Does Your Broker Really Represent Your Best Interests?

It Starts with Transparency

Part One of a Two-Part Series on Conflicts of Interest

This is a time when corporate America is still in a cost-cutting mode, even as the economy slowly recovers. It's also a time when commercial real estate continues to be a company's second-biggest expense, after labor costs, with millions of dollars at stake. In this environment, most companies are looking for creative solutions and aren't satisfied with business as usual. They're looking to save money, reduce risk, and add value. And they recognize they need to do this in a post-Sarbanes-Oxley world, where even the appearance of conflicts is not acceptable.

Which leads us to the million-dollar question: Does your real estate service provider really represent your best interests? Does your firm ensure objectivity and accountability as your trusted advocate? Well, if you have a dual agency arrangement, where your broker represents both you and your landlord, the answer to these questions is likely no.

The fact is, a landlord's agent has a contractual obligation (and a financial incentive) to bring tenants to the landlord's buildings. But if the broker's incentives and the tenant's interests are not compatible, conflicts of interest are inevitable.

The client-broker relationship is all about trust, which is based on transparency and full disclosure.

How can you protect yourself? Here is a checklist:

• Ask for an account of all the brokerage firm's relationships, listings, and asset/property management work with landlords, from the get-go, starting with the RFP (Request for Proposal).
   
• Make sure you check for overt conflicts of interest (e.g., the broker has listings in other competitive buildings) or hidden conflicts (e.g., a firm is affiliated with a REIT that is looking to invest in income-producing properties that are also potential buildings for tenants). 
   
• Ask for full disclosure about compensation and commissions and expect to be informed if the broker is offered bonuses or discounts. 
   
• Be sure that your interests are protected in your lease in such matters as expansion, contraction, and termination rights as well as non-disturbance clauses in the event of new ownership.
   
• Overall, insist on complete transparency...and ensure that your broker puts your interests first.  

So, why are dual agency relationships still prevalent in commercial real estate, even when conflicts are prohibited by law in other professions? That's a good question. Certainly, there are ethical firms that claim to be fair when working both sides of the fence. We at Cresa respect our competitors, some of whom are employed at dual agency firms. But we know that at the end of the day, you can't adequately serve two masters.

Stay tuned for Part Two of this series in April.

Meanwhile, see if you are getting what you deserve from your real estate service provider by logging onto our Tenant's Bill of Rights: http://www.cresapartners.com/billofrights.asp.