Some Frequently Asked Questions
1. Is finding office space or buying a property without engaging a broker a good idea?
Generally speaking, the answer is no. A tenant or purchaser enters into the real estate market every so often. A broker however deals with leasing negotiations and sales as a professional on a daily basis. There is a plethora of market data at their fingertips, plus historical knowledge of the market. If you engage an exclusive representative their fiduciary responsibility is to you, and they will educate you and make the process less stressful, less time consuming and be able to negotiate a better market deal then you could without their knowledge.
2. When thinking about expanding or relocating where does one start?
With the aid of a competent broker or real estate advisor you should first evaluate if moving is the right choice. Ask yourself some of the following questions:
- How much time remains on my lease?
- What options are there to remain in my current space or building?
- How much space do we need?
- How quickly is my firm growing (or shrinking)
- Are there more economical locations that may suit your firm?
- What is a realistic timeline for moving into a new space?
- How will the new space benefit the company and its future?
- What are all the costs associated with a move?
- What else is involved in moving (furniture, phones, computers, copy/fax/postage machines, internet access, etc.)?
3. What is the difference between a leasing (landlord) agent and a tenant representative?
The leasing agent has the listing of the property and represents the interest and has a fiduciary responsibility to the owner of the building. A tenant representative with a signed exclusive agency agreement represents the interest of the tenant in the negotiations. Some agents work exclusively on listings while others take on tenant representation only. Other agents will work with both. It is also possible that an agent may represent both parties to a transaction.
4. Do I need a broker to help me find space?
No. Anyone can search for office space if they have the time to spend away from their business, however if a company or person look on their own, in all likelihood they will deal with a broker. What is not commonly known in NY State is that a leasing broker representing a commercial landlord is not legally required to reveal they have a fiduciary responsibility to the landlord. This reconfirms the argument for having an exclusive broker represent a tenant. A good broker however does much more than just locate office space. They endeavor to learn as much as they can about a firms corporate culture, commutation patterns of employees and financial well-being of a firm to help in the process. An experienced broker’s services should begin from the time you begin to contemplate alternative space needs, all the way through the date lease terms are finalized and beyond through the construction process and move-in date. Thereafter their services should include keeping you up to date with market conditions, and guide you through periods of contraction and expansion over the years.
5. What is a representation letter or exclusive agreement and should I sign one?
This letter protects you and the broker by stating that you are working solely with one another in the acquisition of an office lease. NOTE: It does not preclude you from seeing the entire market as landlord’s brokers market their available space to the brokerage community, and are accustomed to negotiating with tenants that are represented by brokers. In fact, landlord’s brokers appreciate knowing a tenant is represented exclusively and are then more comfortable sharpening their pencil in the lease process. If you want to get the most out of the brokerage community, we recommend that you sign an exclusive agreement instead of working with several agents on a nonexclusive basis, as you then know they are working for you and not the landlord
6. How are real estate professionals paid for their services?
In New York, brokers/ agents typically receive a commission from the Landlord (or Sublandlord as the case may) for brokering a deal. For a lease, the commission is based on the annual rent and the term of the lease. The “payout” is negotiated in a brokerage agreement, which is a small contract between the broker, and the landlord or the landlord’s broker. A payout can be as short as 100% at signing, but is typically paid in installments over the first six to twelve months of the lease term. This differentiates itself from a sale, where the broker is commonly paid 100% at a closing. Commission rates may vary based on the size of the transactions