Q. Why Are Real Estate Brokers So Mistrusted?

A. Because They All Work For the Landlord!

 

You might know the feeling… you meet a stranger at a social event and once you share your occupation, the person conveniently finds an excuse to get a drink, use the restroom, say hello to someone… basically, to get the heck away from you…

For me, that usually involves mentioning that I’m a “real estate broker” (during the rare occasions when I use that specific terminology) and it’s tantamount to belching, breaking wind or having an annoying piece of salad leaf caught somewhere in my smile.

Yes, “real estate” tends to be a “dirty word” and everyone has a different interest or reaction to this term, but much of the time it’s a negative one.

Having spent twenty-plus years in the real estate industry, I understand the root cause of all this negativity: Most brokers are agents for the landlord!  In fact, the term broker is probably the wrong terminology because it implies a neutral party bringing together two opposing parties.

Consider this:

* Unlike residential real estate, in most instances, the landlord is responsible for compensating the brokers in a commercial transaction (http://www.officeleasecenter.com/articles/pulling-back-the-kimono-on-real-estate-brokerage-commissions.html);

* Most lease documents are drafted by the landlord or their attorneys;

* Much of the complexity in commercial real estate [loss factors (http://www.officeleasecenter.com/articles/q-what-is-a-loss-factor.html), personal guarantees (http://www.officeleasecenter.com/articles/q-what-is-a-good-guy-guarantee.html), escalation clauses] has been created by landlords to confuse the tenants and disguise their agenda;

* Most large brokerage firms make the majority of their revenues from leasing or management agreements with landlord clients.

Human nature dictates that people behave according to how they are incentivized. Accordingly, the most important factor in selecting a commercial real estate broker is alignment of interest.  If a real estate broker’s landlord clients have incentivized them to focus on their own income, ego or reputation then they will perform accordingly.