Brokers are paid in the form of a commission. The landlord writes the check. A small part of the tenant's rent reimburses the landlord over the term of the lease.
(This is how landlords recoup all their capital costs, such as tenant buildouts and base building improvements.) So the broker is paid by the landlord, but the cost is ultimately borne by the tenant.
When you lease office space, you can't avoid this cost.
Here's why . . .
You've probably noticed that every office building has a leasing agent. These agents are brokers hired by the landlords to fill vacant space. When a lease is signed, the agent is paid a commission for representing the landlord. There is a brokerage commission in every deal.
If the tenant is represented by its own broker, though, the commission is paid to the tenant's broker. (The landlord's agent receives a small override.) This odd practice actually works to your benefit, since it allows you, the tenant, to determine whether the broker who is paid the commission represents the landlord or represents you. You incur no out-of-pocket cost for the services you receive from your tenant broker.
Over the long term, there is an apparent minimal cost since the landlord wants to recoup the agent's override. In a 10-year lease, this amounts to 1-2% of the rent. If your broker's services don't save you
far more than this, you've appointed the wrong broker.
This is why all tenants who understand the real estate business are represented by their own brokers. It costs them nothing for the expertise and negotiating savvy provided by a professional who is accountable solely to them.
Sophisticated tenants guarantee accountability by giving one broker the exclusive right to represent them. Briefly, there are three basic reasons to do this:
1. The exclusive broker can be
totally objective in advising the tenant. On the other hand, since non-exclusive
brokers only get paid if the deal is made at one building out of many, their
advice cannot be objective.
2. It signals the landlords that the tenant is professionally represented, and that they will have to compete with others for the tenant's business.
Landlords' attitudes usually change as soon as they are contacted by the
3. It protects the tenant from legal entanglements that inevitably arise when multiple brokers are involved, and from the annoyance of constant solicitations.
Non-exclusive brokers, both legally and practically, are sub-agents of the landlords. The negotiating leverage, expertise and objectivity that you need in your relocation program can only be provided by an exclusive broker, who is accountable solely to you.