Should I Hire an Exclusive Commercial Real Estate Broker?

April 05, 2017

Should I Hire an Exclusive Commercial Real Estate Broker?

It depends. There are pros and cons to an exclusive commercial real estate broker vs. working with many real estate brokers.

The advantages of working with an exclusive commercial real estate broker are:

1. That agent will come to deeply understand your needs and will know about buildings and spaces that you will like or dislike, and therefore the agent can show you properties that make the most sense and exclude options you would never consider.

2. You do not have multiple people to deal with, so you only have one lease abstract to read, not many.

3. Accountability. You are directly measuring the performance of one person.

4. Loyalty. The goal is to build a relationship. When you do that, by the time it comes to negotiate on the space you choose, hopefully your agent will know, like and trust you enough that they will fight hard in the lease negotiation to get you everything they can, such as removing personal guarantees from a lease.

5. No duplication - your agent will create a master list of buildings toured, buildings dismissed, and buildings shortlisted and you will not be presented the same building more than once. When it comes time to negotiating the lease, there will be just one person writing the letter of intent (LOI).

The disadvantages of working with an exclusive commercial real estate broker are:

1. How do you know that broker is really staying on top of the market and really showing you all the options that are coming to the market? The simple answer is that you do not, unless other brokers tend to be sending you listings that were not flagged by your agent.

2. You probably selected your broker because you liked him or her, but you really do not find about their market research skills into you dive into the process with him or her.

The advantage of working with multiple commercial real estate brokers is:

1. Competition. If you let a number of brokers know what you are looking for, each will try to dig up options that others will not. For example, agents may contact their clients or find out about tenants in buildings that are interested in giving up space, but that space is not currently on the market. You are crowdsourcing the commercial real estate expertise to come up with options for your tenancy.

The disadvantages of working with multiple commercial real estate brokers are:

1. Lack of commitment. Although the crowdsourcing method works well at first, the brokers that are not getting any traction with you will start to seek tenants who want to work together on an exclusive basis with them. Many will feel that they have given their best shot and since that did not work, they give up. Especially when they start to wonder just how many brokers you are talking to.

2. Extreme duplication. Since all agents are presenting as many options as possible, they will all present everything that is publicly known, so you will be sifting through many of the same listings, over and over. An exclusive commercial real estate broker would just be sending you listings once.

3. The worst negotiation. Since you have not dedicated yourself to one single agent, when a broker has enough of your interest to get an offer to lease submitted, their objective will be to get the deal done as quickly as possible. That way you will not find another building with another broker. Therefore they will not fight for tenant-friendly clauses and will not try to chip away at the rental rate...they simply will be trying to get the deal done. Quickly.

Our advice would be to invest time into screening brokers and go with the one that you think will do the best job. The crowdsourcing model seems enticing at first, and may yield a few more interesting options, but ultimately you will get poor service since you are not investing anything into the relationship.