Commercial Real Estate Agent Myths

You meet with a fancy commercial real estate agent with his fancy car and fancy suit.  He tries to convince you that he can help with your commercial real estate strategy and you have always been a do-it-yourselfer.  Here are the most common commercial real estate

Commercial Relators Are Only Valuable on Relocations

Even bad real estate brokers will make an existing landlord nervous.  You may be completely happy to renew your lease at a fair price, and if you do not have a real estate agent representing you on renewal, you will be telegraphing to the landlord that you are not serious about relocating. 

The mere presence of an average broker on your lease renewal will mean that you will now know about all of the relocation options and you will learn more about where the market is really at...not where your landlord is telling you it is at.    

A good broker will put those market alternatives to good use, by bring you through them and receiving proposals from those landlords.  Once you receive an alternative proposal for your tenancy you have created some real competition for your existing landlord. 

Real Estate Agents Add a Cost to the Deal

This is a quasi-myth.  Bad brokers can add a cost to the deal, and good brokers are worth more than their fee. First of all, keep in mind that it is a myth that is perpetuated by the person who has the most to lose from you hiring an agent - your landlord. 

What your landlord is really afraid of is:

1)      finding another option that suits you better and you actually relocate

2)      leveraging other options very well and grinding down the landlord on your renewal and achieving better expansion rights and tenant inducements.

Bad brokers that do not do those things well really are just along for the ride and you may have been as well off doing your own deal financially (except for the lease items ? they should have a knowledge advantage over you on those items).

Keep in mind that in some cases the landlord has hired a real estate brokerage to list and market their building and they may have them working on their behalf on the renewals as well. 

The listing brokerage is not obligated to let you know what their compensation is and in some cases they collect the entire real estate fee if there is no co-operating broker representing you. 

In this case the exact same fee is paid by the landlord and you did not have someone in your corner. 

Brokers are No Charge to You 

While a good broker saves you more money than she makes, brokers tend to entice you to sign up with them on the basis that they are "free".  While it is normal that the landlord will actually cut the check to the brokerage, it is still part of the deal. 

The best way to look it is this: the tenant pays, but the landlord cuts the check, good realtors are worth the money, bad realtors may not be. 

Of the commercial real estate agent myths, this one is perpetuated greatly by real estate agents themselves, as they generally do not want to talk about their fees, so they tell tenants, "Don't worry - the landlord pays me."

Commercial Brokers Know Real Estate

This is the most dangerous of all commercial real estate agent myths.We all love mental shortcuts.  They are called heuristics.  It allows us to simplify our life. 

Countless times I have mentioned to someone I meet that I am a commercial real estate broker.  Normally the response is to ask me my thoughts on the housing market. 

The truth is that they probably know more than me as they normally are keeping on eye on their neighborhood sales.  But when I provide them my two cents people seem to take my opinion with some kind of authority as they feel that being in the "industry" means I will absorb some residential knowledge through some sort of osmosis. 

Likewise when tenants are evaluating commercial brokers they make big assumptions.  I have been in plenty of meetings in which a tenant says "you would know that, of course."  

The reality is that there are huge gaps in broker knowledge for the following reasons:

1.       There is a lack of mentors in commercial real estate.  Brokers are all commission-based sales people.  Therefore when someone gets into the business they are shown where their phone is and told to use it - without much more guidance.  Any broker who shows the ropes to anyone new is taking away from their own sales time. 

2.       Almost all of the time put in by brokers in their first couple of years is dedicated to prospecting.  Given that leases are long term commitments, it is difficult to find any quick wins.  This means that on top of a lack of good infrastructure for learning in the industry, a broker must become good at finding clients before becoming capable of executing real estate.  I have been in countless meetings in my early days in the business in which prospects believed I knew everything that was happening in their building, their area, with their landlord.  The truth is that I was spending 8 hours a day cold calling just to get a few meetings.  I became great at cold calling.  At the time I knew nothing about real estate.  In many cases I had never stepped foot inside their building before the meeting.  I was too busy building my database, researching companies and making calls all day long. 

If you are interviewing commercial real estate brokers, do not let them guide the conversation with specific sound bites that they think will allow them to be in control.  Ask specific questions like how many deals have you completed in my building?  How many times have you negotiated with my landlord?  What are the projects you have personally worked on in this immediate area? 

Realtors Make a Lot of Money

There is just something inherently attractive about real estate.  It may be because just about anyone can get involved if you have the money and almost everyone has some kind of significant wealth building story through real estate.  Historically it has been the best way to build wealth. 

So when we see commercial real estate brokers we tend to believe that they are playing in the big kid sand box.  The truth is that most commercial real estate brokers make a very average income.  Since there is a low barrier to entry and there is plenty of competition there are plenty of agents that make a modest income.  The 80/20 rule certainly applies where roughly 80% of the money is made by roughly 20% of the people. 

That does not stop the 80% from trying to look like the 20% with fancy cars and fancy suits.  And as long as they continue to do that, we will continue to have commercial real estate agent myths.