Half of our tenants think they have to pay a broker hourly, like an attorney
Tenants use OfficeSpace.com to do their own space searches and learn about the commercial real estate market. These are typically business owners and entrepreneurs. We talk to them regularly and one thing that always amazes us is that about half of our tenants looking for space believe that their broker will charge them an hourly rate, like an attorney.
When we hear this, we explain to them that actually, there’s no out of pocket expenses and that the landlords pay out a commission once a lease has been signed. However, since we know what the downfalls are with respect to skewed incentives because the landlord is paying commissions to your broker, the question arises, why don’t we make a change and properly align clients interests with broker incentives?
What would happen if this were the norm? Would deals get done faster because the tire kickers would go away and we’d work with only the serious and motivated? Would tenants pay less in rent, receive better terms or get a bigger TI budget because the landlords wouldn’t have to pay the tenant brokers commission?
Would this reduce a lot of frustration that brokers have when a tenant just goes silent. We’ve experienced or heard of the horror stories of the broker who is left at the alter. In the real estate world, this means that the broker diligently worked on a deal for the tenant: the tours are done, negotiations concluded and a deal is reached. And just when the lease is supposed to be signed, the tenant disappears, just goes silent. At least in this scenario, the broker would get compensated for their work which seems fair.
What do you think? Why isn’t the industry moving this way, especially since some tenants already think this is the way the industry works.