Falling for such “real estate myths” can result in paying more than you should for a property or signing into unfavorable terms that will continue to hurt you in the long run. How can you prevent falling into these pitfalls? Arm yourself with knowledge and surround yourself with people you can trust to have your best interests in mind!
Let’s get started in the right direction by examining the truth behind some of the most common real estate myths and how you can protect yourself.
MYTH 1: One agent can fairly represent both parties in the same transaction.
Facts: The operative word here is “fairly.” In a true arm’s-length transaction, the parties deal from equal bargaining positions. In addition, neither party is under the other’s control or dominant influence, nor do they rely upon the other’s fairness or integrity. At least that’s how the legal profession views it, which is why it is unethical for both parties to have the same representative in any legal matter.
The real estate industry sees it differently (to the detriment of millions of tenants and buyers), and permits a single agent, or multiple agents from the same firm, to represent both the tenant/buyer and the landlord/seller in the same transaction. This is called a “dual agency” (think “double agent” for the true meaning). Such an arrangement favors the property owner, who receives the highest amount possible, and the real estate agent, who retains the entire commission.
Strategies: Dual agency is the real estate industry’s dirty little secret and should never be tolerated. In practice, many tenants and buyers divulge confidential information to an agent they are led to believe is representing their interests alone, only to discover the agent has an undisclosed conflict of interest when a lease or purchase contract is presented. for them to sign. At that point, it is generally too late to renegotiate the terms of the transaction. Look for a real estate broker who only represents clients like you – either a tenant/buyer or a landlord/seller. Not both.
MYTH 2: Real estate services are free.
Facts: Real estate transactions typically include commissions that are shared by the agents representing each party. Even though it is the property owner who writes the commission check, it’s the tenant or buyer that ultimately funds the commission – in the form of rent payments (for leases) or purchase proceeds (for sales).
Strategy: Make certain that you are receiving full value from your “side” of the commission by having an unbiased, experienced, tenant rep/buyer agent assist you with the research for suitable spaces and in the negotiation of acceptable terms and conditions. The landlord/seller will most certainly have someone working on their side; you should too!
MYTH 3: Large real estate companies, and/or those with many listings, are the best sources of information for tenants or buyers.
Facts: Full service real estate companies employ dozens (even hundreds) of agents, brokers, property managers and support personnel, and are best suited for property owners who require property management and brokerage services. Regardless of their size, companies that list properties have inherent and unavoidable conflicts of interest when representing tenants and buyers, and tend to suppress competitive negotiations by steering them to the properties they control.
Strategies: Because tenants and buyers seek objective and rigorous representation, they should avoid agents and brokers from companies that list properties.. A real estate broker who does not exclusively represent the buyer/tenant may not be presenting all of the options available to you. For example, you are looking for office space and your broker represents several landlords who have office space available. You are likely going to be pushed toward choosing from these properties first before they show you outside properties with which they have no association. While this makes perfect business sense for your broker, it doesn’t benefit you in the same way. You deserve a broker who will exclusively represent your interests as a buyer/tenant and do all the research necessary to find your ideal property – beyond their own internal client book.
MYTH 4: Leases are less complex than purchases.
Facts: Even the most basic commercial leases contain several dozen interrelated variables (tax and operating expense escalations, work letters, electrical charges, sublease and assignments rights, alterations, and options to expand or renew) that are open to negotiation, and that affect the overall cost of occupancy. As a result, leases are generally more complex transactions than purchases.
Strategy: Recognize that, in order to make a fully-informed leasing decision, many terms and conditions need to be identified, addressed, and negotiated. Once the economic terms have been negotiated to your satisfaction, retain a competent real estate attorney to review and comment on the legal sufficiency of the lease agreement.
MYTH 5: Real estate agents are experts in real estate.
Facts: Expertise in any field is the result of much training and accumulated knowledge. Yet it takes the equivalent of attending just two weeks of classroom instruction, and then passing a very basic examination, to obtain a real estate license. This limited education is hardly sufficient to qualify anyone to help business people make some of life’s most significant financial decisions.
Strategies: Tenants and buyers have a legal right to hold real estate agents and advisors who imply or claim to have expertise in an area of specialization accountable for their actions and recommendations. Select your advisor with the same care as you would an attorney, accountant, or a senior member of your decision-making team, and make certain they have significant and verifiable experience in solving your specific problems.
The Bottom Line: Be aware that commercial real estate is a highly-competitive and adversarial business. While negotiations need not be combative or confrontational, the process, nevertheless, pits parties with opposing interests against each other. In the final analysis, a real estate transaction is only as good as the thoroughness of the research, the quality of the information, and the experience of the negotiator…and that’s a fact.
What other real estate topics have you wondering whether they are fact or fiction? Share your questions by commenting below and Mike will personally answer you!