What restaurant owners should know about real estate brokers is a two part article. This is part one and provides an overview of real estate brokers and the second part discusses “How to Hire a Restaurant Broker”.
Real Estate Brokers
The term “real estate broker” or “agent” is very broad. It’s important to understand the different roles of real estate brokers and how they are involved with different aspects of commercial real estate. A broker is required to meet more stringent educational requirements; an agent works under a Broker’s license.
Commercial Real Estate Broker
Most commercial real estate agents or brokers specialize in a specific type of property or geographical area. For example office agents/brokers specialize in office buildings and retail agents/brokers typically lease or sell retail properties and shopping centers.
WARNING!! It’s not a good idea to work with a broker that sells homes or works on a property type such as office buildings or apartments if you are opening a restaurant. This can be just as dangerous as hiring a dentist for heart surgery.
Who Does Commercial Real Estate Broker Work For?
Most brokers work for the property owner or landlord. Some brokers called Tenant Representatives or “Tenant Reps” work primarily for tenants.
Who Pays the Commission?
When a property owner hires a broker they agree to pay a commission to the broker. Typically, the commission is a percentage of the lease. For example, if the total rent paid over 3 years is $30,000 a 6% commission will equal $1,800.00.
The commission does not change the amount of rent the landlord is prepared to accept. It has been agreed to and factored into the rent prior to marketing the property.
The Landlords broker, “Listing Agent”, agrees to share the commission with “outside agents” if the agent/broker represents a tenant willing to sign a lease. Most transactions include both a Landlord and Tenant broker.
If a tenant wishes to use their own broker to help them find and negotiate a lease, the tenant typically gets the services for free from the tenant’s broker.
Should You Use a Real Estate Broker
In most cases using a broker will save you time, provide access to properties that are not public knowledge and help negotiate a better lease than you would on your own.
The biggest mistake first time restaurateurs make is to think they will get a better deal “cutting out the middle man” or working directly with the landlords broker. They mistakenly believe the landlord’s broker will reduce their commission so that the restaurateur can get a better deal.
This rarely happens. If you would like to prove this to yourself, call on any property and ask the broker if they will share their commission with you.
A few reasons to consider hiring (the right) real estate broker:
• They have access to information that you don’t
• This is their profession, and they know more about governmental regulations, rents and lease agreements
• No cost to you for their service
• Save time
Are you thinking about opening a new restaurant?
Want to avoid common mistakes and open your restaurant fast at the best price?
Do you have questions about opening a new restaurant? I’m here to help and happy to answer your questions.
Restaurant Real Estate Advisors