Q: How does commercial real estate leasing work? 

A: Owners of properties have the option to either lease properties themselves or hire real estate agents to lease the property on their behalf. The owner signs a listing agreement, which allows the agent to act as fiduciary on the owner's behalf in leasing the property. The agreements are performance-based, meaning the agent earns a commission upon the signing of a lease. The commission is typically paid one-half upon lease execution and one-half upon tenant occupancy.

Q: What is the role of a broker? 

A: Brokers commonly work in the role of listing agent or tenant representative, however some work in a dual capacity. If you hire a tenant representative who also has listings, you need to be concerned with what listings they have and what conflicts, if any, are created.

Q: Is a real estate license required? 

A: In general, owners of real estate can lease their own properties without a real estate license. However, real estate agents are required by law to have a salesperson's license issued by the state in which they are doing business. Agents must pass an exam in order to obtain a license. Then the agent's license is held with a designated Broker. All agents have a Broker. A Broker has completed additional licensing and educational requirements that allows agents to work under their license. Ultimately, the designated Broker is responsible for any acts committed by an agent whose license they are holding. In order to renew their license for the designated term, Brokers and real estate sales agents must comply with the continuing education requirements of the state by obtaining a specified number of educational credits.

Q: Does it cost money to use a broker? 

A: For the most part, broker services are considered free for the tenant, since the fee is paid by the landlord. However, be aware that landlords try to recoup cost through the overall lease, which may affect terms, concessions and other considerations in negotiations.

Q: How are Agents compensated in a transaction? 

A: Agents are compensated by earning a commission upon the signing of a lease. Commissions are paid by the owner of the building to the listing agent's Broker, typically in two installments, one-half upon lease execution and one-half upon tenant occupancy. The listing Broker then pays the agent responsible for the lease. Commission are calculated normally as a percentage of the lease value and usually ranges between four and six percent. Agents typically split commissions with their "house." Depending on the agent's independent contractor's agreement, commission splits vary from 50/50 to 90/10 with the agent responsible for paying their own taxes.

In some cases, a tenant may retain an agent to find a space on their behalf. In this case, the listing agent's agreement provides for the agent to split the earned commission, normally 50/50 with the tenant's representative. There are exceptions to this rule dependent upon the market environment. If the vacancy rates are high and tenants are at a premium, the owner may offer a full or bonus commission to the tenant's representative, while the listing agent receives a half commission.

Q: Is there a difference between a listing agent and a tenant representative?

A: The agent has the listing on the property and represents the leasing interest of the building owner. A tenant representative or "rep" represents the interest of the tenant in a lease transaction. Some agents only work on listings, while others serve exclusively as tenant representatives.

Q: What should a tenant consider first? 

A: If you are an existing business you need to first decide if moving is right for you by answering the following questions:

• Exactly why are we moving?
• How will the move benefit the company now and future?
• What is the state of the company? Is it healthy and stable? Are there other issues, such as a history of indecision, leadership, high turnover, or other morale-related issues?
• What are the drawbacks of moving?
• Can we afford to move?
• Can we afford not to move?
• Can we afford a decline in business during the transition period?
• Is now a good time to move? Are there any potential hindrances, i.e. holiday season or other period of increased production or sales?
• Are we thinking about moving to a far away location? Can we afford to lose personnel who may not relocate?

If you are a new business, ask yourself the following questions to first determine your needs:

• How much space do we need?
• How much rent can we afford to pay?
• Is location a factor? How does it rate?
• When does the new space have to be ready? Are there time restraints?
• Have I taken into account equipment and related items that are needed in my new space such as supplies, furniture, phones, computers, copy machine, fax, postage machines, and internet access?

Q: Are there common pitfalls that can be avoided? 

A: One common pitfalls experienced by tenants is touring properties without first deciding on what type of brokerage relationship they will employ. If you plan on hiring a tenant rep, it is best to do so in advance of the property tour. However, if you plan on finding space on your own, make sure that properties are shown to you by the owner or listing agent. In real estate transactions, agents can be legally entitled to a commission for bringing the tenant to a property. In this case, if a tenant never sees the agent again, but leases the property, the agent will be paid a commission. There may be a further commission dispute if later the tenant decides to hire a tenant rep who shows them the same property.

Q: Why should I consider a Tenant Rep? 

A: The tenant rep works on the tenant's behalf and brings their expertise of the leasing process. An agent does more than find space. A good agent will assist you with all aspects of the leasing transactions from assessing your space needs to finally executing the lease. Just like other professional consultants, it is their invaluable expertise that eases the process. It is their job to advice you as to what space is best suited for your business and at what terms based on the market and desired space. Consider that while leasing a bigger space for a longer term maybe beneficial for the owner; it may not be for the tenant. It is up to the tenant rep to advise accordingly. On the other hand, tenants should be reminded that commissions are only paid, if a lease is successfully executed. This means the faster a lease is signed, the sooner an agent gets paid, which may not be in the best interest of the tenant. It is for this consideration and others, that tenants should take great care in hiring a tenant rep. By understanding how your tenant rep will be compensated, a tenant can set their service level expectation.

Q: Are all properties listed? 

A: Not all properties are listed; some are directly leased by the property owner. Sometimes, the owner will employ an in-house leasing agent who is paid a salary. Their incentive for entering into a lease is a different than that of a listing agent who is paid a commission. Nevertheless, the owner will pay a full commission to any broker who brings a tenant to the property.

Q: Should I consider looking for space on my own? 

A: If you are looking for a small and/or short-term lease space, you may want to consider not retaining the services of a tenant rep broker. As stated above, commissions serve as a motivating factor and if your total lease consideration is small, the commission to be paid will be small as well. In that instance, it is hard to find a good broker that is willing to work for a small commission. The time necessary to find and lease 10,000 square feet for five years is the same for 500 square feet for two years. In addition, if there is a listing agent, he or she will usually work harder if the commission does not have to be split.

Q: Is finding a space without hiring a broker a good idea? 

A: In general the answer is no. A broker brings the same professional expertise that a lawyer would bring to the court room or CPA would bring to an audit. Since it is their profession, they negotiate leases on a continual basis, while you as a tenant would enter into a lease every once in a while.

Q: How do I find or hire a broker? 

A: In order to ensure the broker works for you and on your behalf is to hire them as your exclusive tenant representative. Brokers commonly have prewritten "Tenant Rep" letters for you to sign. Once they know that you are serious about obtaining space and committed to them, they will work hard to acquire the space that best fits your needs.
 

Q: What is a Tenant Representation letter and should I sign one? 

A: A tenant representation letter is a document that a tenant rep broker will ask you to sign. It serves as a demonstration of your commitment and readiness to acquire space. While it does not guarantee that the tenant rep broker will be compensated, they know they are much more likely to get paid a commission on your lease. Actually, many brokers do not provide services without an exclusive agreement. We recommend that you sign an exclusive agreement rather that working with several different agents on a non-exclusive basis. This will get you the best treatment.

Q: What should I be aware of when selecting a broker? 

A: There are no guarantees when selecting a broker, but there are several items of concern:

• Check references before making a final choice.
• Inquire about what properties the broker has listed that could become potential conflicts of interest.
• Is the broker prepared to handle such conflict, and how?
• If you haven't hired a broker, only let a broker show you spaces that they have listed
• Don't hire a broker if you are unsure about moving

Q: What should I expect from the broker? 

A: Brokers are service professionals and you should expect them to represent and protect your interests; serve as a consultant and give you good advice; help you through the leasing process; help you determine how much space you need; determine priority of selection criteria; finding the space; and negotiating the best agreement that fits your needs. Don't be afraid to ask your brokers questions. Also, make sure your broker is aware of the most important items to you in the lease negotiation.

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