Do You Need a Buyer's Broker for Commercial Property?

When you call the number on a for-sale sign, you are usually reaching the seller's representative. That person may be pleasant and helpful, but that person's job is to get the seller's deal done. So the first decision for a company buying a building is whether anyone at the table will be acting for you.

State law defines the relationship, and it varies, so check the rules where the property sits. Illinois offers a clear example. Under the Illinois Real Estate License Act, a licensee representing a client must promote that client's best interest, including seeking a transaction at acceptable price and terms, timely presenting all offers, disclosing material facts of which the licensee has actual knowledge unless confidential, and keeping client confidences. A licensee who is not acting as a customer's agent must disclose that in writing no later than the preparation of an offer to purchase or lease.

That last rule tells you something useful. A licensee can deal with you without representing you. Do not assume representation because someone is being helpful. Ask.

The work usually spans the entire purchase, and is most valuable before the first offer is written.

• Needs and budget. Turning your operations, headcount, power, parking and loading requirements into search criteria.
• Search. Reviewing listed properties and looking for owners who may sell without a listing.
• Own versus lease. Comparing the purchase with staying put or leasing elsewhere, so that buying stays a decision and not an assumption.
• Pricing. Gathering comparable sales and building condition information to support a number.
• Offer and negotiation. Drafting business terms for the letter of intent and handling the back and forth with the seller's side.
• Coordination. Keeping dates aligned among your attorney, lender, inspectors, title company and contractor.
• Lease exit. Timing your current lease, a possible renewal, or a sublease against your closing and move.

What a broker should not do matters too. A broker is not your lawyer, your tax advisor or your lender. Tenant Advisory Group does not provide loans. A broker also cannot serve as a qualified intermediary in your 1031 exchange. The IRS's Form 8824 instructions say agents of the taxpayer are not eligible.

Some companies can reasonably go without, and it is fair to say so. You might skip a buyer's broker if you already know the exact building, have someone in house who has negotiated commercial purchases, understand your local market's comparable sales and have an attorney who will carry the business terms along with the legal ones.

Even then, it can be worth getting help at a specific moment. Bringing in representation after you already have a target is not too late, and one practice administrator described that exact path:

A buyer's broker tends to add the most when your space needs are specific, your local market knowledge is thin, the purchase is unfamiliar to your team, or you do not want your own executives negotiating directly with the seller.

Do not assume the answer. Pay is set by the agreements, and it should be stated clearly. Commissions may come from the seller's side, from the buyer under its own agreement, or some combination. Illinois law reflects both. The state's Commercial Real Estate Broker Lien Act gives a broker a lien for an amount due under a written instrument signed by the owner, or signed by a prospective buyer or tenant. That lien is one reason to read any commission agreement closely.

Illinois also requires a conversation about money. The licensee representing a consumer must discuss the sponsoring broker's compensation policy, including the terms of compensation and any amounts offered to cooperating brokers. Payment alone does not settle whose agent someone is: Section 15-40 of the Act says compensation is not determinative of whether an agency relationship has been created.

It is also fair to know the incentive. Illinois says a licensee representing a buyer is not presumed to have breached a duty by working on the basis that compensation is higher when the price is higher. A fee that rises with price is therefore allowed and worth discussing. Ask how the broker is paid and whether a lower price reduces its fee.

Have the agreement answer one direct question: if the seller or listing broker will not pay, does my company owe anything?

Illinois generally requires a sponsoring broker representing a person in buying to set out the terms in a written brokerage agreement, which designates the licensees acting as that person's legal agents. Whatever the state, ask for clarity in writing. The questions below are worth asking any candidate, including us.

• ✓Do you represent sellers or landlords of investment property, including in this market?
• ✓Who, by name, will act as our agent, and who does the daily work?
• ✓How are you paid in this deal? Who pays, how much, and when is it earned?
• ✓What do we owe if we buy without you, buy later, or do not buy?
• ✓How long does the agreement last, and how do we end it?
• ✓How do you handle another client who wants the same building?
• ✓What comparable sales evidence would you bring to our first offer?
• ✓What have you closed in our property type, and can we speak to someone at those companies?
• ✓Which decisions do you leave to our attorney, CPA and lender?

The contemporaneous-offers question is more than theory. Illinois says a licensee does not breach a duty by making offers on the same property for different clients, but must disclose that in writing to those clients and refer another designated agent to any client who asks. You should know the policy before you need it.

Tenant Advisory Group is a Chicago-based tenant-rep and buyer-rep brokerage that also works nationally across office, clinical and industrial property. It was founded in July 2008 by Bill Himmelstein and has completed 500+ transactions totaling $1.5B+. We represent occupiers, tenants and buyers, and we do not represent landlords or sellers of investment property.

1. We begin with how your business uses space, and whether buying fits your plans at all.
2. We set the search parameters with you: location, timeline and budget.
3. We review listed and off-market options, and compare them with leasing or staying where you are.
4. We negotiate the letter of intent and the business terms of the purchase, working with your attorney on the contract.
5. We keep the diligence dates moving with your lender and advisors through closing.

Scope and fees go in a written agreement before the search begins, so you can review how compensation works in your deal.