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As commercial real estate agents, our assignments are
memorialized through agreements - either agency
or representation. In the former, an owner engages us to procure a buyer or
tenant for her vacant building or sell an occupied one - referred to as a
leased investment sale. The latter tasks us with finding a location for an
occupant to rent or purchase.
Owner representations are also known as a listings. This
contract underlies virtually all of the signs you see advertising a property
and certainly any in the commercial multiple listing services such as AIR or
CoStar. If a broker is involved - it’s imperative that such an understanding
exists and outline the duties and responsibilities of each party - broker and
owner. In real estate transactions, a listing agreement is a contract between a
real estate broker and a property owner. This agreement gives the broker the
authority to act as the owner's agent in the sale or lease of the property. The
term "exclusive" means that the owner agrees to work solely with the
broker for a specified period of time to try and sell or lease the property.
There are typically three types of exclusive agreements:
exclusive right to sell or lease, exclusive agency, and open listing - by the
way all referred to an agencies.
Exclusive Right to Sell or Lease: In this agreement, the listing broker is given the exclusive
right to earn a commission by representing the owners and bringing a buyer or
tenant, either through another brokerage or directly. The property owner pays
both the listing and selling broker's fees.
Exclusive Agency: In an exclusive agency agreement, the listing broker has
the exclusive right to represent the property owner. However, the owner retains
the right to sell or lease the property themselves without obligation to pay a
commission, unless the broker brings a buyer or tenant.
Open Listing: Though not exclusive, an open listing agreement is a
non-exclusive contract, meaning the owner can hire as many brokers as they
like. The commission is earned only by the broker who brings a buyer or tenant.
An agreement called a tenant or buyer representation
authorizes the broker to represent the tenant or buyer in their search for a
new space, negotiate lease or purchase terms on their behalf, and often also
may include handling other aspects of the transition such as planning and
managing the move.
Much like listing agreements, tenant or buyer representation
agreements typically specify the broker's responsibilities, the duration of the
agreement, the geographic area covered by the agreement, the compensation that
the broker will receive, and other terms and conditions of the relationship. In
these types of arrangements, it's especially important for the broker to fully
understand the needs of the client. For instance, a manufacturing firm may have
very specific power requirements, zoning regulations, and more.
Preceding a Tenant or buyer representations could be
anything from a company growing and needing larger facilities, to a business
downsizing or restructuring its operations, to an operation relocating to a
different area. These transitions can often require expert help to manage,
particularly when it comes to finding suitable new locations, negotiating
leases or sales, and managing the move itself.
Among the two understandings - an agency obligates the
owner to pay a fee if certain conditions are met - price, time frame, terms,
etc. - whereas the rep agreement asks the agent to seek compensation from the
owner as well - in some instances by cooperating through an agency. Yes. That’s
correct. By engaging a practitioner to source an address, no resulting fee is
promised. In effect, the occupant gets professional representation for no
charge to the occupant. What if an owner refuses to pay an occupant’s rep, you
may be wondering? The short answer is he’s out, scout.
You may be curious why all occupants wouldn’t proceed in
this manner? After all, they get the expertise of a commercial real estate
professional for free. I’d offer these reasons as possibilities:
Control: Some businesses may prefer to handle the process internally
to maintain control over every aspect of their move.
Costs: Even though the broker's fee is usually paid by the owner or
landlord, the cost may still be reflected indirectly in the lease or purchase
price.
Confidentiality: Some companies might prefer to keep their property searches
and moves confidential until they are final, which can be easier to manage
without involving external parties.
Complexity: Some businesses may have very specific or complex needs that
they believe they can manage better internally.
Past Experiences: A company may have had a negative past experience with a
broker and may choose to handle the process internally as a result.
In conclusion, while there are many benefits to using a
commercial real estate broker, the decision ultimately depends on the specific
needs, preferences, and experiences of the individual owner or occupant.
Allen C. Buchanan, SIOR, is a principal with Lee
& Associates Commercial Real Estate Services in Orange. He can be reached
at abuchanan@lee-associates.com or 714.564.7104. His
website is allencbuchanan.blogspot.com.
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