Exclusive Buyer Broker agreement - Pros and Cons?

Question

Hello everybody!

I am new in the world of commercial RE investing. I have been studying this area for some time and I am looking for 5-6 multi-family properties in my area. I talked with several sellers agent who had properties listed online but I still haven't found anything that would make me excited.

However, when I recently contacted one Commercial Real Estate broker in my area (who is RE investor too) and when I explained to him what I am looking for and how much financing I can get, he agreed to work with me but only after I sign "Exclusive Buyer-Broker agreement". It's been a couple days since he sent it to me and even though I need his experience, I am not sure that I should be locked with one broker until December 31, 2015 as it states in the agreement.

What should I do, particularly as a first time RE investor? Any help would be greatly appreciated. Thanks

Joel Owens · Answer

Yeah I do not force people to work with me.

5 to 6 units are pretty small in the commercial space. I don't know that you wouldn't be better off buying quads getting 30 year money on them for a good interest rate.

The benefit for larger properties 5 + really starts happening in the mid double digits in units for scale.

If the broker is spending time with you then you should commit to that broker. Now you do not know if you will work together well yet. So signing a long agreement like that doesn't make sense.

My clients are generally buying 3 to 10 million properties is the sweet spot. I work with them one on one and they are not working with others. There has to be commitment from both sides.

If a buyer is playing the field then I do not have time for them. That type of buyer is a user not looking for a long term mutually successful working relationship.

Aleksandar Popivoda · Answer

Gilbert, thanks for your input.

Gilbert Dominguez · Answer

Unless you already knew this agent very well I would stay away from signing any exclusive agreement or like suggested try a 30 day agreement at a time. I would probably take that long to do any one deal anyway. Leave yourself the option to walk away from this agent. Personally I have never signed an exclusive agent agreement but have been demanded to sign such an agreement from agents.

Joel Owens · Answer

"you want to stay away from listing agents that prefer to work with unrepresented buyers, that can only be trouble."

Oh how true! In commercial there is a lot more things to watch out for than in residential. You do not have part-time agents like in residential selling a house on the side while working at Mickey D's............ : )

Commercial listing brokerages are given the task by large corporations to sell properties. Their goal is to not find a buyer the best quality property to buy. I work with commercial buyers and specialize in it. You need an advocate especially if you are new to the space it is a given. Some companies will sell you dog properties all day long.

My clients tend to have lot's of money they have just never invested in the commercial space and like guidance underwriting properties to find the right ones to buy. Not easy and lot's of junk out there.

Just like any asset class you have to search for the deals and act quickly to get the best ones.

Randy Johnston · Answer

@Aleksandar P., talk to the broker to see if he's willing to work on a 30 day agreement, that way, you can both get to know each other.

I know brokers who have their clients sign an Exclusive Buyer Agreement and if they don't get along, then the client can walk away with no consequences since it's better for both the broker and the buyer.

I would think that in the commercial market, you really want to be represented by someone with experience, they can keep you from getting yourself in a bind. In my opinion, you want to stay away from listing agents that prefer to work with unrepresented buyers, that can only be trouble.

Joel Owens · Answer

Multifamily is kind of frothy in the cycle right now. Maybe you go after a local single NNN or a small strip center at a high cap to give you the cash flow you desire.

I haven't looked at multifamily in awhile. When the  herd says buy you can't lose that's when I run the other way.

The  property has to make money when I buy. If it doesn't there has to be tremendous upside with a value add component. The rosy pro-formas touting above market rents to last forever year after year is a loser as it is not sustainable. At some point in the cycle market rents will cool back down to normal levels.

Stay away from landlord paid utility at all costs and tenant friendly states. Those 2 things will get you more than anything along with low rent properties with high maintenance tenants that have lot's of turnover.

Aleksandar Popivoda · Answer

Very sound advice on interviewing him thoroughly. I will do that.As you said, it looks like it is an advantage when you talk to a seller agent without buyer agent. I see that. But, as you said, you have to have credentials. As a newbie, that's not the case.  Thanks again.

Aleksandar Popivoda · Answer

I see that you are very active on forums. Thank you for all of your help to us - beginners.

The reason I am going for commercial property is that the residential multi-family in my area (B-areas in Chicago and close vicinity) has become so crowded. Valuations don't make any sense anymore. 3-units and 4-units buildings here are priced based on comps, not NOI. People are buying properties with zero CoC return, counting on 3%-4% annual appreciation. That doesn't make sense to me whatsoever. That's why I want to go where there is a less competition and where math works. Financing is not a problem for me.

I agree with your observation from buyer's agent prospective. I just don't know if this guy is the right one for me. By his own admission, one of his three small commercial properties is still under water. The question is should I work with somebody who is already in a trouble.

Exclusive Buyer Broker agreement - Pros and Cons?

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