Chris Stephens: Broker plays a central role in real estate negotiations

real EstateMay 25, 2013 

A broker, according to Wikipedia, is an individual or party that arranges transactions between buyer and seller, then gets a commission when the deal is executed. The word is derived from the Old French broceur, "small trader," possibly from brocheor, meaning "wine retailer," which comes from the verb brochier, "to broach."

But the job of any broker, particularly commercial real estate brokers, is far more complicated than that simple definition.

Brokers know the market, and know how to research the market, which makes them a key source of market information. They also serve as central points for the exchange of information, which makes the overall market more efficient. Buyers want to know what properties that meet their criteria are available. Rather than a buyer starting a search on his or her own, a broker can provide that information quickly.

Likewise, brokers know what buyers are in the market. They have a good handle on what's selling, and for how much, so sellers rely on them to correctly price their properties. Brokers also screen buyers so sellers can deal with qualified buyers only. This is far more efficient than a seller starting from scratch to find a qualified buyer.

Finding a property for a buyer, or a buyer for a property, is sometimes the simplest part of a broker's work. Negotiating a purchase and sale agreement, then keeping the transaction together from due diligence to closing, can be the most difficult part of completing a deal. Sometime brokers sell a property multiple times before it finally gets to the finish line and a closing.

Brokers are expert negotiators. Many people and companies are only occasionally involved in commercial real estate transactions, so they rely on brokers both for information and advice in negotiations.

Often, negotiating through a broker is more effective than buyer and seller dealing directly. The broker can test solutions with the other side without compromising his client's position, can respond to the other side by appealing to a higher authority to give his client more maneuvering room, and help keep the emotions and heat of the moment out of negotiations.

Alaska real estate law was changed several years ago and most people are not familiar with the changes. What is commonly called a real estate agent is, by law, not an "agent," but a "licensee."

"Agent" has legal implications that do not fit the work of a real estate brokerage.

Every real estate brokerage company has one broker. If there are multiple offices, then there is a broker for each office. The broker is responsible for the licensees at his or her office. When a property is listed for sale, the listing is with the broker, not the licensee. But the broker designates a specific licensee to handle the listing as the "listing licensee." This is called "designated brokerage."

Licensees must disclose whom they represent, either the buyer or the seller. If the licensee has an established relationship with both parties, he may be a "neutral licensee" who doesn't represent either buyer or seller. Instead, he functions as a facilitator. This is not uncommon in our relatively small commercial market, where brokers know many of the active participants.

A measure of a real estate company's and individual licensees' performance is the dollar amount of all transactions they complete in a year. This is called "production." When calculating production, the industry recognizes that a transaction has two sides: a seller's side and a buyer's side. The broker/licensee who works with each side of the transaction gets production credit for it.

For example, if the sale price was $1 million, the selling broker would record a $1 million transaction and so would the buyer's broker. Each broker and his licensee receive production credit for representing their half of the transaction. So $2 million is recorded for this $1 million transaction. When there is only one licensee who works with both parties, he gets credit for both sides of the transaction; in the same example, his production would be $2 million for a $1 million transaction.

When I first entered the business, the broker I worked for said that brokerage can appear to be an awkward way to do business, yet the system has been around for thousands of years because it works. He was right.


Chris Stephens, CCIM, is a local associate broker specializing in commercial and investment real estate. His column appears every month in the Daily News.

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