Relationship Building is usually one of the major underpinnings of any successful business and it could be said that it truly is the primary pillar upon which the Commercial Real Estate Industry is built! Without solid customer relationships, especially those that have matured to a high level of trust, real estate brokers and agents could be destined for a low level of success. We all recognize that these types of relationships take time and constant nurturing in understanding the clients needs and, in most cases, years to develop and therefore, any attempt to shortcut the process is precarious, although some agents may try to do so anyway.
It’s been my experience that there’s no cutting corners in relationship building, so agents are probably in for the long haul. The goal is to achieve that certain level of trust where clients are comfortable, confident and appreciative of your work product on their behalf and they begin a) using you as their “go to person” for all of their commercial real estate dealings and b) recommend and refer you to their friends, business partners and colleagues. But getting to that point is the hard part and, in most cases, you’re going to have to earn it. Building relationships that last is an ongoing proposition but one from which the rewards are many for both the client and the agent!
One of the real testaments to relationship building is the “handoff” or transition to future generations of ownership. That’s, of course, where you have built such a great relationship with your client that, when the time comes for transition to a new generation of owners, your services are retained with the company or hierarchy and you seamlessly continue the process of relationship building as if nothing has happened. The new regime has recognized the value of the way it was done before as being the path to the future.
From time to time, we see announcements or reports that local real estate firms here in the Bradenton and Sarasota area, are “offering” Buyer and Tenant Representation Services. Armed with the latest software and digital capabilities, the most recent ones have declared that they are quickly signing up new business along the West Coast. There was mention of using available virtual capabilities to help keep their clients up to date on market trends and real estate deals.
So why the sudden move to market such services?…Well, according to current MFCRE statistics for our area, only about 30% of all sale or lease deals involve buyers or tenants who employ a Representation Agent. That means that 70% of the deals in our area are done without Buyers or Tenants being represented. 70%! That’s absolutely staggering! But the incentives don’t end there. The research also shows that as many as 30% of those buyers and tenants, paid full price for those products, could in and of itself, be a strong incentive. Perhaps that is why some firms in this area are fast tracking representation services out into the marketplace.
However, brokerage firms, including some of the big ones, have attempted to capitalize on these services before in years past, but mostly with a low rate of success. So what’s the problem? Why can’t they just hire or segment four or five agents in a group and designate them to be “specialists” in buyer or tenant representation. Well, to begin with, the answer lies in the nature of what they are doing.
First of all, in Florida, representation agents almost always act as what’s known as a Single Agent. They represent their one client only, either a buyer or a tenant and they owe that client confidentiality and loyalty! That’s a new hat to wear for an agent that is new to this niche. It’s also a big hill to climb if they’re used to having a pile of listings from which to earn a living and all of sudden they are living off the land, so to speak, learning the trade of primarily representing just Buyers and Tenants.
Second, agents who have spent their entire careers listing properties and representing owners and landlords usually have a degree of difficulty making the change to being a representation agent. Owner Agents operate and “think” in a totally different mindset than buyer or tenant agents, so in many cases, it’s difficult for the mindset change to occur quickly enough to benefit a client who is a buyer or a tenant. Case in point, current Florida law allows agents to “transition” from representing one party to another in the same encounter. Say you are looking at a property that a listing agent has and you ask that agent about another property altogether that has a different listing agent. “Hey, can you show me that property.” Well, under current law, that agent could go actually from representing the property owner in the first instance to representing you under the second scenario, so long as at some point, they disclose to you what they’re doing. Now, say you look at this second property and you start having conversations with the agent comparing the two. This presents a real problem for the agent who must respect each client’s rights under the law, the rights of the owner of the first property and your rights in respect to the second property. A “seasoned, straight up and down “representation” agent would normally not have this problem, since they primarily represent one client throughout the entire process. A typical listing agent would have a problem trying to keep everything on an even keel in a situation such as this. This is one of the primary reasons representation agents that are new to the niche often get discouraged and give up.
The flip side of this is the assumption that most of the new representation agents will continue to “live off listings” either temporarily or permanently while their representation product gets off the ground and starts showing a return on investment.
Third, there is sometimes an issue with the property owners and landlords themselves. They often don’t like the fact that agents might be representing owners one day and buyers and tenants the next. That usually works on the residential side but not on a consistent basis in commercial. The property owners sometimes transfer their business to someone else to avoid this dichotomy.
So what is the missing ingredient here? The short answer is Relationship Building. This trend of rolling out representation agents appears about every six years or so, often with the same results…agents usually lack the tenacity or funding to do what’s necessary to build long term relationships with clients because those take time and they’re not commodities that you can just buy and start using. I find it interesting when an agent makes the announcement that they have “this relationship with so and so.” My contention is that you have to earn your stripes. If you think you can just go to a weekend course and come back to work on Monday and start in the middle of the relationship continuum, you may find that’s not possible or, at the very least, short sighted. Companies who offer these services must not make the mistake of thinking that they can substitute technology for relationship building! That may not work very well in solidifying trust.
To be fair, I will acquiesce that buyers and tenants are not obligated in any way, to hire any agent at all! They can simply handle the deal on their own if they choose to do so. On the other hand, if they chose representation, they can hire an agent a) who represents their best interest, b) does most of the heavy lifting managing the deal and c) gets paid for co-brokering the deal by the (property owner) under the terms of the listing agreement. However, the facts still stand…70% chose not to be represented, according to the current data.
From the standpoint of the consumer, they are tacitly protected under FS 475 in that all parties to a real estate transaction are entitled to representation. They can hire an agent to represent their best interest and that agent usually gets paid from the listing agreement. The unfortunate part, however, is consumers don’t always know where to go for the best product. Since consumers may not already have a relationship with an agent, the next best things are referrals and references or find reviews on the internet. If you rely on any of these, review at least three agents in your area and then call and interview them. Ask for references and follow up. You do have a choice in the matter! Look at it this way, you’re about to make a huge investment in your business and yourself. Remember reading all those reviews about that $199 tv set you purchased from xyz, inc. a few months ago? Well, doesn’t this endeavor at least deserve the same scrutiny? We go over the top in reviewing small purchases and then, when we’re about to make a substantial real estate investment, we throw caution to the wind and select the first representation agent that comes along.
As part of my presentation to prospective clients, I tell them that I guarantee their satisfaction with my services and if they’re not satisfied at any time based on a verified performance issue, they may cancel our arrangement…no questions asked! One of the perks that I get from them in return, is to allow me to use them as a reference. So, this is truly where the “rubber meets the road.” If I don’t perform, they’re not going to recommend me. Hopefully, my performance has inspired them to step forward in this regard without me having to ask. This is the crux of relationship building. You reach the point in your relationship where they actually say good things about you with no expectation of anything in return except what you have done for them in the past.
The End Game.
The End Game is always Buyer or Tenant’s Beware! Remember, that in the State of Florida, all parties to a real estate transaction are entitled to representation and although the law doesn’t address how the representation agent is to be compensated, that’s usually taken care of by the property owner pursuant to the listing agreement.
Finally, most surveys show that the vast majority of buyers and tenants who engaged an agent to represent their best interest in a real estate transaction, benefitted far better than those that did not! Remember, the data shows that 30% of the unrepresented consumers paid full price or above in the survey, so there’s a strong indication that it pays off for prospective Buyers and Tenants to do their homework! One of the main reasons that consumers hire Representation Agents is to get an unvarnished and hopefully honest assessment of market conditions. Consumers often don’t mind paying the going rate if it’s fair, but if they’re overpaying for commercial real estate, they are probably going to want to know what market conditions support such a decision. They are going to rely heavily upon the knowledge of the representation agent in making their final decision, so the agent must have a complete understanding of the local market, indeed!
J. Daniel Douglass is a Licensed Real Estate Broker in Bradenton, Florida who has been representing Buyers and Tenants in commercial real estate transactions since 1986.