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The Trouble with Brokers

The Trouble with Brokers

Often, brokers’ advice is a veiled sales pitch. This is generally accepted—but is it morally acceptable?

Google “sales pitch disguised as advice”, and you’ll find 55 million different responses sharing tips on improving your sales pitch.

One thing you won’t find? A hint that masking a sales pitch as advice is immoral.

Is it? After all, we’re all familiar with these sales tactics, and they’re perfectly legal—even expected (caveat emptor!). Walk into any garage, and they’ll point out your tires are worn and tell you to buy new ones. Call your stock broker, and they’ll suggest a trade. Go to a chiropractor with a bad back, and they’ll recommend a course of action. Go to a surgeon with the same affliction, and you’ll get a very different solution.

Recently I’ve been reading Skin in the Game by Nassim Nicholas Taleb, a great book about the asymmetries of information in life. In the book, Taleb points out that this type of less-than-pure advice is accepted in the West, where commerce is king. But in many parts of the world, it’s much less so.

For instance, Taleb points out how Sharia law, the Islamic legal code, contains the concept of “Gharar.” So, in simple terms, it’s immoral to disguise a sales pitch as well-intentioned advice in Islamic communities. And to take it one step further, as a professional, you should make sure your advice is as pure as possible and that the other party fully understands (and is equally committed to) the transaction results.

Does the agent in a commercial real estate deal have a responsibility to level the playing field between themselves and the client? Must they share all the information they have at their disposal? The agent would have to bring the client to understand the market’s nuances, the transaction’s subtleties, and how every decision affects their commission. Every intuitive recommendation by the broker would have to be substantiated with facts.

Indeed, this would take a lot of time and effort—and many clients may just want a simple answer from their broker. But it would allow the client to get pure advice, and the client could confidently make investment decisions.

Here are a few examples of how Gharar exists between the broker and their client in commercial real estate:

  1. A tenant representative advises its client about the differences between various proposals and intentionally leaves out information about how one deal will have a commission twice the size of another.
  2. A broker representing an office occupier doesn’t “go to bat” for their client who wants a termination option in their lease, knowing that it’ll reduce their commission by 50 percent.
  3. A landlord representative intentionally markets space below market, doesn’t disclose pertinent information about a prospective tenant’s financial situation, or feigns urgency to encourage a landlord to accept terms quickly.

 

Gharar, and morality for that matter, is a difficult thing to ensure in a commercial real estate deal. And I am far from perfect, but what I have found helps to reach the ideal of “perfect information” between client and broker are to do the following unique processes and methods.

The Prepared to Win-Win™ Negotiation worksheet: Before any critical negotiations, take time to answer its questions, prompts, and tips. A thorough assessment of your interests and those of the other party will help you identify strong alternatives, generate novel proposals, and stimulate discussion at the table.

The Due Diligence 360™: This 221-point due diligence worksheet should be completed before purchasing any property. It’s also helpful to identify issues with real estate assets before going to market so that the sales team can be prepared to mitigate any concerns that a potential buyer will raise.

Cardinal Real Estate Partners, LLC is a group of commercial real estate advisors and consultants. Our approach is to help our clients with their real estate needs using tools that clarify complex real estate decisions.

Real estate transactions can be fraught with frustration and pitfalls.

Sometimes the hardest part turns out to be working with your broker, the person who is supposed to help you through the complexities. Veteran commercial real estate broker and client advisor John Culbertson discovered that brokers’ interests aren’t always aligned with those of their clients. He realized there was a better way to advocate for clients and get the deal done.

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