Conflicts of interest are natural for commercial real estate brokers. There are huge revenue streams available for brokers who try to work in the best interest of both tenants and landlords.
This long-standing practice is symptomatic of commercial real estate’s ongoing loyalty issues. Originally, landlords and developers hired brokerage firms to market their properties. As time passed, some of those same brokers realized there was an opportunity to increase their revenue by taking tenants that weren't a good fit for their buildings and helping them find space in buildings owned by other potential landlord clients.
My two-plus decades in commercial real estate taught me one clear lesson: There are brokers who will pursue every inch of profit possible. In an effort to be all things to all people, though, these brokers fail to prioritize the two things every commercial broker should be: transparent and free of conflict.
What’s The Damage?
Playing both sides of the real estate world means someone suffers. Unfortunately, it’s often the tenants. Within this structure, tenants receive inferior service because brokers won’t go against the interests of the commercial firms, landlords and developers that funnel future business their way.
Commercial real estate brokers are great salespeople, but some are also experts at talking out of both sides of their mouth. The difference for tenants, however, is that the brokerage’s relationship with its landlord clients is usually protected by a fiduciary obligation. This means brokers can disclose relevant information about tenants’ preferences and needs to landlords, who can turn around and use that information to charge above-market terms.
I believe the notion of real estate being a service industry has become lost. According to the “2019 Edelman Trust Barometer Global Report,” just 56% of consumers trust the businesses around them — and I would bet commercial brokers rank pretty low on that spectrum.
It’s incredibly difficult to help people achieve great results without trust because they’re likely to second-guess your intentions. Brokers have to pick a side and stick to it, regardless of profits.
Mediate The Conflict
The need for transparency, conflict avoidance and trust in a complex, digital market has already transformed many industries. In law, accounting and banking, conflicts of interest no longer cut it because consumers demand more.
I find that commercial real estate brokerage is an antiquated industry stuck in the past, meaning more conflicts than ever are popping up thanks to old-school brokers desperate to maintain the status quo. If the industry continues down this path, the next generation of tenants and owner-users won’t stand for it.
To have any chance at running a transparent commercial real estate brokerage, you’ll need to take a radical approach. Trust will permeate from your commercial brokerage if you follow these three strategies:
1. Practice ‘trickle down’ transparency.
A fish rots from the head down. If your company lacks transparency, it’s because your leadership team isn’t living it. Any fundamental shift to transparency must start at the top.
You can’t foster an environment where some practice transparency and others don’t. It is critical to form a united front around transparency, protect it and disassociate with anyone who doesn’t value it. Keeping the wrong people on board to try and “rehabilitate” them can poison the rest of the company and tell everyone that you don’t genuinely value transparency.
2. Refocus on integrity.
To start working in a more transparent model, make integrity a priority. Highlight situations where you see it practiced, using them as examples of the way things should be throughout the organization.
Brokers inevitably face situations that challenge both their personal integrity and the integrity of their companies. Use those lessons as a foundation for your brokerage’s new transparent structure.
3. Make sure your partners are on the same page.
Whenever you agree to work with anyone new — whether it’s an employer, a developer or a vendor — do a cultural assessment to see where you align and where you disagree. If you disagree on too many core values, it might be best to break ties.
Be upfront about your own wishes for the culture of your firm. Make a list of nonnegotiable values and others that you’d like to present in an ideal world. You can then use that list to develop a process to learn about the other party to check alignment. Visit platforms like Glassdoor and LinkedIn to gain an overview of culture and mission.
Talk with people to gather references and information about previous employers and employees. You don’t have to achieve full alignment immediately, but creating a dialogue about values will start you off on the right track.
You can’t single-handedly change an entire industry, especially one with such deeply ingrained conflicts at its heart. You know what you can do, though? Prioritize transparency above everything else and revolutionize your own little corner of that industry.
Conflicts of interest have been the norm for too long — it’s time to shake things up.
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