Why Dual Agency Representation May Cost You

by | Jul 29, 2014 | Blog, Tax Planning

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Bill Beck, Guest Contributor and Founder of TRA

Karen Warner_web

Karen Warner, Guest Contributor and TRA Principal

What is the easiest mistake to make in the leasing or buying of commercial space for your company? Actually there are two common issues that often arise, but both stem from dual agency representation. If you have limited experience in the process, it’s easy to stumble into a costly mistake.  Both can happen when choosing an agent to represent your interests in locating and negotiating your new property.

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Mistake #1 – Dual Agency Representation

Many people don’t understand the real “ins and outs” of the commercial real estate industry simply from a lack of experience.  A business owner may see a sign on a property that looks interesting, and decide to call the agent.  From that call, they may find that the space available is of a size and configuration they can use, and this is where the first mistake happens: A discussion about costs and terms without bringing in their own representation into the conversation.  What too many tenants don’t realize is that they are dealing with an agent who has signed a formal contract to represent the owner’s best interest – to lease the space at a pre-set rate, and on terms that favor the landlord (not you as the tenant).       

Most people would rather not pay the highest price for anything.  However, a quick survey of “who’s moving” has shown that roughly 50 percent of tenants elect to work directly with the landlord’s agent, most likely because they don’t know an alternative is available.         

The personality traits of most commercial real estate agents include being warm, friendly, outgoing and helpful.  However, the agent and his or her company have a contractual and fiduciary obligation to the landlord to do whatever is best for the Dual AgencyLandlord.  Under agency law, they can’t counsel you on areas you should push back on or suggest deal terms you may want to include as more favorable for you. The landlord’s agent will never explain this inherent conflict of interest to the tenant.    

There is a recognized industry term for this situation – it’s called “dual agency.”  Dual agency occurs when both parties are represented by one agent, and is actually quite common.

Equal representation however, may not be “equal”.  According to an article published in “Realtor,” the magazine of the National Association of Realtors, dual agency “means full representation is not available to either buyer or seller.”  The article goes on to say, “Protect yourself: The only way to avoid conflicts arising from dual agency is to not practice this form of agency.”  So remember the broker whose sign you called on? He or she is required to be loyal to the landlord – and has no obligation to put your interests ahead of the landlord’s.

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Mistake #2 – You’ve Been Cross-Sold

Sometimes the space you called about won’t work; maybe it’s too large, too small or too expensive.  Being a friendly, helpful person, the landlord’s agent asks if they can help you find another alternative.  In the industry, it’s called “converting the sign call.”  The agent is attempting to change sides – to get paid a leasing commission by claiming you are his or her client now.

If this should happen, here are two important questions you should ask the agent:

  1.  Your company has a history of listing buildings for lease and representing landlords, not tenants.  How do I know you will negotiate the most advantageous transaction with my interests in mind?
  2.  Your company will have many more opportunities to list buildings from the building owners with whom you will be negotiating on our behalf on a recurring basis.  Wouldn’t your loyalties be to those companies that could give you more long term, repeat business?

Don’t feel taken advantage of if this has already happened to you.  These are easy mistakes to make.  The next time you go shopping for property to lease or buy, enlist the help of a tenant advocate that ensures, and represents, your best interest in the transaction.

About Tenant Realty Advisors

Tenant Realty Advisors was founded in 2000 to fill this void in the Treasure Valley.  

How do Tenant Advisors get compensated?  The landlord’s broker is paid a leasing commission should he or she successfully conclude a lease with the tenant.  Tenant Realty Advisors shares that fee and doesn’t create an additional cost.  Rather, their goal is to reduce tenant’s occupancy costs.  They are an objective counselor, point out pros and cons, and create a competitive environment between landlords to achieve the best economic terms for tenants.

For additional questions, Karen Warner can be contacted at Karen@tenantrealtyadvisors.com, and Bill Beck can be reached at beck@tenantrealtyadvisors.com

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