Contributing Author: John McNellis
Every one of us is a broker. That is to say, we’re all using someone else’s money. Whether you’re a baby-faced runner at CBRE or quarterbacking a big-time pension fund, you’re still a broker—you need to sell your deal to somebody, whether to a mom & pop investor or a bored investment committee. It’s not your money and, for that matter, it’s usually not theirs. The only true principals in real estate may be the millions of 401K retirees who are the capital behind every major player in the industry. Even the old rich guys still in the game are using some else’s money; in their case, it’s their kids’.
Commercial brokerage is a bit like bull-riding. Only a handful of agents, the best, last much beyond their twenties, the vast majority unable to deal with the pressure of having their cash flow meter reset to zero every January 1st.
Some say part of golf’s charm is that its professionals, unlike those in every other sport involving a ball, make exactly what they earn. They either win the tournament or they don’t. They don’t sign $61 million dollar guaranteed contracts and then get fat. If this is so, brokerage is the most charming of professions—if you kill, you eat. Unfortunately, the problem with this jungle meritocracy is that it can act a like human cement hardener, turning too many too hard too fast.
The mistake many young brokers make every day of their short careers is that they don’t give it away. Or at least not enough. A principal asks for a comp or a bit of information or a small favor and the agent immediately wants a listing. Or he says, “I have a client who may be interested, but I’m scanning you a commission agreement that I need signed first.” Or, on some woebegone dirt, “If I introduce you to this landowner, you’re giving me the leasing on whatever you build.” Wrong approach.
“Let’s put the deal together first and then worry about my commission.” In several decades of deals, your correspondent can count the number of times he’s heard this—the right approach—on a deer hoof.
True, when your commission pipeline is so dry homeless are sleeping in it, it may be hard to remember your best long-term strategy is indeed to give it away. But it is. Giving away your time and market info—even your off-market knowledge—is like an IRS college savings plan: it hurts at first but eventually pays off. Why? Because trust is flattering, everyone wants to be trusted; practically everyone responds well to trust.
And let’s face it, no one trusts developers—in Hollywood’s hierarchy of egregious villains, developers invariably get the Silver Medal (Bronze: lawyers; Gold: Colombian coke lords). Everyone—cities, tenants, landowners—thinks developers only lie when they’re moving their lips. So when a developer is trusted, it’s like pulling a thorn out of his paw, he remembers it as a favor and, having learned everything he ever needed to know about business from The Godfather, he may, he just may repay the favor one day.
Even trusting notoriously dishonest guys can be a winning tactic (notoriously dishonest guys are not as hard to find in our business as you think). You can get burned, but more often, the crook is so pleased—or spooked—by your unusual treatment that he rises to meet your trust.
But if you can’t work without a net, you might still consider the following:
When a buyer suggests you write up an offer at a price you think outrageously low, never respond: “Are you kidding? I would buy it myself at that price.”
Don’t call the harried escrow officer before the closing with, “Is there anything I can do to help?” Even her 17 year-old receptionist knows there’s nothing you can do and that your question is really, “Where the hell’s my commission?”
Resist the temptation of telling a buyer that your listing—which has been 50% vacant since Prohibition—just needs professional management. If this isn’t the oldest lie in real estate, it’s certainly the most tired.
Don’t tout a project by claiming, “It’s selling for land value” without figuring out who controls that value. If, as is usually the case with retail, the major tenants have medieval-cheap leases that run until the Knicks return from the dead, the property may in fact be priced at its land value, but that’s because the seller doesn’t really own it—the majors do. We may all be brokers, certainly all of us are always selling (ourselves, if nothing else), but we can all be better at it, we can all give it away a little more often.
If you enjoyed this essay, you may wish to consider John’s book, “Making it in Real Estate: Starting Out as a Developer.” LDCRE recently featured this book in its list of the Top 25 Commercial Real Estate Books.
John E. McNellis
419 Waverly Street
Palo Alto, California 94301