Arguments for dual agencies don’t hold up when comparing it to Tucson tenant representation.
It’s been just over a year since the California Supreme Court ruled that commercial real estate dual agents have a fiduciary duty to both sides in a transaction.
Earlier this year a California lawmaker introduced a bill that would have banned dual agency. A committee hearing on it was cancelled last spring.
In the public discussion that followed the bill’s introduction, there were a lot of misconceptions about dual agency and tenant representation. I’m going to set the record straight.
Dual Agency Defined
In a dual-agency situation, one person represents both you as a business owner and the landlord or seller in a single commercial real estate transaction. It’s also a dual-agency situation if one agent represents you and another agent from the same company works for the other side in a deal.
In order to hire an agent in a dual-agency transaction, you will be asked to sign an agreement to the arrangement.
The case before the California Supreme Court involved two agents who worked in different offices of the same brokerage company. The court ruled that the agent representing the seller of a house had a fiduciary duty not only to the seller, but also to the buyer.
That means the agent had to take a high standard of care to protect the interests of both the buyer and the seller.
That sets up a conflict of interest. If an agent has to reveal confidential information to both parties, the agent can’t work in the best interests of either party.
To avoid this conflict of interest, you can hire an exclusive broker. These are called tenant/buyer representatives. They represent only you, the business owner, in a lease or purchase transaction.
1. Forcing tenants and buyers to find an exclusive broker will add commission costs.
The seller or landlord is willing to paying a commission to his listing agent. If another agent is representing the buyer/tenant, the listing agent will split his fee with the tenant’s agent.
The cost is already part of the rent or asking price. Those commissions are paid whether the business owner has a tenant rep or not.
In the case of one agent representing both parties, that agent gets both commissions.
2. Tenant reps cost more because they charge for additional services.
It’s true that Tucson tenant representatives like Commercial Real Estate Group of Tucson have additional service options that you can secure for additional fees. However, the commission from the landlord pays for the entire process that leads to a location and a contract that works for your business.
3. Business owners lose freedom of choice if they have to use tenant reps.
There are plenty of agents and brokers, even in large companies, who can represent a business owner without also representing the landlord or seller.
The greater issue is what you’re gaining when you hire a Tucson tenant representative. You get a broker who is not working in the best interest of the landlord or seller, but only for you.
The concept of getting exclusive representation is similar to that of hiring an attorney. You wouldn’t use the same attorney as the one hired by the other party. You want someone going to bat for you.
Even attorneys recognize these conflicts of interest and work under ethics rules that generally prohibit the practice.
4. Tenant rep brokers don’t want to work with small business owners in deals that bring in small commissions. This limits availability and choice for business owners.
Brokers like Commercial Real Estate Group of Tucson work successfully with owners of any size of business at all levels of a transaction:
- property search
- site inspection
- proposals and RFPs
- contract proposal review
- contract negotiation
- tenant improvements.
5. Tenant and landlord relations become strained at lease renewal time because a tenant rep adds more conflict to the process.
As with all contract negotiations, there are interests to be protected when facing a lease renewal. Merely signing a landlord’s contract could cost you a lot of money.
You’ll want help to review provisions that may need updating to reflect current market conditions.
Renewal also is a time to revisit whether a location still works for you and whether the landlord has kept promises made in the current contract.
My experience is that landlords respect tenants who know their rights and pursue their interests in a business-like way. That respect will survive any good-faith effort to strike a fair deal for both sides.
Dual-agency transactions are practiced in nearly all states right now. It’s uncertain whether the California ruling will create changes any time soon.
When you’re calling the agent listed on a sign at a piece of property or talking directly with an owner, you need to ask yourself if that contact will represent you.
You have the right to representation, especially if you enter into a lease only a few times in your business’s lifetime. Landlords already have an advantage because they enter into leases on a regular basis. Having your own Tucson tenant rep levels the playing field.
As a business owner, you have the right—and the duty—to find the best commercial real estate deal for your business. As a Tucson tenant rep, I strongly recommend that you do not use a dual-agency system that puts that right in jeopardy.