3 Things To Know Before Hiring A Commercial Real Estate Agent
An interesting fact: The reason diet sodas have zero calories is because the body doesn't have the enzymes needed to break down artificial sweeteners. And because it can’t convert non-nutritive sugars into usable energy, they are eliminated from the body… which brings me to today’s topic: When searching for commercial property, most entrepreneurs look to commercial real estate agents for assistance. It is of course… good practice to work with an agent. But there are some things you need to watch out for. I’ll explain…
You are now tuned in to Leonard Innovation, where we work together to solve the problems of everyday entrepreneurs. My name is Justin Leonard. Here is the scenario:
Suppose you are the owner of a growing enterprise, and you’ve decided that your business is in need of expansion. You then determine that the logical next step is to establish a physical presence: maybe a storefront, maybe a warehouse, maybe office space. Now, in order to do this, a prudent business owner is going to hire a commercial real estate agent to represent their interests. But… there are three things you need to be aware of before signing that lease.
The first thing you need to know is… your commercial real estate agent is a middleman. Even if you handpicked an agent who is supposed to represent your interests, they are not always looking to get you the best deal. Often, they are trying to get you to settle. This means, if you see something you don’t like in the lease agreement, they may try to say that it is standard, which might be true, but it doesn’t mean that it isn’t subject to negotiation.
The second thing you need to know is… commercial real estate agents usually operate within territories, which means they will have a high level of familiarity with the general area. This also means that they will have a high familiarity with the landlords that own the properties you are trying to lease. If the agent has had years of experience in a given region, they will naturally develop relationships, maybe even friendships, with the property owners. This can be both good and bad. It might be a good thing because your agent has already established a working relationship with the landlord, which could work to your advantage. However, it can be also bad because your agent might be working more on behalf of the landlord instead of you. So, unfortunately, that can be a conflict of interest.
The third thing you need to know is… your agent might take it upon themselves to include non-standard items in the lease agreement. For example, what usually happens when your lease ends? Well normally, if you decide that you like your current location, you can renew for one year at a time. So, one-year renewals are the norm. However, your agent… NOT the landlord, might have written in that renewals are for a term of two years. In this case, your agent makes more money, and also, the landlord gets more money because you have now committed to a longer lease term. This is all because you thought it was a standard part of the lease. But it wasn’t. Your trusty, commercial real estate agent wrote it in for their own benefit.
So, there it is: I have given you three reasons why you have to proceed with caution when dealing with a commercial real estate agent. And again, those three reasons are… Number one: Your agent is more like a middleman. Number two: Your agent is operating within a familiar territory, which can naturally create a loose, but sometimes cozy, association with the landlord. Number three: Your agent might include non-standard items in the lease agreement… for their own benefit.
Now, let’s look at an entrepreneur question from the public that I recently answered:
And the question is… Do venture capitalists ever get paid if a startup fails?
The short answer is YES, but… Venture capital is drastically different than traditional entrepreneurship. It is more of a team sport where the one percent, meaning the rich, pool their money together in hopes of cultivating the next great business. VCs are not investing in a single company per se. They are investing into a fund. The venture fund or portfolio can have multiple startups under management. The startups are usually concentrated in a related field like tech, biomedical, or food and beverage. If a venture fund has 10 startups under management, most will either fail or just do okay. But only one has to be Amazon, meaning exceeding expectations and generating a substantial return for the VCs. So, any failed startups will have their assets liquidated, meaning sold off, or they will get acquired, meaning bought out, by another company. In this scenario, the VCs don’t always lose money, although it is possible. Since there are other startups within the portfolio, the ones generating a profit would theoretically offset any failed startup.
Got a question? Let me know online at leonardinnovation.com and I’ll respond the same day. Once again, the website is leonardinnovation.com
Alright, we have made it to the end. I hope you enjoyed this presentation. As a reminder, you can now find leonard innovation streaming on podcast platforms like apple, spotify, and google. And if you found this information helpful, please share it with a friend. Thanks again for tuning in.
