When Better Doesn’t Cost More


Every day in life, we are forced to make value judgments when deciding what products and services to buy. A BMW may be better than a Hyundai, space in a trophy office tower may be nicer than space in a Class B building and dinner at Le Bec Fin (back in the good old days when it existed) may be nicer than dinner at Marathon Grille. While everyone may agree that one product or service is “better” than the alternatives, people don’t always buy the better product due to differences in price. The buying decision is complex because each person must first determine which item or service he believes is qualitatively better and then must translate that relative preference into a price differential. For example, a person may conclude that a Sub Zero refrigerator is much better than a GE refrigerator; however, that doesn’t mean she will buy the former over the latter. She must first determine how much of a premium, if any, she is willing to pay for the superior product. The premium may be dictated by budget constraints, brand status or other factors.

What would happen if price was not an issue? That is, how would buying decisions be affected if everything cost the same? In that case, people would only need to determine which product or service is qualitatively better or satisfies their individual needs the best. Clearly, the buying decision would be simplified.

What does all of this have to do with a Broker Blog? Good question. The fact of the matter is that all brokers cost the same. In every deal there is a brokerage commission pool that gets paid out by the landlord. The commissions are the same regardless of who the tenant hires to represent it. Thus, the decision as to which broker to hire is simply a matter of determining who can secure the best economic terms and minimize the risk of the transaction to the tenant. Cost is not a factor (although picking the wrong broker may end up costing the tenant more because it gets a worse economic lease deal).

How can a tenant determine which broker is the best for their deal? Here are three factors to consider:

1. Who has the best skill sets or experience to secure the best deal terms and run the best process? Simply put, is the broker simply a “space finder” or does his background and experience better enable him to develop more creative solutions, run a more logical process and otherwise negotiate the most favorable deal terms?

2. What do the brokers’ clients say about them? Focus on the adjectives used by their clients in describing them. Is a broker “smart,” “creative”, “a keen negotiator” and “a true advocate” or simply “a nice guy” who “returns my phone calls promptly.” Real estate can be one of your largest line item expenses. Make sure your advisor is up to the task.

3. Who can be the best advocate for your positions? Does the broker or his firm have any conflicts of interest that could negatively impact your leverage or position (i.e., does the broker or his firm represent landlords in the market which could jeopardize his loyalties)?

In life, choosing what product or service to buy is often a complex decision. Every day people must decide how much of a premium they are willing to pay or how much of a discount they must receive in order for one item or service to be favored over another. However, when price is removed as a consideration, the decision is much simpler. In that case, buyers need only determine which product or service is better. As all brokers cost the same in a real estate transaction, tenants need only determine which broker is qualitatively better. Tenants should focus on relative skills sets, experience and potential for conflicts of interest when deciding which broker to hire.

For more information contact Glenn Blumenfeld

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