Scenario #4: You got a proposal from the Landlord, you want to get the best deal but you are scared that if you use a broker that your rent will increase. What do you do?
In order to address this, it helps to understand how brokers operate and how they get paid.
Over 85% of Commercial Deals in Commercial Real Estate involve the use of a Landlord or Listing Broker
In the Listing Broker’s Agreement, there is Commissions set aside for BOTH the Landlord and the Tenant Broker (Which in Texas and most other places 6% of the total rent)
If the Tenant chooses not to use a broker, the Landlord Broker in some cases doubles the commission they make on the deal
If the Tenant chooses to use a broker then the Landlord Broker and Tenant Broker split the available commission
Tenant brokers do not charge the Tenant for commission, they usually ask for a letter to prove they are in fact the designated broker so they can get the commission agreement from the landlord.
If the Landlord were to actually charge the tenant for commission, what would this cost? Just take your monthly rent and calculate 2% to 4% of that number and there is your hypothetical commission. So if you pay $1,000 a month in rent and the landlord says that your rent will go up because you used a broker then they are “threatening” a $20 a month increase in rent.
If you were to use a broker, what would you stand to gain?
Experienced Negotiator
Market Report showing all of your options
5-10 Year Rental History of the Building
List of All the concessions that are reasonable in the market
Knowlege of the Business Points of a lease:
• When a Personal Guarantee is necesssary versus when it isn’t
• When the landlord or tenant should be responsible for buildout
• Can identify which lease provisions are unusual for the market
• Identify which expenses to cap
• Help the tenant pick which early termination clauses are reasonable
• Negotiate the ability to expand, contract, and sublease the property if needed
• Has attorneys to give a legal review of the lease
What are the financial benefits from using a broker:
Let’s use facts from my own deals:
In 2018, our firm averaged 15% decrease in total rent or greater in Houston below the market. Our best work we cut over 25% of the rent cost saving this particular tenant over $125,000 dollars. So if you look at the numbers, really look at the numbers... take the worst case scenario where the landlord just flat out charges you for your broker’s commission you stand to gain more than 10 times that easily by the time the deal is done and that is not including the time and effort that you will save by not having to do this process yourself. I hope that did not sound like a commercial, I tried to be real, I made this podcast because I know that this is an area that tenants are really concerned about. Did I convince you to not be afraid to get the help that you need? Let me know in the comments if I need to do a podcast on how to pick the best brokers (because they are not all created equal)
