Understanding the Broker Representative Agreements

 

Remember when you last sold your residence? You have probably contemplated whether or not to use a Realtor® (a residential real estate agent who is a member of the National Association of Realtors), or to go at it yourself. After all, you could probably make an additional 3% to 6% if you didn't have to pay those commissions. After realizing you don’t have the time to continually show your home to prospective buyers, didn't want to spend the money to properly market the property, and realized the real estate contracts were so complex that you would probably end up paying your attorney a ton to read the documents and check their accuracy, the Realtor® seemed like a pretty good idea after all, didn’t it?

 

What is an exclusive listing agreement? Few, if any Realtors® would list and market your property without having the exclusive right to be your broker. That means that whether you find a buyer, another broker finds the buyer, or he/she finds a buyer, the Realtor® (often referred to as your "agent" or "broker") handles the transaction and is paid a commission. If another agent is involved, that commission is usually split in some manner. This procedure is commonly accepted and rarely questioned. In commercial real estate, the same scenario occurs. A building owner hires a professional broker (not a Realtor®) to list the property for sale or lease. Any offer that comes in must go through the broker—sort of like a commissioned salesman who is given a protected territory. No matter how the leads or sales are generated, the salesman gets paid if the deal closes.

 

How does an exclusive representative agreement work? An exclusive representative agreement works under the same principle as the Exclusive Listing Agreement. You can hear about a property from a friend, see an ad in the paper, drive by and see a sign posted in front of a building, or have your broker present a list of potential properties. No matter how the property has been exposed to you, your broker handles the transaction and is paid the "procuring cause" portion of the commission. Hopefully you’ve chosen the best broker for your company's needs and he/she is working in your interests rather than in his or the landlord's.

 

What is an exclusive service agreement? Most recently (and always with IN/House) with the advent of tenant brokerage, a third agreement has developed which we refer to as an exclusive service agreement. While the elements of the exclusive representative agreement form the base for this type agreement, the services provided to the tenant go beyond that of the tour guide. Additional levels of service may range from assistance in space planning, construction, move consulting, lease review to post occupancy lease monitoring, and interfacing with the landlords on your behalf.

 

Before signing any agreement, ask what the services the broker will provide to earn his commission. Evaluate your needs and consider both your time value and expertise in real estate practices, law, and management. Then choose wisely.