Why do commercial real estate brokers ask buyers and tenants to sign agreements when they start looking for properties? What is in these agreements? Why sign it?
The Process of Buying & Leasing Commercial Real Estate
As with all real estate, the process really begins when you get in touch with an agent or real estate broker. They take the time to understand your individual needs, help source the best fitting properties, show and negotiate, and help you through till closing, and often beyond that.
You may contact a broker when you need space or want to know what is available and just need to start looking. Or you may reach out once you find a potential property and want to get more information. At this point, they will likely request that you sign an exclusive buyer/ tenant agreement.
What is a Buyer/Tenant Agreement?
These agreements are the first step in really moving forward with a property search or negotiation. They generally create a fiduciary relationship between the buyer/tenant and their broker representative.
Common elements you’ll find in these agreements include:
• Names of those involved
• Scope of search (property type, geographic area, or specific property)
• Identifying the relationship, and any potential conflicts of interest
• Scope of services, and what’s not included
• Non-discrimination protection
• Expectations of how the agent will be compensated
• Any retainers applicable
• The length of the agreement
• Broker and client signatures
These are typically presented on standard state or Realtor association forms.
Why These Agreements Exist
These agreements exist for a number of reasons, including:
1. Ensuring the buyer or tenant has a representative looking out for their best interest
2. Protecting brokers from unethical shoppers
3. Setting clear expectations
Without an agreement those looking for offices, retail shops, warehouses, and other spaces don’t really have someone on their side. The sellers’ agent has only one job. That is to get the best deal for the seller, at all costs. They are not on your side. That shows up in the price, the terms, and the contract paperwork and who it best protects during the process. An agreement with a buyer or tenant’s broker changes that, and gives you a professional edge.
Brokers spend a huge amount of time, energy, and money in helping their clients. You wouldn’t go to work, and hang out for free on the off chance that your employer might pay you at the end of the month, right? No, you, layout the pay rate, and job description in advance, then get to work. Good brokers are spending hours of their time searching and negotiating for you, probably have entire teams on staff they have to pay, and have to invest their own money in gas, transport, and technology to research and evaluate deals accurately for you. They couldn’t stay in business if they just did that for free all day long. Fortunately, the seller pays for them to do all of this for you. The agreement just makes sure they are compensated by the seller or landlord once you finalize a new site.
Why Sign the Agreement
Experienced agents have been burned time and again by lookers who use them, and then go buy through someone else, because they don’t know what they are doing. So, those shopping around without a broker representative won’t be trusted or taken seriously by sellers and their agents. That’s not a negotiating position you want to be in. It is only inexperienced and desperate agents that will spend time with buyers and tenants without an agreement in place. Obviously, that isn’t the type of person you want to bet your next business move on.
Every good broker has access to all the properties available. So, there is no advantage of not signing one of these agreements. What is very important is carefully selecting a great broker who knows the business, has experience, and is diligent in finding out about your specific needs and requirements, and who will hustle to provide for them.