Did you find the perfect office space and are ready to sign a lease or make a purchase? Are you trying to move your property quickly? If you’re involved in any leasing/purchasing real estate process it’s likely you’ve come across the term “dual representation.”
What is Dual Representation?
Dual agency representation occurs when the same broker or firm represents both the landlord and tenant in the same transaction. It’s not uncommon to find this happening when big firms are involved in the process. While it might seem like an ideal solution at the time, it’s often problematic and can cause more headaches during the transaction.
Picture an attorney in a courtroom, representing a defendant client and also attempting to represent the prosecution during a dispute in court. Hard to imagine, right?
Dual Representation: Two Birds, One Stone Mentality
As with the above example, it’s not possible to represent both parties fairly in dual representation commercial (or residential) real estate transactions. There are too many conflicts of interest, and in the end, it gives an unfair advantage to the brokers/firms as it majorly affects the sales price.
For instance, as it’s pointed out in this WSJ.com article, depending on the timing of the transaction, “having an agent represent both the buyer and the seller can either raise or reduce the final selling price of a transaction.” It should also be mentioned that the agent typically makes far more money representing the landlord than they do the tenant – so what’s the incentive there? Some food for thought.
Rather than negotiating a deal that’s good for the broker, an agent should always negotiate a good deal for their client. This is why firms that represent tenants only (as opposed to firms that do both) are ideal for leasing/purchasing as this prevents any potential conflict of interest and helps to ensure the client’ best interests are being served.
Dual representation is illegal in many states. In my opinion, it should not be allowed, period. While a few states still allow dual representation, the good news is that most of them have passed laws (just like this one) that require both brokers and agents to disclose this information. These laws are a great step to help continue to protect buyers and tenants.
Final Thoughts & Tips:
If you find yourself entering into a leasing or purchasing transaction, every potential tenant should hire a broker/firm that doesn’t have any conflict of interest with a landlord/leasing agent. Hire an experienced broker who only has your interests in mind – it’ll save you time, money and your sanity.
Every real estate transaction is different. If you suspect dual representation is occurring, speak up. Always clarify your relationship with your agent. Don’t be afraid to ask for a listing agreement or an exclusive buyer agency agreement. Both are great ways to help ensure you’re being represented, fairly.
Tanaka, Sanette. Wall Street Journal. (2014, January 23) How a Dual Agent Affects Sale Prices. Retrieved from http://www.wsj.com/articles/SB10001424052702304757004579334860673874146
Real estate negotiating can either be an exciting or stressful process. If you are a broker you must have ice in your veins and know the people you are dealing with. Fortunately, if you are a third party, this allows you to be much more objective and take the emotions out of it. Viewing the other side of the deal as your partner (rather than your adversary) is a way to get started on making both sides happy. Here are a few tips to think about while negotiating.
Allow for Multiple Outcomes
Successful negotiators recognize that there is not merely one outcome that best suits both parties. There are many different ways for you and the other side of the table to meet in the middle. No matter the negotiation, maintain an open-mind about different processes that can bring you together for a compromise. As simple as this may sound, too many negotiators get locked into their one ideal solution and do not let themselves stray from this thought process. The essence of a negotiation is that both parties come to a satisfactory conclusion, and this can only happen if both sides allow themselves to open up to other possibilities.
Listen Before You Speak
The first terms thrown out in a negotiation will be the extreme highs and lows, with the final numbers landing somewhere in the middle. Keeping this in the back of your mind; let the other side throw out the first offer and then use that information to help you make an educated counter offer. Generally speaking, you can understand a lot about what the other side values most by just paying attention to their first offer. The first person to lay down their cards naturally loses some leverage by having to show some of their hand. Listen and comprehend what they tell you and parlay this information into a quality counter offer, rather than blindly throwing out an offer first.
Cooler Heads Prevail
The entire negotiating process is as much about emotion as it is money. In the 1987 movie Wall Street, Gordon Gekko told Bud Fox to never get emotional about a stock. Of course that movie is a far cry from dealing with negotiating in real life, but some of it does hold true. You have to understand that negotiating can be a slow, painstaking process, but if you let emotions cloud your decision-making, then it will make your life much worse. Take a step back every now and then, and try to enjoy the process – the more rational you are, the better you will do.
Silence is Golden
Once you have made a counter offer, be quiet. This is a very hard point to get across because the negotiating process can be a stressful one. Everyone wants instant gratification, however this should not be the expectation after delivering a counter offer. Once this process is under way and your bid is out there, there is no need to say anything else – your silence will speak volumes. If you put out a bid, and quickly follow up with instigating questions – or worse yet, try to make your bid more favorable – your competition has the upper hand. This can be difficult, but if you have presented your position in a clear and concise manner, then it is time to play it cool and wait for an answer from the other side.
Don’t Ask, Don’t Get
This is something that rings true in all walks of life – if you fail to ask for something, how will you know if you can get it? Afraid that your bid is too low, your lease term is too short, or offering price is too high? Why not give it a shot anyway? Ensure that you are not insulting the person, but at the same time, you will not be able to achieve your ultimate goal of getting the best deal without at least offering it up. In summation, to gain something, you have to ask for it.
If you have ever been in a room with a car salesman, you know they love negotiating. They have tons of experience and are able to keep it cool. The same goes with brokers – they are the experts and typically have many years of experience. If you follow these rules, hopefully you will be able to see the enjoyable side of negotiating.
The commercial real estate industry is much smaller than you would think. Networking events and LinkedIn allow for everyone to know everyone else – or at the very least, have mutual acquaintances. Because of this, it is imperative to promote while protecting your image when dealing with colleagues, clients, or your competition. Failure to do so can result in lost business.
Brokers want to please their clients – no question about it. However, if your client’ idea is to attempt to throw out lowball bids for property, you will be in trouble. It only takes one client who operates this way to ostensibly ruin your brand. By only bidding garbage, relationships you have made in the past will soon begin to distrust you for other deals. It is far more important to keep industry-related relationships than to attempt to please a one-time client who refuses to offer a fair deal.
Getting blacklisted by other companies or clients is a surefire way to kill your brand and reputation. Finally, since many potential leads come from business referrals, your pipeline will quickly dry up when you get pegged as a lowball negotiator.
Don’t Overdo your Advertising
Especially if you run a small shop, it is important to get your name out there. However, in the world of commercial real estate, you do not want to have your face on every billboard, bus, or magazine. Enormous ad campaigns can be, and often are, a tremendous waste of money. Instead of plastering your face or company logo on any website that will have you, get much more targeted with your approach.
Using digital mediums like Twitter, LinkedIn, and Facebook are all a great start – to begin with, they are free. Also, digital media, unlike traditional advertising (radio, print, or TV), is very trackable. You can see where a lead comes from, how long they are on your site, and if they eventually call your company or fill out an online form. Moreover, Twitter, LinkedIn, and Facebook all allow you to run targeted ad campaigns that can cost as little as $500, and reach thousands of local prospects. Social media is no longer just for millennials – billions of people worldwide utilize some variation of social media. Remember that anything you put out there is directly reflecting you and your business.
Don’t Attack your Competition
Denigrating your competition is truly a terrible idea. In doing so, you look childish when trying to attack someone. Remember that in a corporate world where everyone knows each other, word gets around. If you build a reputation as someone who talks bad about others, your referrals are bound to drop. Instead of getting into petty arguments, be the bigger person and act professionally. The most important part of not attacking your competition, is never posting about it on social media. Even if you think you have a hidden Twitter or Facebook account, written words can easily get around.
Getting blacklisted within real estate can be a quick way to find bankruptcy. As I discussed before, leads often times come from referrals. If you give out lowball offers, have obnoxious advertising everywhere, or attack your competition, you can almost assure yourself of lost business. Instead, negotiate fairly, use social media for targeted advertising, and be professional with your competition. While commercial real estate is a multi-billion dollar industry, it is a much smaller world than you might think.
Choosing where to house a business can be extremely difficult – especially when deciding between the city or the suburbs. There are the obvious factors to take into account; financials, space, client locations, commute and employees. However, there are two lesser-known pulling factors that you need to take into account: Tax credits and split-office locations. These two aspects may not be as simple as you think.
Most people know that certain states are considered more business-friendly to major companies than others. South Carolina is now a well-known manufacturing hub with companies like Jacobs Engineering, Boeing and BMW all housing American operations in the Palmetto State. It should not come as a surprise that local economies do this as well. In fact, just last year Vernon Hills extended a tax incentivised deal to keep CDW in the Chicago suburb. Some may argue that it is ridiculous to offer a multi-billion dollar company tax breaks to stay. However, look at the flip side – by keeping their headquarters in Vernon Hills, thousands of residents continue to be employed by CDW, which stimulates the local economy.
This should not be confused as a suburb-only tax break. In fact, seeing as the Chicago mayoral runoff is coming up, Rahm Emanuel has been both criticized and praised for trying to bring major businesses back home. One of the major incentive programs is the Economic Development for a Growing Economy (EDGE), which lowers payroll taxes for newly relocated businesses. According to CNBC, Illinois is middle-of-the-road when it comes to business friendliness – ranking as the 27th most business friendly state. By offering tax incentives to move to the city, Chicago politicians are hoping to attract more long-term investments.
Split-office locations seem to be a growing trend for offices who want to have a presence in a downtown city, yet want to avoid paying the full costs for a large office. This can be incredibly beneficial – say you are an enormous manufacturing firm who has clients downtown or that visit Chicago often. By splitting your location, you can have your sales, account managers and C-suites downtown in an easily accessible location for meetings. You are also saving money by keeping the bulk of your company in the suburbs where space is far cheaper per square foot.
However, companies that choose to go this route need to be wary of potential resentment amongst employees over the location at which they will be working. This argument works in both directions. Many times, people located in the suburbs would far prefer to have a location near them, and commuting an hour into the city is far from ideal. The other primary concern with splitting your office is reducing contact between departments. If you look at many company surveys, inter-department communication always seems to be an aspect that employees complain about the most. If your company is already facing issues communicating between departments, then splitting the office locations between downtown and a suburb may serve to widen this gap.
Granted, the majority of your suburb versus city decision should probably be weighed on finances, clientele and employees. However, if those aspects do not solve your dilemma, then these secondary factors can end up playing a major role. Taxes or tax breaks can cost or save a company millions per year, and splitting office locations can be beneficial, as long as your business fits the right mold.