CRE LESSON #1: Take care of your brokers, and they'll take care of you.
5 tips to get to the top of a broker’s call list
Brokers are a lynchpin of any deal pipeline.
So mishandling brokers is the quickest way to constrict your deal flow, and deal flow is the lifeblood of our business.
Over the years I have heard consistently from brokers that my attitude towards them was a refreshing change from the norm. This always struck me as odd since my approach has been as simple as it has been effective: take care of brokers, and they'll take care of me.
The goal of any broker relationship is simple: you want to be the first call.
What brokers market to the public is some fraction of the properties they actually sell, with the rest transacting in the amorphous and infamous “off-market.” Setting aside the important question of whether off-market deals are necessarily good deals (they aren’t), most great deals never see the light of day.
Which is why you want to be the first call.
The best brokers are not just talented salespeople, but also have a nose for great deals. When certain brokers call me and tell me a deal is interesting, I yawn and tolerate their half-baked justification. With others, I start taking notes.
The question of course is how to become the first call. Here are my top five tips to getting to the top of a broker’s call list:
1) CLOSE
If you don’t close, you won’t get called. Forget the top of the list, you won’t be on the list.
The takeaway here isn’t to ignore due diligence and close a deal even though you shouldn’t, the lesson is to only go into contract on deals you know you can - and should - close.
That means extra due diligence up front, lining up capital ahead of time (to the extent possible) and doing everything you can to minimize the inevitable surprises you find when you start really kicking the tires of any new investment.
If you close reliably, drama-free and on time, you stand a chance to be on the list. Now that you’re on the list, work your way to the top.
2) DON’T RETRADE
You will always find something in due diligence that makes you want to deliver that contingency removal with a price reduction. Always.
If what you found will break the deal, then of course your first obligation is to your investors and your firm. But play the long game and resist the temptation to use the removal of contingencies as a lever to get a few extra dollars out of the seller.
Brokers remember retrades and typically value surety of close above willingness to pay the highest price. The extra few dollars of a commission isn’t worth the time, headache and risk to a client relationship that comes with an unjustified retrade. Especially if you get an off market look, retrading is essentially off limits unless a true surprise is found during due diligence.
An owner will never know if there was a buyer who would have paid more. But if you retrade without a truly justifiable reason, while you may end up getting that deal done, don’t wonder why the broker doesn’t have you on speed dial (remember speed dial!?).
3) MAKE SURE THAT BROKERS KNOW YOU WANT THEM TO MAKE MONEY. THEN PUT IT INTO PRACTICE.
Many new investors try to represent themselves and pick up some of the brokerage commission, which is a defendable approach for the capital constrained (I survived on buyer’s broker fees in my early years). But when you move up the ranks, don’t go near the broker’s rake. Your competition won’t, so any suggestion of a shared commission is grounds for immediate relegation to the bottom of the call list.
When a deal is on the market, how much a broker gets paid is a relatively straightforward. But off market it's a bit fuzzier, and where you’ll really have to show that you value your brokers.
Off market, there is rarely a listing agreement and brokers have to fight for their commission – which neither the buyer or seller want to pay.
Turn what can often be an awkward situation into an opportunity, by offering to pay the broker directly or backstop whatever the seller offers to make sure that the broker gets paid well for bringing you the deal.
If you work for an investment company, you will likely have to fight for this with your partners or bosses. Some of my fiercest internal battles have been trying to get brokers paid when industry standard would have been to hang them out to dry.
Good brokers don’t forget someone going to bat for them with their partners.
4) RESPECT YOUR BROKER’S TIME
There is an adage that a broker's most valuable resource is their time.
Brokers traffic in information, but they sell their time. Touring deals you aren’t actually interested in, dragging your feet on deals you got an early on look on – these are the quickest way to move down the call list,
Good brokers will always forgive a quick pass or a lowball, but leaving them in limbo risks a relationship with their client and wastes their time. If you can't respond quickly – whether you go after the deal or not – they'll call someone else first next time.
And don’t only respect their time today, but respect the time it took brokers to get where they are.
I read an interesting observation recently from @stripmallguy, who noted that while from the outside we may bristle at the broker who shows up for a few tours and makes a six figure commission, what we don't see is the hours of cold calls, apprenticeship and networking that good brokers put in to even have that those tours.
You may think that brokers are overpaid or don’t work hard enough, but putting that attitude into practice won’t move you up the list.
5) TREAT YOUR BROKERS LIKE CLIENTS
This last one is the simplest, but in my experience barely practiced.
Take brokers out to lunch, pick up the coffee tab and listen to their stories. Ask about their families and genuinely care about their lives. Brokers are so used to being treated like crap that treating them like a human isn’t just the right thing to do, but it alone could earn you that first call.
Like most of us, brokers prefer to work with people they like. Don’t be disingenuous, but treating broker like friends - or even becoming their friends - is the lowest cost way to get that all-important first call.