Real estate—often the second-highest expense of running a business—has a significant effect on a company’s balance sheet. Given the impact real estate can have on the bottom line, it belies business owners to do everything within their power to get the best deal possible. Quite often there are misconceptions about the value a real estate broker adds to a transaction, and many business owners believe they can save money by navigating the search for new commercial space alone.
What is the value of a commercial real estate broker? Consider the following diagram that gives a simple overview of the typical steps involved in procuring, or relocating workspace.
Securing space is a complicated process, and it’s important to have an advocate at each step. Though this is not a comprehensive list, here are five common reasons business owners cite for not working with a broker.
- Control: It takes hard work and intelligence to succeed in business. Many business owners—understandably—prefer to have control over the major decisions their companies make; this can include finding and securing space. But what many don’t realize is that no matter how intelligent you are, it doesn’t guarantee you will recognize—or negotiate—the best deal. A broker serves as a partner in the process; a partner who provides the expertise that allows the business owner to control the decision.
- Broker Fees: Many falsely assume that the fees incurred by hiring a broker outweigh the benefits of using one, but there is no out-of-pocket cost to a tenant. Brokerage commissions are typically built into the landlord’s budget, and do not affect the occupier. In fact, tenants who do not have representation are generally at a disadvantage. However, when tenants use a broker it gives them equal footing with landlords, who view brokers as negotiating partners.
- All Market Information is Available Online: We live in a digital world, and there is a great deal of information available online. However, not all market information is publicly accessible. Unlike residential real estate, the commercial market does not have a comprehensive, publicly accessible database of available properties. This makes acquiring accurate, timely market data on the web extremely difficult.
- “I Have Real Estate Connections”: It’s a small, well-connected world out there. Because of this, some tenants assume they’ll get the best deal because they have a personal connection, but this is rarely the case in commercial real estate- even in Utah.
- Trust: Since brokers represent multiple clients, some tenants worry that their best interests won’t be considered. It is important to remember that a broker builds their business on their reputation. A broker who doesn’t work to secure the best scenario for their client won’t last long.
Having addressed these concerns, it is important to look at how brokers add value to the process of procuring commercial real estate. Five primary ways in which a broker adds value are:
- Market Knowledge: As mentioned previously, not all market data is available to the public—particularly commercial real estate listings and property comparables. If you don’t work with a broker, you won’t have access to accurate information regarding commercial space. Real estate brokers are well-connected individuals who have a pulse on the market. They are constantly in contact with landlords, developers, tenants and investors, among other parties. This makes them privy to non-public information which can be used to benefit their clients.
- Multiple Resources: In addition to access to market information, many brokers work for a company that has additional service lines and resources. Clients of CBRE not only have access to brokerage services, but also to asset services (property management), valuation and advisory services, project management services, debt and structured financing, global corporate services, strategic consulting, and many others. CBRE also has a dedicated research staff focused on delivering the most comprehensive and accurate data analysis available. Working with a broker gives you access to a team of professionals that can service all aspects of the real estate transaction.
- Cost Savings: Commercial brokers are paid on commission, but this is typically paid by the landlord or building owner. In most cases the tenant or buyer doesn’t pay a fee to use a broker.
Agents also have the knowledge and ability to negotiate the best deal on ALL aspects of the transaction. There is much more to a lease than the price per square foot; the true cost of occupancy is the sum of a number of factors, such as operating expenses, improvement costs and allowances, location, quality of construction, building layouts and amenities, heating and cooling capabilities, etc. These items should be considered before finalizing an agreement.
- Experience: Commercial brokers are experts in their markets and specialties. They have navigated the transaction process many times and are familiar with the types of challenges and pitfalls that can occur. Relocating or acquiring commercial space is a complex, time-consuming process, as well as an infrequent one for most businesses. However, hiring a broker guarantees access to an experienced advocate who will work on your behalf.
- Save Time: Business owners know how precious time is, and procuring the right commercial space takes a lot of time. To get the best deal, you must consider many factors, and most business owners are too busy to do this. From compiling and reviewing listings, to drafting letters of intent, scheduling tours, negotiating lease terms, and much more, it is beneficial to have an expert manage the process for you.
These are just some of the ways in which hiring a commercial real estate broker adds value to an organization. Whether securing new business space, determining whether or not to renew a lease, expanding, or relocating, a broker will act as an advocate and expertly guide your company through the transaction process.
About the Author
Matt McAfee is a sales associate at the Salt Lake office of CBRE (http://www.cbre.com/matt.mcafee) who specializes in the leasing and sale of industrial properties throughout the state of Utah. CBRE is the global leader in real estate services and investment. Located at 222 S. Main Street in Salt Lake City, the Utah office is dedicated to providing clients with world-class real estate services. Learn more at http://www.cbre.com/slc.