Commercial Real Estate Brokers- Are they necessary?
There is a common misconception in the marketplace today based on the abundance of office space available.
There is a common misconception about CRE brokers from tenants, buyers, and property owners. We are often questioned if brokers add enough value to a transaction that is worth the compensation paid to them. Is having a professional broker part of your real estate transaction really necessary?
When you are sick do you undergo a self-diagnosis as opposed to seeing a medical doctor?
When your vehicle breaks down and you have little to no knowledge of vehicle maintenance and repair do you try to fix the problem yourself rather than going to a mechanic?
When starting a new business venture do you set up your entity, operating agreement and tax structure without consulting with a CPA or Attorney?
If you answered no to these questions, then trying to facilitate your own real estate transaction without broker representation is no different.
CRE brokers can provide significant value in multiple avenues.
1. Market Knowledge: Understanding current market conditions, deal terms, pricing, trends, vacancy rates, and new developments allows CRE brokers to advise clients to make knowledgeable real estate decisions.
2. Network: Brokers have a vast network of contacts which include other brokers, lenders, attorneys, architects, engineers, contractors, developers, and investors who all are involved in the facilitation of a transaction and provide tremendous value to the client.
3. Property Underwriting: Brokers have extensive knowledge of property values which allows them to provide clients with accurate valuations of their real estate by utilizing experience, access to sales comp data, appraiser relationships, and understanding current market conditions.
4. Transaction Management: Listing a property for sale and successfully closing on the sale can be a challenging task. Brokers manage and facilitate the entire purchase, lease or selling process from start to finish. In a sales scenario, they are required to adequately market the property, secure a buyer, negotiate pricing, handle all paperwork, due diligence, inspections, and facilitate closing on the property.
5. Negotiation Expertise: It is the brokers job to negotiate the best terms and conditions on behalf of the client. In a lease transaction, there can be several profit centers that landlords utilize in negotiations with tenants. We hear this often from prospective clients: “My buddy was able to get his space for …. per square foot. Did your buddy negotiate a CAP on operating expenses? Did he get several months or rent abatement? Did he limit his exposure on repairs and maintenance? Did he get a market tenant improvement allowance? Did he effectively negotiate a favorable sublease clause in the event he needs to exit the real estate? Having a professional to negotiate on your behalf is critical to making successful real estate decisions.
In summary, CRE brokers can provide enormous value in a real estate transaction by utilizing experience, training, resources, negotiation skills, market knowledge, and providing risk management solutions. If you are not an expert in the field, engage a professional.
