B. Working With a Real Estate Broker

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NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



Different Roles for Brokers

Since brokers can function in different ways,

it pays to know exactly what role a broker is

playing in a landlord-tenant transaction.

Here are some guidelines:

• Broker—The generic term for a licensed

intermediary who is working to get a

landlord and a tenant to the point of

signing a lease.

• Listing Broker—A broker who’s under

contract with a landlord to find a tenant

to fill a vacancy. The listing broker’s

sole legal obligation is to the landlord.

A listing broker who finds a tenant and

gets a lease signed is paid a commission

by the landlord—usually 3% or so of

the rent over the life of the lease.

• Nonlisting Broker—A broker who’s not

under contract with a landlord but produces a tenant who eventually signs a

lease. Usually the listing broker and the

nonlisting broker split the commission.

Unless other arrangements are made,

the nonlisting broker is an agent of the

landlord and—like the listing broker—

isn’t obligated to look out for the

tenant’s best interests.

• Tenant’s Broker— A broker who agrees

to represent only the tenant, the best

option for a tenant who wants a



broker’s full attention and undivided

loyalty. If the space you end up leasing

was listed with a landlord’s broker,

normally the landlord pays one

commission, which is shared by the

landlord’s broker and the tenant’s broker. But if you lease property that hasn’t

been listed, the landlord may not be

willing to pay a commission to your

broker. In that event, you must pay the

broker. It’s best to address the issue of

payment in advance in a written

contract between you and your broker,

as described in Section F, below.

• Dual Agent—A neutral broker who tries

to work for both the landlord and the tenant in the same transaction. The broker’s

main duties tend to be mechanical—

making sure that the lease details are

worked out smoothly. Being fair to both

sides can be a challenge. Because of the

potential for conflict, some states don’t

allow brokers to be dual agents.

• Realtor—A broker who’s a member of

the National Association of Realtors. The

word “Realtor” has been trademarked

by the Association. Brokers do not have

to be Realtors.



LOOKING FOR SPACE AND USING BROKERS



2. Brokers Who Work for Landlords

In a traditional commercial leasing situation,

the landlord lists available space with a

broker who then goes out looking for

tenants. If a lease gets signed, the landlord

pays the broker a commission—typically 3%

or so of the rent paid over the life of the

lease (excluding any extensions or renewals).

The broker with whom the landlord lists

the property is called the listing broker. If

another broker (a nonlisting broker) brings

in a tenant and a lease gets signed, the two

brokers usually split the commission.

Under this traditional way of doing business, the listing broker is the landlord’s

agent—someone whose primary duty is to

look after the landlord’s interests. This means

that the broker is duty-bound to work out a

lease that’s as favorable as possible to the

landlord. You may find yourself working

with a broker under these traditional rules

if you respond to an ad for space or call a

phone number on a sign in a building

window. Similarly, if you go to a broker’s

office and ask about available properties,

you’ll be operating under these rules unless

you and the broker make other arrangements. Be aware that, legally speaking, even

a nonlisting broker is the landlord’s agent

unless you and that broker work out something different. Obviously, it’s crucial for you

to know right from the get-go if the broker

you’re dealing with is obligated to look out

for your interests. Laws in most states require

brokers to tell you whom they’re working

for.



2/ 9



Fortunately, these days you’re not necessarily stuck with the traditional model in

which the broker promotes only the landlord’s interests. More and more brokers are

willing to align themselves with tenants.



3. Brokers Who Work Exclusively

for Tenants

Understandably, you may be uncomfortable

dealing on your own with a landlord and

the landlord’s broker. It’s a bit like being

involved in a lawsuit where the other side,

but not you, is represented by a lawyer—

sometimes you can make out okay on your

own, but often not. To even things out, you

can engage your own broker, who will

represent your interests and only your

interests.

The best kind of broker to hire is one

who consistently works only for tenants.

This professional is likely to have the instincts and loyalties that will serve you

well, and may be more aggressive and creative than brokers who work with both

landlords and tenants. Unfortunately, it may

take a while to locate such a broker—and if

your business is located in a small community, you may find no one who fits this description. Sections C, D, and F, below,

explain the benefits of hiring your own and

how to locate and pay a suitable broker.



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NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



4. Brokers Who Work for

Landlords and Tenants

The next best thing to engaging a dedicated

tenant’s broker is to find a reputable broker

who works for landlords or tenants. You’ll

have an easier time finding a broker like this

to work for you. Such arrangements will

work just fine when your broker is showing

you properties represented by brokers in

other offices. Under this scenario, you

know that your broker’s allegiance will be

firmly on your side.

However, the situation gets cloudy if

your broker’s own office has taken listings

for spaces that you want to see. This puts

your broker in an awkward position. The

broker is duty-bound to find you the best

space, regardless of who has the listing, but

is also committed to contribute to the success of the office. You may not feel 100%

sure about where the broker’s loyalties lie.

Still, such a relationship can be workable.

In Section F, we’ll explain how to address

this potential conflict in a written contract

with your broker.



5. Brokers Who Are Dual Agents

There may another way to handle the situation of your broker showing you space

represented by one of the broker’s office

colleagues, but the solution is not a very



satisfying one. The arrangement, allowed in

some states, involves asking the broker to

step away from his role as an advocate and

instead assume a neutral stance. A broker

who works like this is known as a dual

agent. The broker’s role is limited to attending to mechanical details and helping

to make sure the transaction flows

smoothly. For example, a dual agent may

check on the zoning classification of the

space or shuttle lease proposals back and

forth between you and the landlord.

A broker might work as a dual agent

when:

• you and the landlord decide you’d

like to use one broker between you, or

• your broker shows you space that’s

been listed with the broker’s own office—in this event, your broker and

her office associate, who’s been engaged by the landlord, both become

dual brokers.

The benefits of using a dual broker are

limited. You won’t really get much, if anything, in the way of useful advice or practical guidance, since the dual agent can’t be

your advocate. In a nutshell, you can be

left high and dry when it comes to knowing whether the deal is advantageous or

not. The only sure way to get the benefit of

professional real estate services is to sign a

contract with a broker who agrees to act

solely in your behalf.



LOOKING FOR SPACE AND USING BROKERS



EXAMPLE: Tenant Dolores and landlord



Andy are using broker George of TriCounty Commercial to put together a

lease deal between them. George will

be a dual agent. George knows exactly

how much Dolores is willing pay for

rent and how desperate she is for good

space. He also knows how much Andy

is willing to accept as rent and how

long a lease he’d be willing to grant.

Yet, as a neutral agent, George can’t

use this information on behalf of either

party. The best that George can do is to

take Dolores’s proposed terms to Andy

and perhaps offer Dolores a list of qualified inspectors and contractors for her

to consult regarding the condition of

the property and the cost of improvements. Those benefits are minimal, as

far as Dolores is concerned. She’s a

novice in lease matters and really

needs much more help to get a good

deal. She wisely decides to hire a broker of her own.

Meanwhile, Andy has decided to stay

with George. If George is a broker with

professional integrity, he will not share

Dolores’s secrets with Andy, even

though he no longer works for her.



2/ 1 1



The Multiple Listing Service

It would be very convenient to have a list

of all the commercial real estate that’s

available in your area. After telling your

broker what kind of property you need, the

broker could simply consult the master list

and show you the appropriate properties.

In fact, there is such a system, called the

Multiple Listing Service (MLS), which is

maintained by brokers in most areas. Brokers who are members of the MLS put their

own listings on the system, and can see

other properties on the list. Brokers who

are not members of the MLS can’t post listings there—and usually don’t have direct

access to the list to see what’s available.

The MLS system is most active in areas

where there is low competition among big,

established brokerage houses, who have

exclusive listings that they do not share.

The traditional medium for the MLS is a

book that is published weekly and distributed to all MLS members. Brokers jealously guard MLS information about

commercial space. While it’s relatively

common for residential listings to appear

online and be available freely to the general public, that practice hasn’t yet spread

to commercial space.

If you’re talking to prospective brokers

who might represent you, find out if they’re

part of the MLS and, if not, how they plan

to overcome this disadvantage. If they

don’t have an adequate alternative plan for

getting you into the leasing market, you

may be better off to seek help elsewhere.



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NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



C. The Value of Hiring Your

Own Broker

Now that you’re familiar with how brokers

work, you may want to hire your own—

one who owes a legal duty only to you. A

broker who works exclusively for you has

one main assignment—to get you a good

deal—not to help the landlord quickly fill

the space or get top dollar rent. Also, your

broker will be free to point out problems

with the property or the neighborhood it’s

in. Beyond that, a good broker can help do

the following:

• Review your Rental Priorities Worksheet (explained in Chapter 1) and help

focus your search. A professional



who’s familiar with the market should

have some idea whether you’ll be

able to find the space of your dreams.

If your list of “Essentials” is totally unrealistic, it’s best to know now and do

some rethinking.

• Direct your search. Using your realistic

worksheet, your broker can help you

hone in on the spaces most likely to

meet your needs. Instead of looking

at ten spaces, you might wind up just

looking at three.

• Investigate the details. A broker who

knows what’s what and who’s who in

the world of commercial leasing can

help you line up qualified inspectors,

contractors, and space planners, as

well as check on tax and utility bills if

you’re going to sign a net lease. (Net

leases are explained in Chapter 9.)



• Analyze lease terms. An experienced

broker can help you evaluate the

financial consequences of the

landlord’s lease terms, and can spot

hidden charges that translate into

higher rent.

• Comparison shop. Assuming the broker knows the whole market, you can

find out how the rent at one space

you’re contemplating stacks up

against other spaces in town. It will

give you peace of mind to know that

you’re not overpaying.

• Learn the key lease terms. Before taking you on any field trips to see potential space, your broker can find out

the key terms of the lease the landlord expects you to sign. The broker

can compare these points with your

Rental Priorities Worksheet. If there’s

an absolute incompatibility—you

must have a five-year lease but the

landlord has already given a neighboring tenant an option on your

space that may be exercised in three

years—your broker can cross that

property off the list and not waste

your time.

• Negotiate the lease. The broker who’s

acting as your agent can help in lease

negotiations—a terrific boon if, like

most people, you don’t feel like

you’re a natural born negotiator.

Are there any disadvantages to hiring

your own broker? As explained below in

Section F, if you pay your broker on commission, you might have to pay all or a



LOOKING FOR SPACE AND USING BROKERS



2/ 1 3



portion of that commission. If your share of

the commission is half of 3% of the rent

over the life of your lease, you could be

looking at a significant amount of money.

And because the broker doesn’t usually

earn any money until a lease is signed, brokers have an interest in closing a deal

sooner rather than later. But here, at least,

you’ll find that market forces will put pressure on brokers to put their client’s best interests first. Brokers who develop a

reputation for rushing a deal or not bargaining vigorously on a client’s behalf will

soon find themselves without much business.

Remember, too, that even highly qualified

brokers have limitations: They won’t have

the skills to provide you with sound advice

on the physical condition of a building—for

that, you’ll need to hire an experienced and

reputable building contractor.



broker who represents buyers—but not

sellers—of real estate. These brokers may

act as tenants’ agents in leasing transactions

too, or they may be able to direct you to a

kindred spirit who represents tenants only.

Do your best to work with an established

broker—one who has been in the business

in your geographical area long enough to

know how deals are done and how landlords and their brokers work. In addition,

experienced and successful brokers will

have the financial stability to enable them

to firmly put your best interests at the front

(see the discussion in Section F1, below, on

paying a broker so that you minimize the

chances of self-dealing). Remember, in

most situations a broker gets paid when the

deal is done, according to the size of the

rent. A broker who isn’t hungry will be less

tempted to rush negotiations or settle for a

more expensive result when patience might

produce something better for you.



D. How to Find a Real

Estate Broker



Avoid a broker who does residential,

not commercial, leasing. Someone

who works primarily with houses, condos,

and apartments is unlikely to know the ins

and outs of the commercial market. Make sure

the broker you choose is experienced in helping tenants find office, retail, and other commercial space. But while you shouldn’t use a

residential specialist to find a business rental,

the broker who helped you buy or sell your

house may have suggestions for a commercial

leasing specialist.



Finding your own broker isn’t all that different from finding a good doctor, lawyer,

or dentist. A hefty application of common

sense, professional and personal connections,

and some independent research usually

yields a good result. The same method

works when looking for a broker.

As suggested in Section C, above, you’ll

be best served if you work with a broker

who represents tenants exclusively. A good

starting point for your search is to find a