Business and Operations
Guest Column: July-August 2014
Real estate broker: friend or foe?
By Jeff Grandfield
When the Lease Coach speaks at restaurant shows, pizzeria tenants
frequently attend our seminars because they are leasing space too.
When the Lease Coach speaks at restaurant shows, pizzeria tenants frequently attend our seminars because they are leasing space too.
When pizzeria tenants work with real estate agents, they often let their guard down and assume that the agent is going to fully represent them. Quite often, this is not the case at all.
Agents are Deal driven
Agents/brokers are deal driven, not detail driven. Whatever rent you pay per square foot matters less to an agent than whether or not the deal actually gets done. After all, agents/brokers are paid by the landlord only if a lease agreement gets signed and the deal closes. People who take a commission for work performed are salespeople – they are not advisers.
What’s the commission?
Pizzeria tenants are entitled to know if the agent is being paid a commission and how much. All you have to do is ask. In most cases, the agent’s commission will be five or six per cent of the base or minimum rent (not operating costs). So, if you are leasing 2,000 square feet x $24.00 per square foot x five years x six per cent, the agent’s commission would be $14,400. If you are not inclined to take the advice of a car salesman who makes a $200 commission when selling you a car, how much more guarded should you be when the commission is thousands of dollars on a real estate transaction?
When selecting a site for your pizzeria, never let one agent show you around town. What we mean by this is never let one single agent show you another agent’s listings. If you want to look at space for lease in one particular building, contact the listing agent whose name appears on that building’s “For lease” sign.
A tenant may know an agent they feel comfortable with and let that agent show them other buildings listed for lease by other agents. This creates commission-splitting and makes you, the tenant, less valuable than another tenant who may be dealing directly with the listing agent. It’s never a good idea for the landlord’s agent to know what you are thinking about for all the properties that you’ve shortlisted. Some agents may not care which property you lease at all, as long as you do the lease deal through them.
The meaning of “rep”
Finally, you may have heard the term, “tenant rep.” This is a fancy name agents take on when they want you to believe they are working for the tenant while actually they are collecting a commission from the landlord.
In fact, the term tenant rep is so misused that even seasoned tenants with multiple locations and franchisors are fooled by this seemingly idealistic solution to their problems.
Whether your pizzeria is independently owned or a franchised location, this closing story is very relevant. We well remember a franchise foodservice tenant who had bought a franchise and after nearly a year, still had not been given a location from the franchisor. The franchisor referred her to a local real estate agent who showed her locations available. When this franchise tenant called us, she asked, “Why did this agent only show me his listings?” We answered, “Well, he can get a full commission from the landlord if you lease one of them. Is this agent really working for you?”
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies (Wiley, 2013). Got a leasing question? Need help with your leasing renewal or are interested in a free leasing CD entitled “Leasing Do’s & Don’ts for Pizzeria Tenants” Call 1-800-738-9202, email DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com .