Friday, July 6, 2018

Are Commercial Real Estate Brokers Un-necessary?

Image Attribution: www.reco-play.com
Recently - in this space - I opined about commercial real estate technology and whether technology will replace the role of a commercial real estate broker.

If you missed the post, shame on you! But, here's the punchline - Not likely, due to a myriad of reasons.

Today, I endeavor to discuss the function of a commercial real estate broker - in a deal - and to what extent that participation is necessary.

Before we address the question, a bit of background. Most commercial real estate transactions - be they a new lease, a purchase, or a lease renewal in an existing space  - employ two sides - a procuring agent - those representing the buyer or tenant and an owner's agent - those representing the owner of the building. In California, agents are allowed to represent both ends of the transaction - also known as dual agency.

Each side has a purpose.

Tasked with finding a tenant or buyer is the owner's agent. This effort is filled with all manner of marketing initiatives - to brokers and prospects. Sometimes an owner believes he can short-circuit the search for a buyer or tenant by planting a sign on the fornt yard and digitally advertising. Problems arise when the inquiries pour in, tours are required, and a negotiation ensues. OK, an agreement has been reached - now what? Certainly, a broker's role on the seller's side is crucial.

Conversely, a procuring agent's goal is to locate a space for his client - the occupant. If a list of available buildings was easily accessed by a business looking for space - the contribution made by a procuring broker would be lightened - not eliminated but diminished. Residential agents face this challenge as all listed houses are public facing through sites such as Zillow, Realtor.com, and Redfin. A homebuyer can find out what is available with a swipe of an app. The only consumer-facing commercial real estate site is Loopnet. Accuracy of complete availability is limited as there is no governing realty board to create accountability for the submissions. So, a key to the walled garden of commercial real estate availabilities is secured through an agent.

I once heard the reason flight attendants are on board an aircraft during your cross-country flight - is in case of an emergency - not to serve you honey glazed peanuts. A similar set of crash precautions is contributed by the agents in a deal. Problems arise and a skilled practitioner can counsel you through various solutions. We recently guided a seller through a buyer's request for repairs. What started as a high six-figure ask was whittled down to a mid-five-figure take - all because of our web of contractors. Don't ever underestimate the power of a great network when it comes to solving a problem.

So, unfortunately, dear reader, a commercial real estate professional is a necessary evil in a transaction.