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Using a Broker for Commercial Properties

Sep 5, 2008
Brokers can be valuable members of your team when you invest in real estate. When using a real estate broker to look for commercial properties, there are a few points you should keep in mind.

1. Know which broker you're dealing with. You can sign up on a broker's website and get emails full of potentially good deals. The brokers will use other brokers' deals, and it's difficult to know who the originating broker is. The problem with this is that the originating broker will know all the details about the property and situation and other brokers will not.

2. Understand that not all properties will have a listing agreement with a broker. Sometimes brokers will list multifamily deals but won't have a listing agreement with the seller. Some sellers don't want to commit to one broker because they don't want to be limited to a greedy broker who won't consider co-brokering a deal. Sometimes sellers will agree to pay the broker a percentage if they find a buyer, but the sellers don't actually sign a listing agreement.

3. Be up front with the seller about the role brokers will play in your real estate transaction. You may find out about an apartment building on your own and be in negotiations with the seller when a broker steps in and wants a commission. You might know more about the property than the broker does at this point, so make sure you have an agreement with the seller about what place a broker has (if any) in your deal.

4. When asking for a broker's help in finding properties, be specific about what you're looking for. The best brokers are very busy and don't have time to waste hunting down properties for people who probably won't be serious about them. If you say to a broker, "I'm looking for a Class C property, 50 units, a value play, less than $25,000 per door," then the broker knows you are someone who knows what you're looking for. You sound stronger, and you hold more sway.

5. The broker fee on commercial properties is generally the same as the fee for residential properties. Figure on paying around 6% to sell your apartment buildings and other commercial properties.

As you search for multifamily real estate properties, be aware that brokers can help you find good deals. But don't rely solely on their advice and resources. Use all of your options to help you build your wealth and acquire properties.
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