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To Commit or Not to Commit – Exclusive Agreements with a Real Estate Broker

Real estate By Rick Pearson, Principal, Cresa Los Angeles

As someone who only represents tenants or buyers, I always prefer to have an agreement with my client that defines the scope of work and protects my ability to get paid (as long as I perform).  I’m an advocate of Exclusive Rights to Represent agreements and I have no doubt that they are in the best interests of both parties.

If a tenant is not willing to commit to a broker who is spending time and effort on his behalf, then they are probably not going to find someone who is willing to work hard and smart for them.  A tenant can always find a broker to do a survey and show him property without an agreement.  Most likely, those brokers are either too inexperienced to provide good advice, or they are only sending information on their own listings, which may not be the best fit for the tenant.

Although I am advocating that tenants get better service by hiring one broker to represent them, I clearly understand why many tenants shy away from it.  After all, you really don’t know how hard your broker is going to work or how helpful they are going to be until after you sign the agreement.  By then, you are locked-in for some period of time.  I blame my industry for this.  There are way too many inexperienced and incompetent brokers and agents in this industry.  There are way too many brokers who are just looking to earn a quick fee and move on to the next deal.  Being a good advocate for the tenant/buyer is more difficult than you might think.

A few things to consider on this topic that may help you avoid problems:

Ability to Terminate an Agreement – Be sure any Representation Agreement gives you the ability to terminate, if your interests and expectations are not being met.  You should not be forced to work with someone whom you just don’t trust or don’t feel is working hard enough on your behalf.  If the broker is not willing to give you that right, then they are not the right broker.

Quality over Quantity – If your broker sends you a survey with  50 buildings on it, I would question the broker’s understanding of your requirements.  It is much less work to send over 50 building than it is to properly screen 50 buildings and eliminate ones that don’t work.  I’d prefer to see the best 10-20 options after my broker has screened them all.

Dont Sign Proposals – Unless there is a very good reason to sign a proposal or LOI, don’t!!  It’s just not needed, especially if you don’t already have an exclusive agreement with your broker.  Often brokers will add exclusive representation language into a proposal, have the tenant sign it, and then claimed that the tenant acknowledged the agreement as being “exclusive.”

Broker Disclosure Agreement – In many states, brokers are required to have all of the parties involved in a transaction sign a form acknowledging the specific representation of the broker:  defining who represents the Tenant, who represents the Landlord, as well as any Dual-representation, if applicable.  Brokers like to add exclusive representation language to these forms and tell you they are “mandatory” to sign.  Look carefully at these forms and be sure you are not committing to something you don’t want.

Commission Language in the Lease – By the time you are signing a Lease, hopefully you are comfortable with your broker getting paid for the particular transaction.  Many leases, especially the AIR lease, provides language for the brokers to ALSO get paid if the Tenant expands, renews, and/or purchases the property any time in the future.  This is a real problem in our industry and brokers don’t do a good job disclosing it.  Allowing this protection to remain in the final lease could prohibit a tenant from hiring a different broker in the future.  I’m all for protecting the broker’s right to get paid for the transaction he’s worked on, but it’s not right to guarantee payment for future transactions.

Know the Total Fee Amount – Don’t be afraid to ask the brokers exactly what the fee is and how it is being shared before you complete the transaction.  It’s your right to know and if your broker won’t tell you, you have the wrong broker.

These tips will better prepare you for dealing with real estate professionals.  Hopefully, you already have someone you trust and are confident that they are always advocating for your best interests.

 

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