Buyer Brokerage for Office Tenants

 Many firms have a person inside the organization who would be in charge of leasing office space. In many cases, they have a narrow range of buildings that they are considering, and most of those buildings would have leasing agents. It seems simple enough to have that person call the various leasing agents, gather information about the lease terms and availability, and compare the needs of the firm against the possibilities. 

Especially when dealing with professional firms, there can be an attitude that the real estate agent does not have much to add.  This is not usually true.  The leasing agent for the building represents the landlord, and, while s/he can show the space and prepare the lease, that falls short of everything a tenant would want to know.  Knowledge of the local market, terms common to the neighborhood, landlord concessions, and fit-up allowances are all important.  Understanding what to ask for is a key part of the leasing process. Good agents are in touch with current practices, and may be aware of going rates, even before they are published or can be used in an appraisal.  Since appraisers can only use information from closed transactions, there will always be a lag in that regard, unless an agent has another source.

Sometimes the leasing agent may also represent the tenant. If they are in formal relationships with both, that is called dual agency.  It must be disclosed, and agreed to, by all parties.  It is not uncommon, but having a written agreement means that there is a fiduciary duty to both sides.  Although that duty exists, it is still the norm that the landlord would pay the commissions, even for the buyer's agent.  When that is true, the tenants are receiving help and information that is not costing them anything.  

More on that last point:  Could you negotiate a better deal, if you had no agent who had to be paid?  That is a commonly held belief, but it's important to realize that, without agents, both sides expect to save money. Whether or not it happens is subject to negotiation, but it would be naive to think that the tenant would get all the savings.  Even if they did, they might pay more for the space because of scarce knowledge of the going rates, concessions, and fit-up allowances.

In some ways, it can be akin to the advantage of using a good travel agent.  You still pay the advertised rate for your trip, but you get the benefit of added background, and the commission is paid by the vendor or venue.  In fact, you may well do better with the travel agent involved, especially if you need to negotiate terms or changes.  Think of that when you consider a new office lease.  To use a real estate professional or not?  The answer should be clear.

Another Buyer Broker Story

The right of a consumer to be represented themselves by a real estate agent has been the law in Connecticut for at least a decade now, but it is still not understood by many people.  In the commercial arena, where many buyers are more sophisticated, and are used to buying and selling real estate under earlier regulations, it has been slow to take full effect. The way that the law is currently written, it requires a real estate agent to have a written representation agreement with a buyer, before s/he shows that person any listings other than his/her own company's listings, where the listing agreement with the seller would give the agent representation of at least one of the parties. A dual agency agreement must also be signed by all parties, when the agent represents both the buyer and the seller.

Why am I explaining this again?  Because so many people do not understand the law.  I got a call a couple of weeks ago from an attorney, skilled in real estate, and also licensed as a real estate agent.  He told me that he had recently bought a property, which he had previously called me about (to ask questions about the area, not to represent him on a specific property).  He said that he realized only after the deal was done that the listing broker had gotten paid to represent him, because he didn't have a buyer broker agreement.  He had thought, as many people do, that he would save money if he was not represented.  The way it works, though, is that the agent is (almost always) paid by the seller, as a result of a listing agreement, and that fee is named in that agreement, regardless of whether another agent is involved.  That means that, if there are two agents, the agreement between the two agencies (almost always) divides that commission.  If there is no selling agency, the listing agreement would still be in effect, so the listing agency would get that commission.  While that listing firm would owe certain duties to anyone, and would do the necessary work to put the transaction together, the fee wouldn't change just because the buyer chose to be unrepresented.  Brokers who do not represent a person, though, cannot give advice on value, except to state the listing price.  So that question--what's it worth?--can only be answered legally by an agent who represents you.

So why don't buyers want to sign buyer broker agreements?  Sometimes, they want the right to buy something without the agent, or with another agent.  Sometimes that's fair, although sometimes it isn't, depending upon the amount of ground work that has already been, or is being, done.  Sometimes they aren't authorized to sign, which is a problem that the CT Legislature plans to take up this year--it can be fixed by having a commercial buyer broker agreement signed later in the process.  In some cases, they are dealing with more than one agent in different areas, a problem that can be fixed with the proper documentation.  Many times, though, it's just a knee-jerk reaction against signing anything.  But when's the last time you saw a doctor?  If you declined to sign the HIPAA form, I bet that you didn't get in.  (And, actually, I'd put my money on a bet that you signed it, and never even read it.)  Why should real estate not have paperwork also?  It's good business, and good practice. And, it's the law.

Commercial Buyer Brokerage in Connecticut

At a meeting last week, I once again had a commercial agent from another company confidently tell me that buyer brokerage does not apply to commercial real estate.  Although there are real differences between residential and commercial, that law is not one of them.  It may be more difficult to get a regional manager without significant authority to sign a buyer broker agreement, but the law still requires the discussion, even though we might have to settle for having an unrepresented buyer form, or a BBA that only covers one specific property. 


Commercial real estate sometimes gets overshadowed by the sheer volume of residential transactions, and there definitely should be differences in laws and regulations, but it's still a work in progress.  For now, don't be surprised if your commercial agent asks for a signature before showing property, in much the same way that your doctor has you sign a HIPAA form before seeing you (even if you can't remember signing, or don't bother to read the form).  And please, don't shoot the messenger!  Call your state senator or representative instead!

How We Get Paid

Every so often, I think it's worth reminding people about how real estate professionals get paid.  It often bears on how we answer questions about clauses in our listing contracts, for instance, and reminds us that our field is often misunderstood.
 Most clients have a vague idea that real estate salespersons are independent contractors.  I suppose that, if they really thought about it, that would lead them to realize that we live on commissions, and those are earned only when transactions close.  We have no salaries, no benefits, and no guaranteed payments for the work we do.  Our listing agreements entitle us to get paid only when certain conditions are met, and must be in writing.  Our buyer broker agreements, which many people are actually told by attorneys not to sign, are required in order for us to show property not listed by our own company, and are necessary documents in any claim for a commission.
Clients often request that certain clauses be removed, or ask why they are present.  The answer is usually that we are trying to point out in advance when compensation is owed.  One good example would be lease renewals.  Owners often forget, once a tenant has been in place for a while, that a real estate agent was responsible for bringing him in.  We can only get paid for the original term at the time of the lease signing, and then we bill again if and when the lease is renewed.  Sometimes owners ask why we request a month's rent as a commission on a lease for one year or less.  There, it's simple economics:  it costs us more to put up and take down the sign, enter the listing into marketing channels, and complete the lease and paperwork than we can earn, if we're not careful.  We don't control the negotiations, so it's not up to us to decide how long the lease should be.  Therefore, we need to make sure that the minimum amount we receive will cover our expenses.
There should be another system to handle these issues.  In NYC, for example, apartment tenants pay their own brokers 15% of the first year's rent at the time that the lease is signed.  Other similar advisors, such as attorneys and investment bankers, receive retainers against future fees, when assisting commercial clients.  Having us front all the costs and using our time without upfront compensation is an outdated model, and will probably change some day.  The only reason it hasn't changed yet is akin to the old saying that Willie Sutton robbed banks because that's where the money was; owners and sellers pay commissions because they are receiving the cash at the closing or signing. If banks allowed buyers to finance the commissions in the mortgage amount, for instance, I think the system would change quickly.  It makes sense that people should be paying their own professionals, and that they would be owed something for their time.  It can't happen quickly enough for us!

First Entry

Welcome to the new and improved Pearce Commercial Real Estate Website, and to my commercial blog.  While I have been blogging for a long time, this is my initial foray into exclusively commercial material.

It's always an interesting feeling to be writing in cyberspace.  You have no idea who, if anyone,  is reading what you post.  Nor do you know, unless they contact you, what they think of what you say.  That's my way of saying that I'm going to write about whatever occurs to me that I think might be useful or relevant to the potential audience, and I would be delighted to get feedback from reader about potential future topics.

By way of introduction, Pearce Commercial Real Estate covers most of Connecticut, largely excluding Litchfield and Fairfield Counties.  We do sales, leasebacks, leases, exchanges, and buyer brokerage for industrial, office, retail, and investment property.  We also have a large residential department, and joint ventures in appraisal services, insurance and mortgages.  We see the market from the "boots on the ground" level, and get enough industry material to also get the view from 10,000 feet above the ground.  I will try my best to balance those two perspectives, and hope that you will find this site useful.