Three Key Concepts Of Real Estate Representation
Healthcare professionals are becoming increasingly more educated on the importance of having a real estate strategy to maintain and increase profitability. This is significantly important considering real estate is the second highest expense behind payroll for most healthcare practices.
You might say, “Great, but how much more is it going to cost to hire representation to ensure I am protected and achieve the most favorable terms possible?” If you are a tenant or buyer (as opposed to a landlord or seller who is interested in leasing or selling their property), the answer should always be ZERO! To be clear, it should not cost you anything to hire professional representation.
“How can a service not cost me anything?” you ask. Here’s your answer: Real estate is one of the largest industries in the world and contains several industry standards. One of them, is that the tenant or buyer should not be paying their agent. Landlords and sellers take on the responsibility to pay a commission to their representation as well as the representation of the buyer or tenant, with the goal of leasing or selling their property. This is a standard concession that spans both residential and commercial real estate.
However, people tend to understand this better when they consider residential real estate. Most people who have purchased or sold a home understand that the majority of transactions have a buyer and seller agent, and that the seller agrees to pay a commission to both parties.
The same is true in commercial real estate. Most owners have a commission agreement or amount of money set aside for each transaction. The traditional split is to offer each agent half of that amount of money. However, when tenants or buyers show up unrepresented, the listing agent typically gets a double commission, or at least, substantially more than if the tenant or buyer had representation.
1. You Don’t Save Money Without a Tenant’s or Buyer’s Agent
Tenants or buyers may think “if I don’t have an agent, I’ll get a better deal”. Listing agents frequently insinuate or make this comment as well. However, the tenant or buyer is not listing a property ‘for sale by owner’ where they are choosing to sell the property without representation and can control if they save a portion of the commission. Instead, in most cases when a tenant or buyer does not have an agent, the listing agent will get paid an inflated or double commission; or the owner will simply pocket that money. This leaves the tenant or buyer in a position where they do not save money and typically receive a substantially inferior deal by paying more and receiving less concessions than they should have.
Many owners and listing agents understand that everyone wants to feel like they are getting a better deal. The reality is, 99% of the time, they are not. Landlords and listing agents often put together offers that contain additional margins and encourage the tenant or buyer to counter their offer so the tenant or buyer feels like they are really ‘negotiating’. The tenant or buyer leaves with the impression they are saving money without representation and have really ‘cut the price’. However, this is all part of the owner’s or listing agent’s strategy.
Summary: commissions for the tenant’s or buyer’s agent are built into the majority of commercial real estate transactions. Going without representation typically results in the tenant or buyer losing money and receiving substantially inferior terms.
2. Don’t Pay a Consultant to Be Your Real Estate Agent
There are very legitimate healthcare consultants spanning nearly every healthcare industry. They can specialize in helping you open your first practice, scale to multiple locations, increase profitability, hire and train staff and beyond. However, the best consultants don’t try and do other professional’s jobs. Instead, like a coach or general manager, they assemble the best team.
There are some consultants who will try to be the ‘jack-of-all-trades’ and venture into specialties that go beyond their reach. Whether offering to be your real estate agent as part of their fee or accepting the standard fee from the landlord or seller, you should avoid consultants who don’t have the expertise or experience to ensure you receive the most favorable terms possible.
Understand that the consultant, if even aware of it, is not going to tell you they left tens to hundreds of thousands of dollars on the table, missed finding you the best locations or forgot to include key concessions that you should have received. Instead, they will tell you they took great care of you. Unfortunately, that is rarely the case. A great consultant will advise you to hire the best partners you can for your team, including: CPA, lender, real estate agent, attorney, etc. and will not try to be those people for you.
Summary: don’t allow your consultant to be your real estate agent and never pay them for real estate services. Likewise, a good real estate agent will not try to be your consultant either.
3. Don’t Pay an Attorney to Be Your Real Estate Agent
Because lease and purchase contracts are legally binding documents, you should always have an attorney, who understands real estate law, review your contract to advise and protect you. However, just like your real estate agent should not be giving you legal advice, your attorney should not be telling you what building or space to choose, how much to pay and negotiating terms for you. Unless an attorney spends 40 to 50 hours per week evaluating the market and negotiating on properties, they are likely unqualified to play real estate agent. Similarly, your real estate agent should not be drafting language in a binding contract.
The best teams of agents and attorneys have a high-level respect for what each party does. They complement each other, instead of trying to do the other’s job. Additionally, if you are paying your attorney to be your real estate agent, you will spend thousands of dollars in unnecessary fees.
Summary
- Your real estate agent should be finding the best properties and then negotiating the main terms of your lease or purchase.
- Your attorney should then review and recommend changes that protect you and ensure you receive what your agent negotiated for you.
Pay your attorney to be an attorney. Never pay your attorney to be a real estate agent.
A good real estate agent should save you dozens of hours of your valuable time by helping you avoid costly pitfalls and delays, while ensuring you receive the most favorable terms possible. It is very common for a healthcare specific real estate agent to save you tens to hundreds of thousands of dollars over a ten-year period. With that much at stake, ensure that you hire the absolute best agent you can. And… NEVER pay a consultant, negotiator or attorney to do what your real estate agent will do for you for free.