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5 reasons why we’ll always need CRE brokers

Nov 8, 2016

broker_prisma_Fotor-201294-edited-289576-edited.jpgNote: This article first appeared in GlobeSt

There’s a lot of prattle about new technology that allows sellers to communicate directly with buyers or renters, without the intervention or assistance of a broker. It makes for good reading, but its threat to the commercial real estate industry is often overstated. We will always need commercial real estate brokers, particularly those with extensive property and market knowledge and shrewd negotiation skills.
The profession may not be in imminent danger of extinction, but that doesn’t mean brokers can ignore the fact that the industry is evolving. Tomorrow’s most successful brokers will be those who move past a transaction-based mindset and step into the role of valued advisor.

Below are five reasons why we will always need commercial real estate brokers—at least those who add value that machines cannot.

1. In-depth industry knowledge

Real estate professionals have a nuanced understanding of the economic strengths and weaknesses of the geographic region in which they operate, and they are dialed-in to how that area is likely to change. And because the market is ever-evolving, real estate clients can take advantage of their long-term relationship with a broker. For example, let’s say you are a building owner and there is a new property in your area in the midst of its entitlement process. If you have an ongoing relationship with a broker, he or she can alert you to this information, anticipate how the new inventory will impact supply and help you adjust your market approach if necessary.

Brokers understand regulatory and environmental factors specific to a market that the average buyer or seller won’t be familiar with. They also have experience interpreting lease contracts, which can be hundreds of pages long. Dissecting a document of that size is a daunting task for a novice; it’s even time-consuming for a pro. Plus, there is just too much at stake to risk an error that could be easily avoided. Commercial real estate brokers have experience reviewing contracts and working with counsel to identify legal red flags.

2. Properties are idiosyncratic

Brokers are no longer just gatekeepers of information or a means for accessing listings and records. You can get that online! Rather, brokers make themselves invaluable by interpreting information and advising clients based on factors that can’t be found in a listing. Each property is unique, and it takes an expert to understand all the issues that affect a building and its owner, landlord or tenant.

Brokers should function as analysts for their clients; they understand the ramifications of every property detail. They can identify hidden costs, price out potential renovations and provide realistic timelines. Brokers also help sellers and landlords properly market their space through the right channels to get the best deal.

Unless you are an expert in the field, it is challenging to keep up with the idiosyncratic nature of commercial real estate. Brokers act as proxies, adding value not just by providing information, but by interpreting it.

3. The value of relationships

There is an old adage in real estate: “Off-market is the market.” Off-market transactions occur all the time, facilitated by brokers who have a Rolodex of potential buyers and sellers. Even when sellers list their property, someone needs to make sure they get qualified buyers in the door. Real estate brokers use their relationships with other brokers and potential buyers and tenants to their clients’ advantage.

Brokers save businesses time by shortlisting properties that fit their needs, including off-market listings. They know who to call to get a tour arranged and questions answered, and they also help assess property pricing. Plus, many brokers can also provide recommendations for real estate attorneys, architects, contractors, electricians and other valuable service providers.

4. The art of negotiation

Negotiation is a complicated and time-consuming process. It is also a skill. Some people are better negotiators than others, and that prowess—or lack of it—can have major cost implications. Brokers can bolster a negotiation strategy by drawing on previous deals they’ve worked on and pulling relevant comps.

Let’s take another case study. A building owner receives several unsolicited offers for his property but wonders if he could get more for the space. He engages a local broker who extends his comp search into other markets and finds that comparable buildings in similar areas are commanding higher prices. This allows the owner to secure a higher evaluation, and in turn, a higher asking price. The owner has to pay a broker fee, but the cost-savings cover that price—not to mention the time and energy saved by outsourcing.

Brokers know there are a variety of factors beyond rent that can be discussed to get both parties the best deal possible, including:

  • Built-out costs
  • Security deposit
  • Lease terms, such as length and flexibility
  • Utilities and maintenance fees
  • Parking
  • Conveniently located signage
  • Clauses such as non-competes and the ability to sublease
  • Timing (how quickly someone can get into the space)

A layperson might not be familiar with all of those factors. It makes sense to outsource negotiation to someone who does it for a living, especially when there is so much money on the table.

5. Time is money

Even if someone has the knowledge to successfully navigate a commercial real estate transaction, does he or she really have the time? It can take months to finalize a single commercial real estate deal, as well as countless emails and conference calls, building tours, legal proceedings, contract reviews and hours and hours of coordination. Those tasks are better handled by people who do them every day.

As intermediaries whose core function is to match buyers with sellers (or landlords with tenants), brokers develop significant economies of scale and scope that make them much more efficient at gathering information and solving problems associated with a real estate transaction.

A smart business owner realizes his or her time is better spent driving the business forward. For this reason alone, commercial real estate brokers don’t need to worry about disintermediation. But they do need to provide value that clients can’t get elsewhere – knowledge, analysis, skills and a human touch.

Tanner McGraw

Written by Tanner McGraw

Tanner is the founder of Apto and a commercial real estate veteran with a decade of brokerage experience. Before Apto, Tanner served as Vice President of Healthcare Advisory Services at Transwestern and as a Senior Associate at Marcus & Millichap.

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