I hope this message finds you well.  We made it through another summer and it’s “Back to Business” as they say!  Given the state of the economy, I am noticing the need for Brokerage Services, in general, is in much higher demand today than in the past several years, and this is exemplified by the fact that August 2008 was the busiest August I have ever had since I began in the business back in 2000.  Typically, August is the slowest month of the year next to the holiday time in December, and I think many property owners are realizing it is not so easy to put deals together, so I thought this month’s topic should focus on Brokerage Company Selection.

If you own a property and you are thinking about selling it or if you have vacancies that you want to lease, it may be of interest to understand how the Brokerage business works before you begin searching for the real estate agent(s) that will best suit your needs.  In New Jersey, if you own an industrial building or a retail building, standard commission rate is 5% of the sale price and/or 5% of the net aggregate value of the lease.  Whether the firm you hire brings you the buyer (or tenant) or an outside broker procures the transaction, the rate is still 5% in total.  If you own an office building, not only is the commission rate typically based upon the gross aggregate rent on a lease transaction, but the rate is also different when an outside brokerage company represents the Tenant; if this is the case, the commission rate is typically 7.5% of the gross aggregate rent throughout the tenant’s tenure whereas 5% would be paid out to the procuring broker for the Tenant and 2.5% would be paid to the listing agent.

Often, Brokers and Landlords fight over commission payments on renewals.  The truth is that when tenants are happy where they are and they anticipate on renewing their leases, it is common to see rental rates go up.  Why is it that Landlords do not recognize the benefit of being in this situation?  If a Tenant were to vacate the space, Landlords should think about all the costs incurred by this happening.  Let me remind you that down time means no rental income whatsoever.  Landlords can also anticipate capital expenditures to release the space such as Brokerage fees (they would have no problem hiring and paying a broker to find a replacement tenant), legal fees, etc.  They way Landlords should view paying Brokers on renewals is like paying for an insurance policy.  So when a Tenant renews or extends their lease or perhaps takes additional space in the building, they should be more than willing to pay the Broker for procuring such a great situation!

Now that I have briefly given an overview of commission rates paid for commercial transactions in NJ, you have to decide which firm will best serve your interests.  In doing so, you want to select a reputable firm that has experience within the marketplace, and you want to feel comfortable with the people you will be dealing with throughout the process.  People do business with people they know, like and trust.  Therefore, it is important to meet with the individual(s) that are going to be working on your assignment(s) and feel comfortable that your personalities are in alignment, or at least compatible personalities from a business perspective.  Selecting the biggest name out there may not always be the best suitable decision because they may not take the time necessary to get the job done in the best possible fashion.  I say this because I see large firms working on smaller projects and while they may have the best name recognition, the questions to ask is what is their plan of action going to be?  In other words, what does their marketing plan and objective consist of?  In layman’s terms, what are they going to do to get the job done for you?  I also find it interesting to see that small projects sometime have 5 different agents working on the assignment and that may add confusion to the mix.  In essence, sometimes less is better!  Remember, you, the Client, only cares about the results, but hiring the right team of professionals to achieve those results in a timely manner is what should make for careful consideration.

The last thing I want to touch upon in helping you determine the right Brokerage firm is getting educated on the resources behind the firm which you will be counting on to carry out the tasks necessary in order to achieve your goals.  So you’ve selected an Agent or a group of Agents that you have met with and that will be working on the project(s) that you feel comfortable with, you have asked them to show you their plan of action, you should ask about how things are carried out behind the scenes.  The truth is that very often the leg work is done behind the scenes through the resources within the firm.  For example, many of the tasks the Broker(s) commit(s) to is actually performed by a marketing team and this is important because it allows the Broker or team of professionals to be out on the front lines meeting with potential buyers and tenants.  Simply put, the company is the automobile while the agent(s) is/are the driver of the machine! Find one that is most suitable to your driving philosophy!

I hope you have found this information to be somewhat informative.  If you would like to further this “conversation” about this or any other commercial real estate oriented matter, please contact me at your earliest convenience.