FREQUENTLY ASKED QUESTIONS
How does the commercial real estate leasing work?
Owners of commercial real estate hire real estate agents to lease their property on their behalf. The agent obtains a listing agreement, which calls for that agent to act on the owner's behalf as a fiduciary in leasing the property. The agreements are performance based, meaning the agent earns a commission upon the signing of a lease. The commission is typically paid one-half upon lease execution and one-half upon tenant occupancy.
Real estate agents are required by law to have a real estate license. All agents must pass an exam in order to become a licensed Broker. The Broker has additional licensing and educational requirements that they must fulfill in order to have agents work for them. The Broker is ultimately responsible for any acts committed by an agent whose license is represented by the Broker’s office. Texas requires continuing education, meaning that each licensed agent and broker must obtain a certain number of educational credits in order to renew their license each year.
How do commercial real estate professionals ("brokers") get paid?
Commercial Real estate agents are typically paid a commission upon the signing of a lease. The commission is paid by the owner of the building and is typically paid one-half upon lease execution and one-half upon tenant occupancy.
In some cases, a tenant will retain an agent to find a space on the tenant's behalf. Most listing agreements require that the listing agent split the commission earned with the tenant's representative.
What's the difference between a leasing agent and a tenant rep?
The leasing agent has the listing on the property and represents the interests of the building owner. A tenant representative or "rep" represents the interest of the tenant in a lease transaction. Some agents work exclusively on listings, others will take on tenant representation engagements only, while others will work on both.
Whom does a broker work for?
Brokers generally work in two capacities, as listing agents or as tenant reps. Many brokers do both, meaning that they have property listings and they also work as a tenant rep. If you are working directly with the property listing agent, that broker is working for the property owner.
How much does it cost to use a broker?
It does not cost a fee to use a licensed broker. Broker’s fees are paid by the landlord or the owner of the building.
How do I hire a broker?
The best way to get a broker to work for you is to hire them as your exclusive tenant representative. Most brokers have an exclusive leasing agency agreement for you to sign. An exclusive leasing agent agreement is something a tenant rep broker will ask you to sign. It has several purposes. First and foremost, it demonstrates your commitment. In fact, a good tenant rep broker will not do much more than a simple market search without a signed letter. If you want to get the most out of the brokerage community, we recommend that you sign an exclusive agreement rather that working with several different agents on a non-exclusive basis.
What is the best way to select a broker?
There is no one best way to select a broker, but there are several things to avoid:
What should I expect from my broker?
- Don't choose a broker without first checking client references
- Understand what properties, if any, a broker has listed that could create a potential conflict of interest
- If a conflict does come up, how is your broker prepared to handle it?
- Don't hire a broker if you are unsure about moving.
A broker is like any other service professional. You should expect them to represent your best interests and to give you advice and to guide you through the first phase of the leasing process. They can help you determine how much space you need, what are your most important selection criteria, and then finding and negotiating for the space that best meets your needs. Don't be afraid to ask your broker questions. Make sure your broker understands what is important to you in the lease negotiation as to find the space that best suits your needs.
How long should my lease term be?
This can be one of the most difficult decisions you will need to make. There are a number of factors that come into play here (yes answers are more indicative of a longer lease term, while no answers indicate that short term lease flexibility is more important):
- Is my business stable such that I don't expect my future space needs to change?
- Does the space that I am leasing require a substantial investment in tenant improvements?
- Do I expect rents to increase significantly in the future?
- Is the location of my new space very important to the success of my business?
- Is relocating my business hard to do?
- Is my rent lower if I sign for a longer term?