Brokers' poor reputation has caused many brokers to rebrand themselves as “Commercial Real Estate Advisors” or “Real Estate Consultants.”
This is similar to the Wealth Management and insurance industries, where commissioned salespeople pretend to be professionals who always keep the client’s best interests in mind.
But, in wealth management and insurance, at least the brokers have salaries. This incentivizes some level of basic decency. Most people don’t want to lose their job.
Real estate is different. Mostly because it’s straight commission.
A broker calling himself an “Advisor” is like a timeshare salesman calling himself a “Vacation Consultant.”
Large brokerage firms, especially the public ones like Marcus & Millichap and CBRE, present themselves as domain experts who will help value your property.
The truth is, they are structured like residential brokerages.
Except it’s worse, because the agents go 6 months without making money, and the firms have the same mindset as a Multilevel Marketing pyramid schemes.
Agents are forced to lie, cheat, steal and claw their way to get listings and close transactions, just to survive at the firm.
Owners and their properties are viewed as means to a commission check. Agents say whatever they need to do to cause a transaction to occur and get a check.
Brokerage firms have developed structured processes to encourage this mentality and force agents to compete with each other.
Brokers are independent contractors, not employees. That means the firms pay no salary, no payroll taxes, no benefits. The only fixed cost is office space.
So, they invest nothing in agents, and make them fight it out like the Hunger Games.
What This Means for Owners
Therefore, you may think you are talking to someone who knows the market and wants to help you. But brokers have one goal when they talk to owners: to get you to list your property with them, so they can keep their desk at the brokerage.
That may not be true of some of the most senior people. After years in the business, some can afford to take a more consultative approach.
But, I wouldn’t bet on it.
Lies to Watch Out For
The brokerages have developed scripted techniques and tactics to build trust with owners.
These claims are designed to build authority and get you to listen to them, instead of thinking critically.
- They know the value of your property
The reality is that they have no idea. They do zero analysis and just plug the square footage, income and expenses into a software program that spits out a number.
There is no nuance or intelligence involved. Because these numbers have no context, the value they get is often completely off-base.
They're valuing your property based on a price per square foot that you or your 16 year-old nephew could do just by doing a free search on LoopNet. But you are going to pay the broker hundreds of thousands of dollars if you sell through them.
2. They are experts in the market, with many transactions to their name
Oftentimes brokers who call you have no experience whatsoever. However, they take credit for their company's transactions.
But their company has 200 people in that office, so that says nothing about the broker's ability.
What's more, since it's a sink-or-swim cutthroat competitive environment, your Broker will get ZERO support from their brokerage and will be completely on their own during the transaction.
Other agents in the office will try to sabotage them or steal their buyers for their own listings, every step of the way.
You are not hiring Marcus & Millichap, you are hiring Stan the 22 year-old college dropout, who lives in his childhood bedroom.
3. A large brokerage devotes more resources to your property
Actually, the opposite is usually the case.
Large brokerages have a formulaic approach to marketing properties. They create a formulaic marketing package.
Then, they have people new to the business dial for dollars from a purchased list of investors that anyone can buy from LexisNexis.
They might stick an ad on LoopNet, if the broker has room left on their credit card this month.
4. The listing price reflects an expert's opinion of market value
That's just not true…
First of all, they don’t even know the market value most of the time. They’re just using comps and a computer program.
But, if they’re smarter, they know sellers are more likely to list with them if they give you a high list price.
Every owner wants to hear that their property is worth more than market. And the broker can discredit other, more honest brokers by saying those agents who suggest a lower list price just want an easy sale.
However, if a Broker gives you a list price that's much higher than other brokers, usually it's a trick. The broker may know the price is too high, but they’re playing a game to get the listing. Why?
- They need to maintain a certain number of listings to stay at the company, otherwise they will get fired.
- They use the listing as an interest generator to get other buyers.
- Brokers know they can beat you down on price once they get the listing. After a week or two, they will get investors they know to submit lowball offers well below the listed price. They won’t pressure you to accept, but they will use those offers to convince you that the price is too high. Why would they do this? If they told you the real value at the beginning, they would not have the listing. But now they have a relationship with you, you are locked into a 6-month contract, and the easiest path is to just let them reduce the price to the market.
Reason 3 is especially bad for owners. Above-market pricing gives your property a bad reputation.
Sophisticated buyers -- who usually offer best price and terms -- will label you as unrealistic. No one sophisticated will bid on your property. If they do, they will negotiate extra hard to see if you are serious.
5. Brokers need an exclusive listing in order to market your property. It allows brokers to create an auction for the property..
This is a myth perpetuated by the large brokerages because it serves their interests.
Since most agents are not very good, the companies figured out that the best way to ensure the company’s success is to get an army of cheap labor out there canvassing for exclusive listings — for the company, not the agent, remember.
Regardless of performance, this is optimal for the company, because it locks down inventory under contract.
However, this is not the case at all. While exclusives help for complicated deals like development sites, for apartment buildings, exclusives offer few benefits to the owners.
Only weak brokers who lack investor relationships need an exclusive to conduct business.