It is not surprising that most large, national brokerage firms have quarterly and annual sales goals. Public firms need to grow revenues in order to grow share price and make the analysts and their investors happy. When brokerage firms have annual or quarterly sales targets, they necessarily have to allocate these targets down to the individual broker level. Everyone must make their numbers if the firm is to make its numbers. If an office grossed $10 Million last year and the firm wants to grow overall revenues by 10%, that office better collect $11 Million the next year if it is going to carry its weight. The problem is you cannot time revenues in real estate brokerage without compromising clients’ interests.
As a general matter, there is nothing wrong with a business wanting to manage or grow its revenues. Every public company is committed to it and most private ones are as well. In most cases, this effort does not work against the interests of the client or consumer. In fact, clients and consumers often benefit as companies provide incentives like discounts or rebates to increase sales. However, it is impossible to manage revenues when they are wholly dependent on deals closing as is the case with real estate brokerage. Commissions are paid only when deals close.
Lease deals have a unique dynamic: a tenant’s leverage is typically maximized at a certain point in the negotiation process and any attempt to manipulate this by accelerating or delaying the decision point can put the tenant’s interests at risk. The point at which a tenant’s leverage is maximized rarely coincides with the end of a brokerage firm’s fiscal year or quarter. Simply put, a lease deal isn’t always ready to close by December 31st.
There comes a point in every negotiation where a tenant asks his broker “Is this the best deal I can get or should we wait?” If his broker is under pressure to close a certain amount of business by the end of the quarter, how can the tenant be sure that the advice he is getting is objective and not motivated by external sales pressures from corporate? It’s certainly something to think about.
For more information contact Glenn Blumenfeld