"I told the owner of my building, hey if you decide to sell the building, call me first...I'll buy it and we can avoid paying the 6%"...REALLY? This was a conversation I recently overheard. I was not eavesdropping, mind you. I was the guest of a banker buddy of mine at the monthly meeting of the International Produce and Floral Council. The conversation was between the banker and one of his produce distributor clients...that I had met...as I stood there with them...and tried to help last year with some space issues he was facing...for FREE! The comment really irked me and I flippantly responded, "yeah, by all means, cut out those greedy ass brokers!" The client quickly excused himself and walked away...he realized that the comment struck a nerve. I've thought about that comment a lot in the past week and have tried to imagine myself in his position. If I leased a building and had an opportunity to buy it, would I "cut out the middle man?" Indulge me and I will attempt to explain why I wouldn't...with full disclosure that I have seen the "end of the movie." By the way, I believe this buyer's sentiment is rooted in the premise that "we didn't find the building or negotiate" the deal...so where is the value?
Here is the value...anticipating the issues, structuring around them or negotiating a suitable alternative. This is BEST done before final terms are negotiated...but sometimes, we are shackled:
So let's assume we are talking about a 50,000 sf building, a $5,000,000 purchase...or a $300,000 ($5,000,000 x 6%) dollar savings (potentially).
$300,000 represents $6 psf. If the buyer overpays (based upon market data that brokers track) this "savings" can be consumed quickly.
What if the property doesn't appraise? How do we now bridge the gap? Brokers are skilled at solutions due to the market comps, current avails, etc.
What if something "untoward" is discovered...historic hazardous materials, seismic zone, non ADA compliance, unpermitted office or other improvements, a sprinkler system that is inadequate, a lien against title...OK you get the idea. A seasoned real estate professional...AKA, a broker, has overcome these challenges many times before.
Who will handle the management of the deal's execution...escrow, title, inspections, loan qualification, review of leases, estoppels, etc? A real estate attorney...skilled at identifying issues...but skilled at resolving them?
What if specialized consultants are needed in the execution process...buyers can utilize our networks.
So how do you "hear the buyer's concerns," insert your expertise into the transaction and get paid?
From experience, I reduce the fee and offer to manage the transaction. I justify this because I didn't find the building or negotiate the terms...just like the client believes...but I can add significant value from the negotiation forward. As we know, negotiating the terms is generally the EASY part. The execution is the difficult step. Win win, done!
By: Allen Buchanan
Principal | Lee & Associates
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