Buyer broker for commercial real estate
I was talking to one of the broker who listed multi family commercial property on loopnet. In order to save time, I contacted him directly to get some details rather than asking my broker. Once I realized that numbers make sense, I told him I will be bringing my broker whom I trust to take care of rest of the transactions. It was out of state investment for me. Looks like he got offended as soon as I told him I will get broker and refused to share 2.5 % commission with him. Just wanted to get some opinions on how to avoid such situations in future -
1. For commercial multi families, isnt buyer expected to bring his broker? My purpose of bringing the buyer broker wasnto ensure our best interests are taken care of. It is also an out of state investment for us.
2. From communication perspective - Am I not allowed to talk to Seller broker directly if I am planning to bring in buyer broker? Perhaps clarifying on my 1st communication may have made things clearer.
Commercial/Residential buyers are entitled to have their own agents. You should have disclosed to the listing broker that you have an agent during your first contact. Listing brokers hate this scenario where Buyer's agents are bought into transaction at a later stage.
Generally the communication is between listing and buyer's agents. Seller/Buyer only communicate to their respective agents unless absolutely required and never bypass the agents.
In this case, the listing agent might have assumed they are representing both sides and are going to be paid dual commission. Listing agents pay Buyer's agent for procuring the client but in this case you saw their listing on Loopnet and their advertisement/marketing procured the buyer.
What is the deal size? For institutional grade capital markets sales there is almost never a fee for Buyer's agent, I suspect that is not the case here however.
I agree with @Vic Reddy, you should have disclosed the fact that your represented earlier or simply brought in your agent from the beginning.
The listing agent may have been frustrated for any number of reasons, for example I will almost always offer a reduced commission to my clients if I am able to procure a Buyer (6% if outside broker involved or 4/5% of I find the Buyer). This incentives me to work harder while saving the client money etc. I also have weekly/monthly reporting calls with clients to discuss prospects and progress, if the listing agent disclosed you as a Buyer to his client and categorized it as a direct deal you have now put him in a tough spot with is client. If the Seller wanted too he could say "tough luck" and pay only the reduced fee. Remember the listing agent is beholden to his clients directives and may have his hands tied. You may find yourself in a situation with the Seller re-trading the deal.... "Price is $X, if he wants to bring in his agent this late then price is $X + buyers agent fee".
It may also be the case that the listing agent simply wants the full fee, who wouldnt right? Because your agent didnt source the deal or do any underwriting it would not be out of line to ask him to accept a reduced commission simply for transacting the deal. If one of my clients called me and said "I found a property, finished underwriting and want to submit an offer but you only get 1.5%" I would jump all over it. much of the heavy lifting has been done.
Something else to consider, if you value your agents input/involvement so highly it isn't out of the question for you to pay some or all of his/her fee (see above point on reduced commission).
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#3 Commercial Real Estate Investing Contributor
- Attorney
- Dallas, TX
If you want to get a legal opinion, Seller could likely win his dual commission assuming you're willing to close.
If you find something you like send it to your buyer broker and discuss. THEN look at putting in an LOI with your buyers broker.
Nothing scares the h&ll out of a listing broker or a direct seller than a buyer that is all over the place and nobody has control of the process.
The buyer broker ( who does this for a living ) will usually be better at having a discussion with the seller ( non-listed) or a listing broker to gather key information. If you call likely the seller or listing broker will get more tactical information about you than you do about them.
With commissions I tend to have a different philosophy. Some listing brokers take cheap commissions to do volumes or get a large portfolio to sell. Has nothing to do with me. I do not get the benefit of selling all those properties. I put my fee in the LOI regardless of what the listing broker has taken as a total fee. Also the listing broker sometimes try not to split the fee 50/50 and put more on their side.
I put in LOI so and so is getting 50% and so and so is getting 50%. That way I catch them if they are trying to take more on their side then on mine.
I do not agree to fee per separate agreement either. The listing brokers try to put the fee aside. I have in LOI seller will pay XX commission to me at closing, as a condition of closing.
Seller usually caves and pays my fee regardless of what agreement the listing broker did for percentage.
If you work for less people will take advantage. You need to battle for your total commission.
Great advice @Joel Owens. Have you ever had a situation where the listing broker refused to pay what you were asking for your fee? What did you do?
I'm a multifamily broker in one of the most competitive multifamily brokerage markets in the country where all the major brokerages have a share (ARA, CBRE, M&M, etc.). I don't know any brokerage who will share their fee. Some are open to working with buy-side brokers, but they must get their fee from their buyer.
I'm not sure why this listing broker would care if you had buyer representation (depending on the quality of the deal). Multifamily sells like crack here in DFW currently so my view may be distorted compared to some secondary/tertiary market where multifamily is tough to sell and needs exposure on loopnet.
Here's what I think any broker in DFW would do who is open to co-brokering: If you bring a buyer's broker (before or after initial contact) they would just advise their buyers where their offers need to be to be competitive (better than your offer). Then most likely remove you from their database.
If it's a tough deal in a tough market, they should be open to some split of the fee. Some commission is better than no commission.
Buyers brokers who are brought in after the fact are really only a nuisance and don't provide value. Just one more person in the chain.
If a buyer's broker contacts the listing agent and brings a 1031x buyer who pays 5% more than any other buyer will pay, then that buyer broker has created value and they deserve to be compensated half of the commission.
I have a conversation up front with my buyers. I have a minimum I work for. If the seller will not make up all the difference sometimes the buyer makes up .5 to 1 point to me.
If they are putting down a substantial amount for down payment and LTV is low then lenders will usually let the buyer roll in my fee into the purchase price. So instead of coming out of pocket right away the buyer pays it over time amortized into the loan and the increase to the payment is very low per month. Example going from 62% ltv to 63% a lender generally will not care. If it is 25% down and 75% ltv then a lender might not do it.
I agree that multifamily is overpriced in many markets and no way on Earth am I purchasing at this time in the cycle for those crazy low cap rates. Over decades of data multifamily has averaged 10% vacancy, 50% op ex, 1 to 2% rent increases annually. Buyers paying (bubble) numbers of 4 to 5% rent growth, 3% vacancy, and 35% op ex are asking to get a kick in a## with bad returns for future years to come. There still are deals you just have to be careful and not follow the herds.
I am getting literally about 30 calls a month for multifamily larger deals right now. I am doing mainly retail now except for larger multifamily. I do not touch multifamily under 3 million because sellers books are usually a mess and many adjustments and concessions have to happen to get the buyer and lender happy to close on the property. Larger properties tend to be managed better and have great records. Loans are more competitive and easier to get for larger properties.
People do not need to get sucked in to the Euphoria about the multi family asset class. That is when things get very dangerous for an investor when they feel over confident and look over important details when making a purchase.
I am there for my clients not just through the purchase only but the length of our relationship. Even though I do not perform certain items for them they still ask me questions.
I stay away from properties where listing brokers try to have buyers pay the fee. There are certain companies that are the worst. They generally have the most over priced properties and looking for suckers to buy. I also tend to stay away from properties with (rounds of bidding), (call for offers), (market pricing),etc.
We generally go in and like to deal with sellers directly or listing brokers one on one. We make a fair offer and want them to select us and move to closing. Rounds of bidding timing can be bad for a 1031 buyer and also debt you can lock in for a deal can change. By the time you are selected the buyer is no longer interested, 1031 has failed, or the interest rates have increased now which means changing the offer price down to meet the same expected cash flow yield.
Time is money. You screw around with sellers having crazy processes and requirements for a buyer and you might find yourself spending tons of time on a property that may never reach a closing.
It's an analysis of how difficult is the seller going to be and how to difficult is the buyer going to be for completing a transaction?
Experience over many years teaches a broker percentage plays and a gut feel for if the time invested will yield a somewhat successful outcome for all parties involved.