Finding a new location for your medical or healthcare practice can be exciting. The prospect of a newly designed office in a better part of town with the anticipation of growing your practice is an enticing adventure for many doctors. It’s fun to imagine and dream of what’s possible. This process can even start early as you drive past vacant properties with a ‘For Lease’ sign in front of the building. Your natural instinct is to ask the owner or listing agent “How much?” So, you make a call to inquire about the property. It seems harmless, right?
Believe it or not, doing just that without representation can cost you up to six figures.
As a reader, you might be saying, “Really? That seems like an exaggerated claim. After all, I’m a great negotiator. How hard can it be to work out a good lease deal?” You’re right. Great negotiation skills are not exclusive to real estate agents—many people are great negotiators instinctively, and the skillset can be acquired with knowledge and experience.
However, negotiation skills alone won’t ensure that a medical tenant or buyer receives the best possible terms on their office lease or purchase. For that, tenant representation by an experienced agent is crucial. In completing thousands of transactions annually across the country, here are common pitfalls we’ve identified when tenants call on properties without representation:
1. Losing Money On The First Phone Call
On the very first phone call about a property, the listing agent or seller/landlord is evaluating the posture of the prospect. Tone, interest level, experience level and options all come into play. Any perceived weakness or inexperience will be used against the perspective tenant as the deal unfolds to gain an upper hand.
Lacking real estate market knowledge is the foundation of a weak posture. In a negotiation with six to seven figures at stake, being able to decipher fact from fiction is essential to getting the best possible terms.
For example, listing agents routinely claim that certain concessions are rarely, if ever, offered by landlords. By doing so, listing agents can convince uneducated tenants to accept deals that do not include common landlord concessions such as tenant improvement allowance, free rent and more.
The reality is most landlords will offer attractive concessions, especially to long-term tenants who are properly represented. Landlords routinely provide a free rent period during construction, as well as an additional free rent period after the tenant opens for business in the space. They also typically contribute toward construction costs in the form of tenant improvement allowance or even a turnkey space. Knowing how much of these concessions to request requires market knowledge and experience. Landlords don’t provide these types of benefits if they don’t believe they are competing against other landlords and spaces, or if the tenant doesn’t know better.
2. Misunderstanding The Role Of Listing Agents
Here’s a hypothetical question: In an ideal world, would you go to court and defend yourself without an attorney? Obviously, No. No one does this unless they have simply run out of resources and can no longer afford legal counsel.
Listing agents have fiduciary responsibility to their client that is equal to that of an attorney. This fiduciary is to maximize the returns of the landlord or seller, and it’s critical to understand that a listing agent must do everything possible to protect their client’s best interests. As a healthcare provider who is on the other side of the table against them, your best interests are not in their consideration. Putting your interests on par with their client’s would violate real estate law.
When a tenant speaks directly to a listing agent without representation of their own, they are the customer of the listing agent, not the client. That’s an important differentiation. However, a good listing agent can make you feel like a client without violating their fiduciary to their true client, the landlord or seller. After all, they spend their days fielding phone calls from prospective tenants and perfecting the art of selling a space.
Why Does This Matter?
The listing agent has no loyalty to the customer, the prospective tenant or buyer. As noted above, a listing agent can propose terms to a tenant that may seem to be factual, when in reality they’re simply opinions or a perceived reality that heavily favors the landlord and/or the listing agent’s way of doing business. This doesn’t inherently make the listing agent a bad person or unethical. It just means they have a biased interpretation of the market that favors their client and leads to a loss of money and concessions for the tenant.
3. Sacrificing (Free) Expertise
As a medical tenant or buyer, you can secure the services and expertise of an expert agent at no cost to you. Because sellers and landlords pay commissions for both agents in commercial real estate transactions, a tenant or buyer agent can represent you and your interests for free. While this isn’t a secret, many people don’t know this to be true.
So What Does It Really Cost You To Be Unrepresented?
Maybe you love real estate and you’re convinced you want to fully handle your next purchase or lease negotiation. Do you have anything to lose in doing so? Below are just a few things you might want to consider when it comes to having an expert agent represent you:
Non-Billable Hours: Dozens of hours are spent on a typical deal, hours that would otherwise cost the doctor and his or her staff. But it’s not just the non-billable hours that are costly to a practice, it’s the distraction: hundreds of emails and phone calls, online research, physical evaluation of the market, project file organization, communication records, financial evaluation of offers, coordination and administration of vendor relationships, and the list goes on.
Process & Resource Efficiency: You know the saying: to become an expert at anything requires 10,000+ hours of practice. With experience comes efficiency and nuance. What takes a healthcare real estate expert a few hours might take a person representing themselves 3-4 times as long. The process, technology and industry tools and resources allow agents to streamline the activity necessary to complete any transaction and ensure that critical issues are not overlooked.
Vendor Relationships: Assembling a strong team is a pillar of success in real estate. Attorneys, CPAs, architects, contractors, engineers, designers, practice consultants, equipment suppliers and brokers all work together to make a project a success. By using a broker who transacts on thousands of healthcare deals around the country each year, you save time vetting national and local vendors.
Free Services: Remember, a tenant or buyer agent’s fees are paid by the landlord or seller in any transaction. Sellers and landlords have already factored commissions into their cost of doing business. Not having an agent represent you doesn’t mean you’ll somehow save those commissions either. In fact, most unrepresented tenants and buyers end up paying more due to a lack of market knowledge, strategy, and experience.
Going it alone on any real estate transaction as a tenant or buyer without representation is costly. Whether you’re renewing a lease or starting your first practice, be sure to get someone on your side of the transaction who is a proven advocate for your practice type and specialty—and all at the cost of the landlord or seller.