Q. My real estate broker is asking me to sign an exclusive agreement, do I really need to sign one?

A. Absolutely not!

Exclusive agreements only benefit one party, the brokerage firm.  Having worked at large firms for over twenty years, I faced the constant pressure to acquire “exclusives”. Why? Real estate firms like exclusive agreements so that the firm can “lock in” the customer, “book” the assignment as recognizable revenue and include it in annual projections.

 

There are no benefits to the tenant to signing an exclusive.  Conversely, we would argue that there is a glaring detriment - speed to market.  No matter how short the document, an exclusive agreement is a legal contract. Accordingly, it will be drafted, reviewed and negotiated by attorneys and will require the time and expense of an attorney.  Everyone knows that attorneys are paid by their time and thus, incentivized to spend the maximum amount of time in finalizing documents.  This thoroughness may be acceptable for a lease document, but for an exclusive, it can set a business owner’s timeline back 30-60 days and cause the business to miss space opportunities during that timeframe.

Additionally, having a signed exclusive can encourage broker complacency.  If a space search has specific challenges or takes longer than expected, many brokers will lose their focus and/or motivation to keep working on the tenant’s behalf.  While cancellable, most exclusive agreements require a thirty day notice for termination, further extending the tenant’s timeframe.

Even worse are exclusive agreements that require the business to use a firm outside of the local market (for multilocational companies).  Despite real estate firms’ emphasis on branding and service consistency across markets, every market has different dynamics and every professional has different strengths and weaknesses.  If you’re buying into the trust and integrity of a particular individual or firm, do those same qualities translate across markets because the individuals share a business card logo?  Sometimes yes, but many times no.

We do recommend limiting the number of brokers used in order to avoid confusion and potential brokerage conflicts.  Since most brokers have access to the same listings, we recommend choosing a broker who comes highly recommended, rather than the one who cold-called most recently or worse, showed up on your doorstep.  Most businesses check references for their service providers for legal, financial, accounting services, so why not do the same for real estate services?

To conclude, the only time a legal document is necessary for a real estate project is if a tenant needs to list space for sublease, then a listing agreement should be put in place. Otherwise, keep your real estate brokers accountable by performance alone.