By John Culbertson, an EO Charlotte member and manager/partner of Cardinal Real Estate Partners, LLC.
Research shows that commercial real estate agents and brokers have a dismal reputation, and it’s getting worse. The last decade has seen an increase in those asking if there’s a breakdown in the client-broker relationship because of the loss of trust. The overriding assumption is that there’s an alignment of interests between the broker, as consultant, and you, the client.
Such misalignment of interests mostly arises from the way traditional brokers are compensated. As Steven D. Levitt and Stephen J. Dubner highlight in the popular 2005 book Freakonomics, commissions on sales and leases are dependent on price and the length of the lease. There’s no incentive for a broker to negotiate a better deal for you. In fact, the incentives all run in the opposite direction. A well-negotiated three-year lease with a termination option returns half the commission to a broker that an expensive five-year lease with no options does.