In Part I, we focused on uncovering some of the differences between Commercial and Residential Brokers. Part II continues to focus on Commercial Real Estate while featuring residential items as well, with a greater dive into more important real estate terminology, the pros, and cons of hiring a real estate professional, and questions you should be asking when exploring hiring a real estate professional. As always, our goal is to provide you the decision-making information to help you better understand and answer the question at hand.
This blog post will identify and establish some terms you should know when hiring a real estate professional. These terms are basic items you should familiarize yourself with, so you are able to track the myriad of conversations you will undoubtedly have over the real estate process.
As noted in Part I, there are two main segments of real estate professionals: Commercial and Residential. Within each of those segments are several different pros and cons you should be cognizant of when hiring the right real estate professional for you or your organization. The below will identify and help you understand some of the pros and cons of each, to best frame your questions. We then turn our attention to sharing some potential questions you might ask. We believe these are just a few that are best suited to helping you make an informed real estate hiring decision.
We will wrap up Part II by highlighting what is to come in our real estate series to help you in hiring a real estate broker or agent.
Terms you Should Know When Hiring a Real Estate Professional
Multiple Listing Service (MLS): A database established by cooperating real estate brokers to provide data about properties for sale. The MLS can only be accessed by partner brokers in a defined geographic area.
Realtor®: A federally registered collective membership mark which identifies a real estate professional who is member of the National Association of Realtors® and subscribes to its strict Code of Ethics.
Exclusive Contract: An exclusive listing is a type of real estate listing agreement in which a property seller appoints and specifically authorizes one real estate broker to act as the seller’s sole agent.
Brokerage Commissions: A fee paid to a real estate agent or broker for their services, sometimes as a percentage of the sale price.
Commission Splits: The percentage that agents and brokers get when they help a buyer or seller close on a property. Typically, a percentage of a commission goes back to the brokerage company, and the remaining amount goes to the agent/broker involved in a property sale/purchase.
Pros & Cons in Hiring a Commercial Real Estate Professional
Before diving in, it’s important to acknowledge that everyone wants to save a dollar where they can, whether as an individual or an organization. This idea of savings is driven by the perceived added cost or decreased value that adding a real estate professional has on a real estate transaction. As such, many are inclined to at least consider pursuing a real estate transaction alone. The question they have to really answer is, what is the actual opportunity cost to do so? The following will review some of those opportunity costs from the perspective of a commercial real estate transaction.
Pros:
Potential cost savings – If you are the buyer or lessor the brokerage commission is most likely negotiated prior to your involvement and is paid by the seller. Therefore, most likely no added cost to you on a listed commercial property
Brokerage Commissions are negotiable. Negotiate wisely and make sure you are getting what you are paying for
You are getting an industry professional who is duty-bound to watch out for your best interests, even if providing a dual agency relationship
The value of time - Saves you time and energy when engaging the real estate market. Understand where your time is best spent as the real estate process can become overwhelming with all the potential options for consideration
Real estate market knowledge – Understand the local current market and typologies critical to your business and the opportunities that best suit you using proprietary reports and market data
Real estate process knowledge – Understand the necessary legal process and expertise required to complete a deal as timely and effectively as possible
Real estate service relationships with contractors, financial experts, lenders, and other vendors can assist you in your process by effectively guiding you throughout the whole real estate lifecycle process
Professional guidance during negotiations acting as a buffer with current market knowledge and experience
Access to the full local MLS and exclusive listings only available between their brokers or other industry relationships
Better and greater marketing access with professional real estate firms
Cons:
Potential added cost– If you are the Seller or Lessee, you are generally paying the full commission cost to your broker and the buyer’s broker
Brokerage commissions are negotiable and commission splits are not always equal. Some properties may offer greater incentives to your broker/agent, so be wary of the financial incentives offered between real estate being considered
The value of time – brokers and agents do not get paid until a deal is signed, so be aware of the risk that your broker or agent may rush the process to complete a transaction to get compensated
Negotiations – Realize that brokers and agents have a potential internal financial motivation for a more expensive real estate transaction, as their commission will improve as the total real estate deal increases
Questions to Ask Before Hiring a Commercial Real Estate Professional
Typically, everyone has been in some form of a real estate transaction, most likely a residential purchase or lease, prior to a commercial deal. However, the differences in those types of transactions are incredibly broad. As such, below are some questions you can be prepared for that should help increase your success in hiring the best commercial broker or agent for your real estate needs.
What real estate market typologies do you focus on?
What geographic locations do you specialize in?
How long have you been in commercial real estate and tell me about your experience?
Tell me about your last five transactions and can you provide me those references?
Tell me about your thoughts on the current market?
What types of strategies or tactics for negotiating should I be aware of?
What do you think is an accurate timeline for this transaction?
What is your typical schedule and availability?
What other clients are you currently working with?
Do you work independently or with a team?
How many deals have you closed in the past year?
Tell me about what services you offer and how you will be compensated?
Do you work with both buyers and sellers or are you focused on one versus the other?
What is the best way to contact you?
What should I consider when deciding between leasing or purchasing? Which do you think is a better move for me/us?
Where do you see the market going right now?
Thoughts on what terms I could or should expect in the process?
What do I need to do to be prepared before we start working together on our search?
Pros & Cons to Hiring a Residential Real Estate Professional
As above, there are several pros and cons to hiring a residential real estate agent or broker. The below lists some of the more significant ones for review and potential consideration when making such a decision.
Pros:
Residential brokers are experts in your local real estate market
Saves your time and energy when looking for a home or when showing your home
Legal expertise and understanding of proper paperwork to limit errors
Relationships to contractors, financial experts, lenders, and other brokers
Guidance during negotiations
Access to the full local MLS and exclusive listings
Better and greater marketing access
Cons:
Having to pay commissions
Brokers may have multiple clients and may not act as quickly as you would like.
Creates another person in the communication chain
Being at the mercy of someone else’s timeline
More time consuming
Less access to services to help find your next home and sell your existing home
Entrusting someone that may not have your best interests in mind
Questions to Ask Before Hiring a Residential Real Estate Professional
How long have you been a licensed real estate agent?
Are you a Realtor®?
What neighborhoods/towns do you specialize in?
What is your typical schedule and availability?
How many other clients are you currently working with?
What home price range do you typically work in?
Do you work independently or with a team?
How many homes have you closed in the past year?
How many days are homes staying on the market currently?
How much commission do you charge?
Do you work with both buyers and sellers?
What is the best way to contact you?
Do you have any references of past customers that I could reach out to?
What services do you have access to, to help me find a home/sell my home?
What is to come within our Real Estate series?
We hope Part II in our series has further clarified the real estate hiring process by providing a greater dive into more real estate terminology, the pros, and cons of hiring a real estate professional, and some of the questions you should consider prior to making a decision. Part III of our series will focus entirely on outlining the hiring process and specifically on how to decide to hire a broker.
Please stay tuned for future posts reviewing Real Estate Professionals as we continue through our newest series!