This is the time of year when we reflect on all the things in our life for which we are grateful. Over my nearly 12 years as a commercial real estate broker, I’ve had the opportunity to work with many different clients in various industries and across every property type and asset class; from first-timers to established companies to seasoned investors. For the most part, I’ve been fortunate to work with good clients and even better people. Some have become dear friends. I’ve attended clients’ weddings and been adopted as a member of their company “family.” It’s a blessing to work with/for people you like. To those clients, I want to extend my sincere thanks for placing your trust in me and allowing me to represent you. It is a pleasure and an honor.
On the flip side, bad clients are the worst. Instead of enjoying working with/for them, you tolerate them. Simple interactions have the ability to cast a shadow over your entire day and leave you feeling exhausted. At this point in my career, I’m able to choose who I want to work with/for and have the experience to identify (potential) bad clients. The most important take-away from my experience with bad clients is that they remind me how blessed I am to work with good clients and makes me appreciate them even more.
The difference between a “good” client and a “bad” client can best be understood by their juxtaposition, and it’s not about money. It’s about the relationship. Here are some important distinctions that separate good clients from bad clients.
Ask questions vs. question you
Some of the best clients are the most inquisitive. Their questions stem from a desire to understand and learn so that they can take a more active and engaged role in the process. Bad clients question you. Their questions stem from both a lack of trust and lack of knowledge and their purpose is more to test their broker’s knowledge rather than understand the logic/factors behind the issue(s).
- Good client: “What is the current market escalation rate and what factors influence it?”
- Bad client: “I read somewhere that 2% escalations are market now. You proposed 2.5%, why?”
Treat broker as an advisor vs. an order taker
Good clients appreciate the important role that commercial real estate plays in the health and wealth of their company and thus regard their broker as trusted advisor and partner. There are many decisions and factors that have serious impacts on how a company operates, grows, etc.; including but not limited to: whether to lease or purchase, how much space to take, how long of a lease term to sign, etc. Commercial real estate brokers help their clients develop a strategic plan and have the knowledge and expertise to negotiate and structure deals based on their client’s short-term and long-term goals. Bad clients treat their brokers as order takers. Bad clients do not respect their broker’s experience or market knowledge and want to do things their way regardless of the potential consequences.
Due to the fact that the space is in shell condition, estimates for the turnkey build out came in north of $70/SF. The landlord requires a 7-year term over which to amortize the costs. The client is only comfortable signing a 6-year lease agreement.
- Good client: “What can we do? We’d prefer not to have to come out-of-pocket for the build out”
- Bad client: “We’re not signing a 7-year lease. Tell the landlord we’ll do a 6-year or we’re walking.”
With bad clients it’s their way or the highway. Their arrogance and self-centeredness blinds them to the possibility that there may be alternative ways to accomplish their goals. This example was taken from a real transaction with a good client. We structured the deal so that they had the right to terminate the lease after 6 years by paying the unamortized transaction costs. The terms protected the landlord’s capital investment and got my clients what they needed based on their risk tolerance.
Broker is representing a tenant and receives a letter of intent (proposal) from the landlord, which they review, edit via track changes, and presents the proposed counter to the client. The broker explains that, based on their experience, the terms they recommend countering with are consistent with current market conditions in that particular submarket for that particular asset class/property type and similar tenants based on their financial strength, length of lease term, etc.
- Good client: “Thank you. Would you please explain x, y, and z? Would it be possible to ask for 1 more month of rental abatement or should we ask for another $0.50/SF off of the rental rate?”
- Bad client: “I know another company that leased space in this submarket and got “x” more months of free rent and were at $”y”/SF. Counter with those terms and see what they say.”
Bad clients don’t realize or care about the potential negative impacts of “lowballing” or presenting unrealistic/one-side terms. It denotes either a lack of respect or lack of knowledge (oftentimes both) and can result in the other party terminating negotiations and refusing to deal with the offending party. It is also a waste of time; another indication of a fundamental lack of respect.
Working with/through broker vs. looking for ways to cut them out
This is an issue of loyalty and basic respect. In theory, one works with an experienced, commercial real estate broker because their market knowledge and expertise along with their understanding of the client’s needs will result in the best deal possible; one that extracts maximum concessions both monetary and non-monetary and protects the client’s interests. Bad clients (erroneously) believe the savings from not having to pay the broker’s commission (even if the other party is responsible for paying commissions) will result in a better deal for them and thus will look for ways to cut their broker out of the deal. Bad clients do not understand or appreciate the value an experienced broker provides or that commissions are factored into landlord proformas. Economic concessions in leasing are market-driven not commission driven.
A broker has an active agency agreement with a client that is looking to lease or purchase an office property. The client identifies a potential option not presented by their broker.
- Good client: “I was doing some of my own research and came across a property that I think could work well for us. I’ll send you the address. Please reach out to them and get some more information.”
- Bad client: Calls landlord or seller directly “Can I get a better deal if you don’t have to pay my broker a commission?”
Broker negotiated a renewal right in their client’s lease agreement. The landlord reaches out to the tenant with a proposal to renew the lease.
- Good client: Sends proposal to their broker and notifies the landlord to negotiate through their broker.
- Bad client: Tells the landlord that they will not be using a broker if they agree to lower the rental rate.
Bad clients are short-sighted and ignorant. They do not know how to gain leverage in renewal negotiations nor what concessions are available to them based on market conditions, which are different from initial leasing concessions. Brokers protect their clients’ interests by staying up-to-date on market conditions; thereby ensuring they are able to negotiate from a position of strength and extract the maximum amount of concessions.
Realistic expectations vs. unrealistic expectations
Realistic expectations denote an underlying respect for the broker as a professional and person. Good clients are respectful of a broker’s time; understanding that sufficient notice and time must be given to compile data, schedule tours, review contracts, etc. Good brokers strive to provide the highest level of service possible. Good clients appreciate that “possible” falls within the context of agreed upon timeframes and the fact that the broker has other clients and responsibilities. Bad clients, like bad people, are selfish and only care about themselves. It’s their world and everyone else is living in it. In their eyes, brokers exist to do their bidding and should be at the beck and call. These very people are, themselves, often unresponsive.
- Good client: “I’ll send you a list of dates/times that we’re available next week for a tour. Please confirm which work for you.”
- Bad client: “I’m only available tomorrow at 2pm tomorrow to see the properties. Let me know where to meet you.”