10 Ways Hiring a Real Estate Consultant Pays Off Big
Renting or buying commercial real estate for your business or as an investment is a truly overwhelming process that is seemingly still stuck in the previous century. Without the proper team in place, guidance, and support, you are just flying blind. While it is not the right choice for everyone, hiring a commercial real estate consultant might be the right choice for you before spending 7, 8, or even 9 figures on real estate.
There are a lot of different consultants, brokers, advisors, and other professionals in the real estate space. First, let us take a minute to really get into what a CRE consultant does and doesn’t do.
TABLE OF CONTENTS
I. What is a Commercial Real Estate Consultant?
II. Why do We Need a Commercial Real Estate Consultant?
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I. What is a Commercial Real Estate Consultant?
It goes without saying that residential real estate is vastly different than commercial real estate. While the general purpose behind a consultant in commercial real estate and a broker or agent in residential real estate may be generally the same, the knowledge, experience, and methodology will vastly differ. Additionally, the needs and wants of buyers will be dramatically different in commercial and residential real estate.
For example, a residential buyer may want to find a house near a highway, near work, or in a good school district, whereas an investor or business buying commercial property may want opportunity for rent hikes, access to a good labor pool, or opportunity for expansion. Commercial real estate consultants have their ear to the ground in the CRE space and know what you may need before you even express it.
But, more specifically…
Commercial Real Estate Consultant Defined
The CRE Consultant is the person who represents you as the buyer, seller, or tenant for the purpose of transacting real property. While the consultant may work independently, they generally work under licensed real estate brokers, and they often are licensed themselves depending on state and local laws.
Commercial real estate consultants know all the ins and outs of the transaction process. The goal is for you to never miss a deadline or to be left wondering what the next step is. In a nutshell, the real estate consultant greases the wheels of the transaction, so everything happens without hiccups.
During your first meeting with a real estate consultant they will most likely talk to you about what your goals are. Once your goals are established, the consultant will begin to conduct research needed to help you achieve those goals in the most timely and cost-effective way.
Ultimately, they are trying to be as unbiased as possible to help you achieve your goals.
Juxtapose this with your typical real estate agent or broker. Let us say you are a typical property buyer who hires a real estate agent. Your agent or broker would show you houses and try to find a house that you will buy. Once you find a potential property, your agent or broker will make an offer and negotiate for you and help you close the deal. Their goal is transaction based – close a deal to get paid.
A consultant is subtly, but materially, different. Their goal is to guide you to making the best decision possible. They will want to dive into the motivations behind selling, how they can structure a deal to benefit you, and bring in other experienced people who can guide you to success. Your consultant is more relationship based than transaction based.
The relationship does not need to end there because many consultants also work as managers of your assets. So, they have a strong interest in finding you great deals that fit your goals as well as keeping a good relationship to manage your assets for years to come.
Ultimately you earn more together. Your consultant finds great deals, you buy them, they manage them. The consultant has access to a pipeline of great deals due to their connections and can bring more to you throughout the years. As you buy more, they get to manage more. Everyone grows wealthier together.
It is great to know the definition and purpose of a commercial real estate consultant, but why do we need them? We are going to cover that in the following section then after that talk about what makes a good vs bad consultant, and lastly, how to determine which consultant to hire or not.
How are Real Estate Consultants Compensated?
Real estate consultants get paid in a variety of ways and it depends on who you are working with and what they are doing for you. Additionally, compensation can vary based on the client and what they are trying to accomplish.
Many consultants are commission or hourly based, or both. They get paid when you close on a property. This is the standard compensation model, and most consultants use this just like most agents and brokers do.
Some consultants charge a retainer or up-front fee. This is because their advice is very strategic in nature and that is worth compensating for. This is used generally for more advanced investors with vast portfolios. It may also apply to buyer’s representation in commercial real estate because in large commercial transactions there is generally no buyer-only representation.
Additionally, many consultants also own/operate a property management business. So, they are also compensated by the rents collected, or distributions from investments. There is great synergy between being a manager and a consultant because the consultant always has their ear to the ground, can see trends coming, and may have access to a lot of off-market deals based on their connections from management.
II. Why do We Need a Commercial Real Estate Consultant?
Many people are afraid to pay commissions and lose money. But, in almost all cases, the commission fee is more than offset by savings while negotiating. In even more extreme cases, the consultant will advise you to avoid certain properties, which ultimately could save you tens or even hundreds of thousands of dollars by avoiding bad mistakes. We have an example of this at the end of this article.
Additionally, being able to leverage their experience, knowledge, and relationships will ultimately save you money in the long run. Here is a breakdown of the top reasons why you should want to work with a commercial real estate consultant.
1. Knowledge of the Market
A good consultant has insider knowledge of the market. That is a very general statement, so, what does that mean exactly?
Insider knowledge is that they know about what deals are being done, the prices they are being transacted at, and the considerations around them. In the commercial real estate world, most of this information is not publicly available and a good consultant has access to proprietary information and their finger on the pulse of the commercial real estate market in your metro area and state.
They have their pulse on the market because they are talking to hundreds of different people every month – from buyers to sellers and every kind of professional involved. They may also be managing properties as well so they will see trends with the rental market that you may not even be aware of.
2. Access to Other Listings
In residential real estate, the MLS compiles all the listings, and all buyers and sellers can have access to it. In the commercial real estate world, you must know someone somehow to find a listing (unless you see an ad for the rare listing found online).
A commercial real estate broker gives you access to an entire array of proprietary databases and commercial listings. Additionally, they may have access to a number of pocket listings.
A pocket listing is when a property is being sold by a broker, agent, or consultant, but the asset is not openly marketed. Instead, it’s marketed privately to a handful of highly qualified buyers.
There are a lot of reasons why sellers choose to sell via pocket listing rather than openly marketing, but it’s often to avoid spooking to management team or tenant base. There are other reasons as well though.
3. Access to Network
As with any industry, those who work in the commercial real estate space all tend to know each other. Because they have professional relationships with a lot of people in the space, by working with a consultant you also gain access to many of those relationships. This can save you a lot of time and headache when trying to get your ducks in a row to close or manage your properties.
4. You will be Taken More Seriously
Regardless if it’s right or wrong, a person or company representing themselves simply will not be taken as seriously as those with professional assistance. When a building owner realizes you are not represented, they know they can push more aggressive terms and take advantage and your consultant will be prepared for that.
By retaining a professional consultant, you’ll be expressing your seriousness and you’ll also gain credibility because that consultant will vet you as a serious buyer or seller before working with you. This will do wonders for getting your offers accepted.
5. Favorable Lease Terms for Your Business
A good consultant will ask you many probing questions to get at the heart of what you need vs what you think you want. With this, you’ll be able to get more favorable lease terms or closing terms on any deal you may work on. Most agents or attorneys simply don’t do this.
A great consultant will also send you referrals if any of their other clients need services in the field you work in.
Either way, it’s best to find the space you need for your business that is most functional and negotiate the best rates for it which is exactly what a good consultant will help you discover.
III. What makes a good CRE Consultant?
The best commercial real estate consultant is the one that accomplishes your goals in the timeline you are looking to accomplish them in.
Even though trust, personality, goals, and availability all play into what a “good” commercial real estate consultant is to you, there are some traits that any consultant needs to be considered top of their field. Here are some of the most important traits for CRE consultants to possess.
1. They Communicate Well
Real estate is a field that is based entirely around relationships. As such, a consultant should be an expert at communicating to build and maintain relationships with clients and potential clients. To do that, consultants should have a good EQ to go along with their above average IQ. This way they are not just facts and figures oriented, but understand how that applies to people, how to build and maintain relationships, and ultimately know how to close a deal.
2. Good Prospect Database
In residential real estate, most listings are on the MLS and most agents, brokers, or consultants use the MLS to find deals for buyers or to list properties for sellers. Commercial real estate is completely different because most listings are not found in any centralized database.
Instead, sellers and buyers are maintained on databases and contacted directly as opportunities come up. Because of that, a good consultant will have a good-sized list to either assist you with finding off-market listings, or to sell your commercial property to their large pool of buyers.
Prospecting is different than lead generation in the sense that a prospect has been vetted and shown interest while a lead is just a name in a database. You want a consultant with a large database of prospects, not just email addresses on a spreadsheet.
3. Motivated to Close Deals
One of the major differences between an agent and a consultant is the agent/broker generally is looking to have listings or buyer clients, but a consultant wants to help you close deals.
What’s the difference?
Most agents will add you to a list and send you emails with lists of potential deals. They generally won’t communicate much with you until you show interest in a specific property, in which case they’ll set up a showing and help submit offers.
A consultant takes a more personal approach and is actively trying to figure out what you want and don’t want, what you like and don’t like, and what is a deal breaker. Each step they narrow down your interests and budget and ultimately push you along to closing the deal that you ultimately want.
The personal approach of a consultant is vastly different than agents and brokers.
4. Experienced in Commercial Real Estate
Just about anyone can become an agent, but a consultant is a different breed entirely. A good commercial real estate consultant has a lot of experience in the real estate industry and often has a past life as a real estate investor or business owner themselves.
This experience then directly translates into what you’re looking to accomplish. Regardless if you’re trying to buy a property, sell one, or lease one, the consultant can draw upon years of experience from both sides of the industry.
Juxtapose this with the average real estate agent and you’ll see that nearly 80% of agents are part time and only sell around 20% of all houses sold and they just use the MLS to post deals and wait for offers. So, the average agent is relatively inexperienced, sells few houses, and is probably part time. They can get deals done only by relying on the experience of the brokers above them, who don’t take a personal interest in you anyhow.
5. Data Oriented but Also Concise
Commercial real estate is a data-oriented industry, but not everyone loves looking at 3 different spreadsheets on two computer monitors. While that works great for some clients, most people want to know how the data applies to them and not just sheets full of numbers and equations.
That is where a good commercial real estate consultant comes into play. The CRE consultant knows how to talk data and spreadsheets but more important he or she knows how to tell you how this information applies to you and your business or investments.
Obviously this ties back to having good communication skills, but it’s definitely a step above and beyond communication skills as consultants are expected to know the ins and outs of the market, data, and be able to communicate it in any way you need to see it.
IV. Questions to Ask Before Hiring a Consultant
In short, that’s really up to you, your situation, and your personality. Even the best consultant on the planet may not be a good fit for some people. But it’s important to consider a few major factors when deciding who to hire and why.
1. What type of Real Estate am I Buying/Selling?
Many people don’t realize that most consultants have a specialty in one or two types of real estate and you want to make sure the person you work with specializes in the type of real estate you are trying to purchase or sell. Many offices have consultants of a variety of specialties, but some offices specialize only in a few types of real estate as well.
It’s important to choose a consultant that has experience and is specialized in the kind of real estate you want to buy or sell.
2. How Much Guidance and Help do I Need?
It’s important to take a self-assessment and truly know how much help and guidance you need. There is no shame in needing guidance or help, but it’s important that your consultant knows where you stand and what you need before you two agree to work together. As with all people, some consultants are better with helping and guiding while others are better at prospecting and closing deals.
If you need a ton of 1 on 1 attention you may want to choose a different consultant than if you’re extremely experienced and ready to close on a deal next month.
3. What’s my Timeframe?
This ties in with the prior point – if you are ready to move now vs in 2 years from now, you may choose to build relationships with different consultants. It’s important to be up-front as you interview various commercial real estate expert consultants and make sure your timeframe fits in with their business goals.
4. Does My Consultant Have a Prospect List That Fits My Goals?
A good consultant will have a list of potential buyers or a list of potential sellers to prospect sales from. But does that list of buyers/sellers line up with your real estate niche?
Two consultants may both have 5,000 potential buyers, but how many of those buyers are looking for office space in the pacific northwest vs multifamily in south central US?
While the consultant may not want to advertise their list details, you can find evidence of this by their experience selling/buying property of your type in your area or working with past clients in a similar real estate asset class and region.