I’m a Buyer’s Agent…
At the risk of offending most of my fellow brokers…I would like to share my truth and beliefs about buying Commercial Real Estate:
In many (most?) cases it makes sense to have a Broker represent you in the acquisition of real estate of any type. Residential, commercial, industrial, investment or owner-user, anything. When a Buyer deals directly with the Seller’s Broker, that Broker becomes what we call a “Disclosed Dual Agent”. Actually they’re only disclosed if the Broker declares in writing that is the case. In every state a Broker representing two sides in the same transaction is required to provide a written notice of dual agency at the very beginning. This should be given shortly after: “Hi!, I’m Bill”. The reason for this is that the Buyer is really at a disadvantage. The Seller knows the market…because they have lived it. They understand the real cash flow…because they have lived it. They know the actual condition of the asset…because their actions (or lack thereof) created it.
Buyer Broker Specialists act as Advocates
When you are negotiating a deal, whether its value is $100K or $100M…a neutral advisor doesn’t cut it! I don’t want my closest ally acting like SWITZERLAND. The Swiss are the most renowned manufacturers of timepieces in the world. 
They are also noted for staying neutral. When working on a deal you want a Buyer’s Broker that is willing to be a strong (perhaps even aggressive), creative, superbly informed, and resourceful ADVOCATE for your side.During the Great Recession I was negotiating on behalf of a Buyer on a Class “A” office building in the Seattle area. The Subject was beautiful, in great condition, and even after a major reduction…I felt it was over-priced. The Seller’s Broker was friendly, informative and firm on the price…he really did a great job for his client. He supplied us with:
- Comps to support their price
- A brochure stating that the property was in:
- Great condition
- 80% occupied
- Close to transit and restaurants.
- Estimated $9.28/SF for NNN expenses.
- Well managed
- Located on to a high traffic street
Acting as the Buyer’s Broker Advocate I made numerous trips to the area and interviewed local Brokers, Property Managers, business owners etc. I returned to the office where I completed 2nd and 3rd level research on the property before I completed my Letter of Intent (LOI). My offer was not at full price, despite the beauty and condition of the property. I suggested a significantly discounted price to my client for submission and they agreed. But instead of just writing in a lower strike price, I supported it with my research. To support a higher price (which I did not review with the other agent) was the fact that while I agreed that the property was particularly well managed, the estimated $9.28 expenses per SF would probably be closer to $7.75/SF. That increased the Net Operating Income (NOI) by around $3,000 per month. Nice!
On the minus side–which I shared in writing with the Seller’s agent:
- I found more recent comps from other brokers that made the case for a higher Cap Rate…meaning that each dollar of NOI was less valuable…suggesting a lower sale price.
- I pointed out that while the property was reported at 80% occupied, that one of the tenants had not moved in yet and was still doing TIs (tenant improvements) which would be followed by 6 months of free rent. That meant that the true economic (rent paying) occupancy was much lower.
- I told him that Average VPD (Vehicles per day) was high for the street that was 2 blocks away, but that didn’t translate into traffic on the street where the building was located. I also told him the numbers of the 2 bus routes that were in the area…and that it was over 1,000 to the nearest stop…event though they went close to the front door. That while there was 42 restaurants within a 5 mile radius, there very few that were within walking distance.
- That while the property was in great shape, the air handlers for the HVAC system were very old, and that a 80 ton crane would be required to replace them at great expense.
Because the Buyer had a strong Advocate that fully researched the property for both the good and bad…we were able to close at a price hundreds of thousands below the recent price drop.
Other reasons to use a Buyer Broker are: for help with Due Diligence, and…some Dual Agents want both the selling and buying agent fees. They are willing to take actions that give their Seller clients lower profits and cause the sale to take longer…but I’ll save those for my next post!