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If you're searching for commercial space, you might feel overwhelmed. You need to have strong market knowledge and really be confident about your needs and wants. Sorting through available properties costs you time which could better be spent elsewhere. In many cases, it's in your best interest to employ a commercial real estate agent to help you with your search. Yet, some disadvantages do exist. Below, we have provided a broad overview of the tenant representation pros and cons to help you make the best choice for your business.
Like residential real estate agents, commercial real estate agents can make your property search easier in so many ways. This is especially true if you use a broker who doesn't have any or has very few clients who are landlords. Some of the benefits, all of which ultimately save you time, you can gain by finding a broker who only represents commercial space users include:
When you chose to go it alone and search for commercial retail or office space, you might answer ads on the internet, from the newspaper, or call phone numbers on signs advertising vacancy at places you drive by. Not all landlords are hands-on and not all are responsive. When you choose to hire a commercial real estate agent to represent you, you will find landlords are much more responsive. This is likely because people do call to "kick tires" as they say, so property owners aren't as eager to have a drawn out conversation about a potential lease unless they know the potential tenant is ready to act. Hiring an agent who contacts landlords on your behalf demonstrates you are serious about locking down some commercial space.
Without tenant representation, you are unlikely to get complete information about a specific property, the landlord, or the market. Your agent will know the local market, so he or she can help you find profitable locations for your specific business. Additionally, your agent will automatically know which buildings have space available as well as any restrictions, zoning requirements, or proposed development in the area. Finally, your agent and their firm most likely have relationships with some landlords and know the good, bad, and the ugly about others. This can lead to you learning about spaces which haven't yet been put on the market, or learning about spaces which might not be a good fit for you in the long-term.
If you are a new business owner or a startup looking for commercial space, you might be a little unsure exactly what kind of space you should be looking for and not have an exact grasp on your needs. A tenant rep can walk you through the aspects of your space you need to think about such as location and price. Your agent can also help you decide if you want features in an office building such as a fitness center, green space, and a community kitchen or cafeteria. Other considerations you might be unsure of include whether your space is move-in ready or whether you are open to doing a build-out.
When you deal directly with a landlord they are going to quote you the rental rate and the terms they want, without regard to your wants or needs. Many clients don't have the time or resources to adequately evaluate these offers, so they might get themselves into a less than desirable lease that isn't in line with the rest of the market. Your commercial real estate agent can evaluate terms and negotiate common items in commercial leases such as renewal options and common area maintenance (CAM) costs. Your agent can ensure you are getting the best value for your money and your lease terms are fair and reasonable.
Although tenant representation has more advantages than disadvantages, you still need to be aware of some of the common cons which can hinder your commercial property search with a tenant representative. You will especially find some of these disadvantages when you choose a full-service commercial real estate broker who represents mostly landlord clients. Some of these cons are listed below:
Some businesses don't want to pay a broker commission, so they choose not to use a commercial real estate agent. Many times this doesn't factor into a deal because the landlord includes the commission in the lease, which is split by both parties when the ends. Yet, scenarios do exist where your broker might not get paid by the landlord. For example, if you find the property you want and it hasn't been listed yet. This can cost you several thousand dollars in broker fees unless carefully negotiated with the property owner.
Your tenant rep makes their money on commissions, so they have an incentive to push tenants into properties as fast as possible so they can move onto their next deal. If your agent doesn't take the time to understand your needs, show you the properties which are the best fit for you, and offers you minimal choices, you might end up leasing a space that you will soon find isn't the best fit for your business. You should always get references for agents and find one who will spend ample time ensuring you get the space you want and need.
Getting paid commissions creates a strong financial conflict of interest for tenant reps. The higher your lease amount is, the more your tenant rep gets paid. Commercial real estate agents who represent tenants only have business standards and ethics to motivate them to get the best deals for their clients. Also, agents might suffer a bad reputation if they don't do their best for clients who are tenants, but ultimately they have incentive to encourage you to sign at a higher rental rate. Getting a referral to a tenant rep and seeking out a firm who represents more tenants than landlords can help you avoid falling victim to this conflict of interest.