Your commercial real estate broker may ask you to sign different Agreements depending upon your circumstances. Each of these are somewhat different, yet somewhat the same to cover difference circumstances.
I am often asked by Sellers or Landlords looking for a tenant, why they should sign an Exclusive Listing Agreement.
The most important part of a listing agreement is the contract that is established between the seller and the broker. With a signed Listing in hand, the broker is obligated to make his best efforts to sell or lease the property. That can mean sending email blasts to potential clients, conducting mailings, advertising the property on various internet commercial real estate sites, and creating an offering brochure with all the pertinent information about the property.
One important element most people do not realize is that most properties are sold or leased with the assistance of third-party brokers. So, for landlords looking to lease, or for sellers, it is critical that their broker engage the entire brokerage community to help find a buyer or tenant for the property. An Exclusive Listing Agreement offers the advantage of hiring not just one, but in effect all brokers and gives the property exposure to all their clients.
Buyers want to know that a seller is serious about selling. Without a price, buyers have little interest or confidence that the seller really wants to sell. Sometimes sellers will say they want to “test the market.” If they receive a reasonable offer, will they sell or raise the price? Are they really serious of just trying to get a free valuation?
The point is that brokers do not set the price, the market does. When pricing a property, we look at the prices similar properties have sold for, the condition of the subject property, the rents and vacancies and a number of other parameters to come to a reasonable price conclusion. If we are too high, then the market will tell us with very low activity. If we are too low, there will be a number of offers that will eventually result in offers that exceed the asking price.
Standard industry practice has many versions depending on the type of property and the area of the country in which the property is located. Typically, the commission paid by a seller to secure a Buyer or by a landlord to secure a tenant is shared by the listing broker and what is called a Co-Broker or Cooperating Broker. The commission is usually split evenly between the parties. This practice greatly benefits the property owner. The offer of half the commission is an incentive for other brokers to show their clients the property. If no co-broker commission is offered on a property then most commercial brokers would not show the property to their clients. Again, this is industry practice in Florida and pays for itself in a quicker than usual closing if one only uses the Listing Broker.
From time to time two different brokers may show a prospective Buyer or Tenant a property.
If one of the brokers then submits an offer that is accepted the broker who submitted the offer has apparently put himself in a position to receive a commission if the deal closes. However, it may be that the other broker who also showed the property to the prospective Buyer or Tenant decides that he should be the one who receives the commission. He may allege that the Buyer or Tenant first learned of the property through his efforts. There is a principle in real estate law that says that to earn the commission one must be the proximate cause of the transaction. For example, the first broker may have shown the property to the Buyer or Tenant 6 months ago but never followed up. Perhaps when his interest in the property was rekindled the Prospect could not find the name and contact information for the first broker. So he called another broker. That second broker had a Procuring Cause Acknowledgment signed by the Prospect naming him as the reason for the transaction so that there would be no question who was the Prospect’s broker. Once that document was signed the other broker was not entitled to the commission nor a part of the commission.
Occasionally the seller of a property will be very cautious about who receives the information about the profitability of his property, the name of the tenants, what lease rate they are paying and the lease expiration dates. All this would be very helpful information for competing buildings and aggressive owners and brokers. To assure that the property information the Seller supplies to a prospective Buyer is used only for analysis often the Prospect requires a Confidentiality Agreement. It gives the Seller comfort that the information is going only to qualified buyers. It therefore also makes the Broker more diligent in deciding to whom the information will be provided.