by Michael Rareshide, on Apr 11, 2016 11:34:25 AM
Dual agency real estate brokerage firms have an inherent conflict of interest when it comes to representing tenants because their allegiances lie with landlords.
The nation’s largest real estate brokerage firms — CBRE, JLL and Cushman & Wakefield — have the most to gain by helping landlords, not tenants.
These dual agency real estate brokerages receive a majority of their profits from the landlord side of their business. When they represent building owners, their upside is huge since they are constantly working to lease up their buildings, provide property management and represent the owners in the eventual sale of the buildings. It’s a daily, year-round relationship that is highly lucrative and critical to the stability of their cash flow.
Pressure from landlords
If a landlord learns of a tenant in the market, you can be sure the landlord will put pressure on its leasing agent to get its building shown.
Now, what if that same firm is also representing tenants? Pressure by landlords to get preferential treatment for their buildings could push to the background a building that is better suited for a tenant but that isn’t represented by the real estate brokerage.
The conflict doesn’t stop there. A broker representing a landlord may also put pressure on the tenant representation broker (from the same firm in this scenario) to not negotiate as hard to help maintain a positive relationship with the owner in their effort to get more listings from the owner.
In this scenario, where would your allegiances lie? With the client you do business with continually all year round (the landlord?) or with the client you only see once every few years (the tenant)?
The porous Chinese Wall
To their credit, these dual agency real estate brokerages claim to have a Chinese Wall to prevent landlord brokers and tenant brokers from sharing information with one another that would compromise decisions made by one side or the other.
But the realty, which I have discovered via more than 25 years of experience as a tenant representation broker, is that the Chinese Wall is very porous. Often these brokers work on the same floor. They talk. They work out deals with each other to fill the buildings they manage.
I’ve even had brokers joke with me, ‘Well I don’t think we can build a Chinese Wall big enough on this deal.’ That is precisely why tenants need a conflict-free real estate broker, one who only represents tenants.
Sure, these dual agency firms will disclose when they are representing building owners, but that disclosure doesn’t absolve the conflict of interest. And because they are so large, they may also be representing other tenants seeking very similar requirements, yet another potential conflict.
These firms are big and they have great name recognition, but being large and having a well-known name won’t guarantee the best deal for a tenant.
Conflict of interest conclusions
If you are a tenant, you will want to pick a real estate broker who is in your court, who will find the best buildings and negotiate the best possible deal.
Do you want your brokerage firm to be working both sides of a deal? When a brokerage firm works both sides of the deal, the landlord wins.
Tenants should hire someone in their court — someone willing to throw a high elbow right to the landlord’s face.
