasons I write this blog. Please give me your thoughts on experiences with any of these issues or any others that you think a commercial real estate broker should adhere to. Thanks Duke! Check out his stuff at www.dukelong.com.

Disclaimer, I don’t necessarily believe in everything he says here as things change from market to market, but it challenges the status quo.

Here is the full post:

It is estimated or may be propaganda from the commercial real estate brokerage community that at least 90% of all transactions involve a commercial real estate broker. True or not if you want to invest, develop, buy or sell commercial real estate you will need or want to use a broker or a brokerage firm. Well, what kind of relationship should you have? What are the specific questions you should ask? Let’s take a look.

9 Tips To Help You Find The Right Commercial Real Estate Broker

1.Test to see if the broker’s interests are aligned with yours by asking.

The single biggest problem with the client-broker relationship is the compensation structure, it’s not in the broker’s best interest financially to get the client the best deal. To test whether a firm’s goals are aligned with yours, how seriously it takes its role, and whether you want to move forward in the relationship, ask this question:“If we were having this discussion one year from today, and we are looking back over the last three years that we have worked together, what has to have happened in our professional relationship, for us to feel happy with our progress?” Whether a firm’s goals are aligned with yours, how seriously it takes its role and whether or not you want to move forward in the relationship. Sounds simple.

Note: If the broker doesn’t repeat everything you said were your objectives, or if you don’t get a satisfactory response, you’re likely not speaking with someone who’ll be the extreme advocate you deserve.

2. Make sure the firm is driven by sound experience and processes, not instinct.

A good process results in confidence throughout every stage of the transaction. You can see at every step what needs to happen and how you’re going to get there.  Ask for samples of the deliverables such as financial derivations and market reports the firm has used with other clients that would be similar to what you can expect to receive. Ask for a lease or purchase and sale negotiation checklist. The broker should be able to show you detailed due diligence checklists.

3. Demand teamwork, not solo performances.

If the brokerage firm proposes a team, ask for a list of responsibilities and each person’s specific expertise. Ask how they select brokers who are out of their market. Do they ever refer a deal outside of their network? If not, why not? You want the best resources in the market, even if they are the competition’s brokers, architects,engineers, or project managers, not just the resources within one company or a limited network.

4. Ask how the firm measures results.

What kind of indicators does it use, and what are the most wanted results and critical success factors when working with a client? You want to make sure the brokers clearly understand and respect your objectives and have a plan for reaching each one of them. An example would be: How are they going to help you determine how much space you require? What are their most important selection criteria? And how will they find and negotiate for the space that best meets your needs? Same type of criteria should work for a buy/sale.

5. Look for evidence that the brokers appreciate the details.

Do they see details and getting things right as something that gets in the way,or as a comprehensive step that must be done regardless of the time it takes? Pose a question such as, “How will you meet the specific investment criteria that I have?” and evaluate the answer. Ask how they are going to give you confidence that your specific key issues will be satisfied.

6. Determine if they’re skilled negotiators.

Find out what sort of training they’ve had in negotiation. How do they prepare for negotiation, what tools and techniques do they use, and for what results? Ask for an example where their negotiating resulted in a win during what they consider to have been a particularly challenging deal.

7. Get proof that they’re willing to listen.

The number one complaint people have about their brokers is that they don’t listen. A great way to find out how well a brokerage firm listens is to ask if it surveys its clients. If so, how often and what were the results? After the interview, assess the time they took with you and how respectful they were of your time, your objectives, and your agenda. This is an indication of how they’ll work with you in the future.

8. Probe the team’s experience using specific questions.

Are they highly trained and experienced professionals capable of leading a project through to completion? Ask questions such as, “What would your best clients say about your strengths?” Today’s transactions involve specific skills for managing and solving multifaceted real estate problems. What training do they receive outside of the typical networks (e.g., CCIM and SIOR)? Ask for examples where they’ve learned from their mistakes. Find out what they’ve negotiated that is similar to the kind and size of deal you’re about to take on.

9. Determine if the brokerage firm is willing to set its fee according to performance, not commission.

A brokerage firm committed to delivering value to you should embrace the idea that performance be tied to results. Ask how they get compensated. They should be able to talk openly about the fact that their compensation structure isn’t aligned with your best interests, and discuss it without becoming defensive. If they don’t bring it up, ask them. Be clear that you don’t believe the structure aligns with your interests. Tell them you expect some portion of their fee to be put at risk until you’ve met your objectives at the end of the transaction. National brokerage firms reserve this mechanism for their large clients, so why not for the smaller ones? Companies with large portfolios have objectives (both quantifiable and soft) that a broker must meet to get paid the full fee. For example, if you want the broker to call you back right away, prepare for negotiations, or establish creative solutions to meet your objective of reducing facility costs, then base the fee on it.

These were just a few tips to help with your commercial real estate investing. Do you have any tips for working with brokers or experiences you would like to pass on? Please feel free to post them up.

Go ahead and comment below and let’s start the discussion!

 

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Responses

  1. Justin,
    I stopped reading after you said you don’t necessarily believe everything I say!!! :):):)
    Thanks for the post!!

  2. After over 35 years in the brokerage business I continue to be frustrated by the arrogance and laziness of some commerical brokers and many commmercial clients. The most successful clients I know are ones who build an honest and healthy relationship with their broker and vice versa. Such a relationship requires open communications (often or daily), creative platform thinking and team effort wherein confidential information is shared with the broker so that all elements of a need or transaction come into play not just; “find me space” or “only these specific criteria” or ” just send me the information” or worst of all, “submit to X as he is reviewing all broker submissions”.

    Most clients would never consider a transaction without an attorney but just broker’s don’t know all of the law, likely there is no one person in the organization, especially the attorney, that knows what the broker knows much less have the perspective of multiple clients and multiple markets. So what does this mean?

    It means relationships are built upon mutual respect for skills, experience and intelligence. A broker willing to haul the bats just might get a chance to hit a home run but remember the client is the manager so perform, offer the field perspective and join the team. Clients (managers) be willing to give talent a chance, support the team and the game will be won.

    Wayne Craig, President
    Craig Realty Advisors, Inc.

  3. another commercial real estate baseball analogy. Time to retire.

  4. You are right San Francisco being the home of the 2010 World Champions should not be used as a business analogy if you have the arrogance to think tradtion is not important. Sure I could have used many analogies or none at all but the point is relationships are built upon respect and communication and I believe insulting another’s perspective is counter productive. It is precisely my maturity that provides this level of appreciation for the simply statements that communicate the full message.

  5. I would echo the “lazy” factor mentioned earlier in a comment. One point to add is see if a Broker returns a phone call. So many in our business seem to forget that calling people back might be a key factor in being successful. And don’t just call prospects back, call everyone back (OK, one can skip the telemarketers that get around the do not call list).

    One other minor point, drive a car that is not better than any one of your prospects. Many in our business seem to think an expensive car shows your success rate. Many think it simply shows your high commission structure.

  6. I see that this article is older so forgive my bump, but this content never gets old!

    Finding a good commercial broker in LA seems to be about picking up a cold call… since so many CRE brokers cold call – Principals are inundated. I find it interesting that some of these people list their properties with people who know nothing about commercial real estate and present bulletproof listing agreements (that even the agent didn’t read)..

    That said, I really feel like #9 on your list is the most important because it is the listing agreement that gets a lot of Principals in trouble.

    They seem to think that:
    1. All commercial agents and listing agreements are the same.
    2. Agents cooperate fee with other agents.
    3. The listing agreement is cancellable.
    4. They only will need to pay if they close escrow.
    5. Marketing is going to be to the entire market.

    So many Principals only realize after they sign the agreement, that the property is not open on the market, that the agent is not cooperating fee, that the listing is binding, that the agent only has to bring an offer that the seller tries to accept in order to be paid the commission and that the broker is lazy.


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