Is there too much sharing online?

ImageBack at the beginning of my career, commercial real estate brokers still played a critical role as keepers and guardians of valuable market information.  The best brokers knew — whether in their head or in well-kept files — where the available space was in a given market, who controlled it and what general terms the market would bear.

The Internet and the age of Big Data have changed all that forever. The same tools that allow homebuyers to sort online residential real estate databases and see what every person on a block or in a neighborhood paid for their home and when they paid it — a reality that has fundamentally altered the role of the residential broker — are widely available in the commercial real estate world. The commoditization of market data on the Internet threatens to mercilessly disintermediate the traditional broker, who is no longer the keeper of the keys to the kingdom.

These days, any traditional broker who describes their primary role in a transaction as “knowing the market” is irrelevant. In an age of Information Overload, the broker’s primary function has shifted from being a broker/”market maker” to serving as a client’s advocate and guide through a complex transaction, with a laser focus on providing wise counsel. This new-style broker – what I describe as an “agent-advocate” – clarifies a client’s needs and advocates relentlessly on behalf of the client all the way through a transaction. When an agent advocate is compensated at the end of a transaction, they are being paid for their ability to provide clarity to a complex transaction.

This won’t win me any industry Broker of the Year awards, but the reality is that traditional commercial real estate brokers share a set of traits that are particularly unhelpful for clients in the current environment. Here is my list of the most obvious problems in the commercial real estate brokerage game:

  • The classic “agency problem”: Traditional brokers operate under a compensation structure that motivates them to operate in their own best interest — not that of their client. I refer to brokers who are willing to sacrifice their near-term self-interest to benefit their client’s best interest (with the knowledge of earning a fee, obtaining a referral, and future reciprocity) as “agent-advocates.”
  • Trusting their intuition: Traditional brokers are not analytical or data-focused. With a flood tide of data washing over them, few traditional brokers have the interest or skills to analyze the numbers and objectively interpret how they can be put to work on behalf of clients. Like the traditional baseball scouts in “Moneyball,” determined to keep making gut-level decisions based on what their eyes tell them, they’re being left behind.
  • The rugged individualist: Years of working in an “eat what you kill” environment has conditioned traditional brokers to operate as lone wolves. Such a broker struggles to assemble a team that can bring diverse skills to bear on a complex transaction, including something as simple as involving brokers in other markets where a client might need to lease space.
  • Lack of formal training: Professional development and skills training — which in most other industries would help professionals adapt to a changing environment — is almost non-existent in the industry (partly a function of the Lone Wolf Syndrome noted above). Commercial brokers do receive training from their State regulatory agencies, but most syllabus are targeted to residential brokers who work with first-time home buyers.
  • “Slamming deals”: Compensation structures and the nature of the industry motivate brokers to close deals as quickly as possible. That leaves little room for creative solutions, application of detailed problem-solving processes and proper due diligence.

To me, traditional brokering is an unrewarding profession. Clients are understandably suspicious of their brokers; many of them believe their broker is overcompensated for driving little, if any, value in the deal process.

There are ways around the agency problems and there are many modern brokers who take pride in being agent-advocates for their clients. See the posts below about how to hire a broker and the next post to the Strategic Tenant Advocate™ to gain tips on the right team to put in place to solve any real estate decision with which you are faced.

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