Real estate is a business where, not only is it legal to trade with insider information, it is expected.
Now, the degree of complexity of this type of insider information ranges broadly. And over the past 20 years – for reasons associated with the Great Recession, increased regulations, tax law, local customs and the growth of the local markets, real estate has become an exacting, and at times, a backbreaking profession.
As a result, the professionals who support these transactions have increased in importance and sophistication.
This is where it is handy to know the difference between a broker and a consultant. I have done both. They’re very different roles; however, so here’s a primer on the differences that might help explain when you need one or the other.
A broker, in short, transacts. There are times when you just want someone to sell for you. Or to buy for you. Your broker may help you confirm your assumptions about value and the transaction process, but at the end of the day they execute deals. Brokers typically have a specialty or niche. Most brokers have a platform (just like a stockbroker) and they are often remarkable at their ability to create a market for your asset.
A consultant, or counselor, is someone who brings clarity to complex real estate problems. They are committed to one objective: providing objective and intelligent real estate advice. They give extensive knowledge, technical competencies and thoughtful analysis and critical inquiry. Instead of conducting a transaction, they provide a deliverable to solve a problem on a complex situation involving your real estate.
How they are paid is another clear distinction: A broker gets paid a transaction fee when a transaction is conducted. A consultant gets paid either hourly or for deliverable, such as a report.
Often, one hires a consultant and ends up working with a broker after the consultant has helped them get an asset ready for market, or helped the client make a decision or execute a series of actions.
During the past 10 years there’s been a marked increase in demand for consultants and counselors as the world of real estate has gotten far more complex. There’s far more players in our local markets. Jurisdictions and municipalities are far more demanding on entitlements, and with the impact of the Great Recession, financing requirements have become more stringent and complicated.
Here is an example of a complication where you need a consultant: Land may not be what it seems. Say there is empty land that looks ripe for future development. It’s in a hot, rapidly growing part of of the city. Apartments are springing up around it bringing more people into the area. A closer look may reveal the land has contamination issues, however. There may be a lot of rock on the site. It might be zoned for one specific use, but should that only made sense 50 years ago. There might be a historic slave graveyard on the property, or perhaps a dry cleaner was located a block away and there is a plume running underneath.
The consultant might find the land is not ready to be taken to market yet. They can make recommendations, do work to tee-up the site, and then they can package the property, which a transactional broker can easily do a deal with.
Both brokers and consultants are needed in the crazy world of real estate. My experience, however, shows an owner of a challenging asset may leave a lot of money on the table if he or she sells without running the property through the consulting process first.
For more insight into what makes a good broker tick, check out my book, Go for Broker at www.goforbrokerbook.com.
To learn more about the highest level of real estate consulting, look at the group I’m a member of, the Counselors of Real Estate at www.cre.org. It’s an invitation-only group where applicants must provide credentials and prove their qualifications.