McNellis: Brokers with Principals

Give a little to get a lot.

June 1, 2011

By John McNellis

Before examining a few mistakes this undervalued profession makes so often, it’s worth noting that practically everyone is a broker. That is to say, everyone is using someone else’s money, and everyone has to sell. Whether you’re a baby-faced runner at CBRE or running CalPERS, you’re still a broker—you need to sell your deal to somebody, whether to a shirttail investor or a stuffy investment committee. It’s not your money and, for that matter, it’s usually not theirs. The only true principals in real estate may be the millions of retirees who are the capital behind every major player in the industry.

It should also be mentioned that, while not as cinematic as “Ice Road Truckers,” brokerage is every bit as deadly. Having one’s cash-flow meter reset to zero every Jan. 1 is a stress only a handful endure much beyond their twenties.

Some say part of golf’s charm is that its professionals, unlike those in every other sport involving a ball, make exactly what they earn; they either win the tournament or they don’t. They don’t sign $61 million guaranteed contracts, then get fat. So it is with brokerage—if you kill, you eat. Unfortunately, the problem with this jungle meritocracy is that it can act like a human cement-hardener, turning too many too hard too fast.

The mistake many young brokers make every day of their short careers is that they don’t give it away. Or at least not enough. A principal asks for a comp or a bit of information or a small favor, and the agent immediately wants a listing, saying, “I have a client who may be interested, but I’m faxing you a commission agreement that I need signed before I’ll show your center.” Or, on some woebegone dirt, “If I introduce you to this landowner, you’re giving me the leasing on whatever you build.” Wrong approach.

“Let’s put the deal together first, and then worry about my commission.” In several decades of deals, your correspondent can count the number of times he’s heard this—the right approach—on a deer hoof.

True, when your commission pipeline is so dry bums are sleeping in it, and every developer you’re dealing with makes Bernie Madoff look like one of the guys, it may be hard to remember your best long-term strategy is indeed to give it away.  But it is. Giving away your time and market info—even your off-market knowledge—is like a college-savings plan: It hurts at first but eventually pays off.  Why? Because trust is flattering, and everyone wants to be trusted; practically everyone responds well to trust.

And let’s face it, no one trusts developers—in Hollywood’s hierarchy of egregious villains, developers invariably get the Silver Medal. (Bronze goes to lawyers; gold to Colombian coke lords.) Everyone—cities, tenants, landowners—thinks developers only lie when they are moving their lips. So when a developer is trusted, it’s like pulling a thorn from a lion’s paw: The developer remembers the favor and, having learned everything he ever needed to know about business from “The Godfather,” he will repay it one day.

Even openly trusting notoriously dishonest developers can be a winning tactic, (and notoriously dishonest developers may not be as hard to find in our business as you think). You can get burned, but more often, the crook is so pleased—or spooked—by your unusual treatment that there is a rising to meet your trust.

If you can’t work without a net, you might still consider the following: When a buyer suggests you write an offer at a price you think outrageously low, never respond: “Are you kidding? I would buy it myself at that price.”

Don’t call the harried escrow officer before the closing with, “Is there anything I can do to help?” Even the 17-year-old receptionist knows there’s nothing you can do and that your question is just Vulcan for, “Where the hell’s my commission?”

Resist the temptation to tell a buyer that your listing—which has been 50 percent vacant since Prohibition—just needs professional management. If this isn’t the oldest lie in real estate, it is certainly the most tired.

Don’t tout a project by claiming, “It’s selling for land value” without figuring out who controls that value. If, as is usually the case with retail, the major tenants have medieval cheap leases that run until the Chicago Cubs win their next World Series, the property may in fact be priced at its land value, but that’s because the seller doesn’t really own it—the majors do.

We may all be brokers, and certainly all of us are always selling (ourselves, if nothing else), but we can all be better at it, and we can all give it away a little more often.

For more about John McNellis or McNellis Partners, please visit mcnellis.com.