Multifamily Dispo Folk -- How do you view the "incumbent broker" on a sales assignment?

Bigmonkey1234567

I can only speak from very biased personal experience but the brokerage team I work for undoubtedly provides value. The senior broker has over 30 years of relationship building in my market and it pays dividends to clients. There must be a difference between someone with thousands of relationships than someone just starting out. You can't just hire whoever is "cheapest" and think this is a good strategy going forward.

Lol.  And what exactly is this value.  In this one post you assert that the team you work for "undoubtedly provides value" and your experience "pays dividends".  Those are buzzwords.  That isn't value.  Tell me, specifically, what value is being provided that couldn't be replicated with a simple MLS?

If you charge 100 bps and your competitor charges 50 bps, I can very much put a number on the value being provided by the cheaper broker - I'm saving tens if not hundreds of thousands of dollars by using them.  What am I getting from the extra 50 bps you charge?  Your "experience" doesn't mean anything to me, I know my asset better than you ever will, I am capable of evaluating a buyer... so what are you doing?  What is that 30 years of experience bringing to the table except some hot air and marketing phraseology?  I am going to choose a buyer based on a combination of purchase price and certainty of close, neither of which any broker who has ever lived is capable of doing a better job at evaluating, than an MLS plus my negotiation of the PSA will do.

At the end of the day, it is extremely telling that in your post defending the value of brokers, you didn't actually manage to spell out any value provided.  Which is a fitting epitaph for brokerage in general - a lot of empty promises and not a lot of value created.

realestateishard

So when you all are looking to sell a deal, what's your approach?

Figure out what the value is, which is a combination of an internal assessment and maybe asking for a BOV from a broker or valuation firm or some other true third party (for a flat fee, mind you!) and then calling colleagues and competitors in my asset class and talking to them about it.  Rocket science, I know!

It's worked well.  You know what hasn't actually worked?  When our LPs have asked us to go to market with a broker to "see what other buyers are out there" - because they're hoping the brokers know an idiot who will overpay because they don't understand the asset.  Which... never happens.  Because brokers are out there sending the deals to the same relatively small community of buyers that you (should) already know and have in your contacts list.

I mean, lets make something clear.  Brokers are human, like the rest of us, so they're incentivized to maximize their payout while minimizing their workload.  Unlike most other actors in the industry, they don't have any other constraints or responsibilities to others that compel them to actually find the best price.  If working an additional 1,000 hours to get their seller an extra 500,000 grand is possible, they don't and won't do that, because getting paid what amounts to a marginal dollar an hour for that work isn't worth their time.

Which is why I always come back to the fact that brokers don't have their incentives aligned with either their client or the buyers they "find".  They have no requirement to be honest, no fiduciary duty to do their best to find a good deal, no equity at risk to encourage them to find a better offer.  In short, brokers will do what is best for them, not you, and that's a big fucking deal.

UrbanGladiator

I have seen actual brokered transactions sell 20-30% above pricing guidance and asking price. One of the deals someone in my firm had on market for a while had buyers coming in 25% off ask. Well guess what, someone closed on it at 100% of ask a few months ago because that buyer had tax reasons to buy that no other buyer did.

OK, but this isn't the argument you think it is.  This means you're mispricing an asset and can't get it closed and need an act of god (the edge buyer who came in) to actually get closed.  The typical use case for a broker is "we know how to market deals and find unique buyers," but in this instance it took you an extremely long time to find that buyer and you had the asset mispriced in the meantime.  Waiting 6 months for some random unicorn to show up isn't a positive example of your craft - it's an example of how you didn't actually do anything and the solution came to you, not you finding the solution.

I'm so fkin annoyed when people complain about brokers "lying out of two sides of their mouth" when principals want to sell for 125% of value and buy for 75% of value. Of course you have brokers "selling"! Because everyone thinks the crappy deal they own is worth a pot of gold. But if you show them the SAME deal, they think it's a POS and worth 50% less.

OK.  But the reason brokers get shat on is because they're skimming a fee off the top of a deal on which they take no risk, make no representations, and as you said above, often don't actually do anything except wait around for someone to make an attractive offer.

In fact, you're actually getting close to one actual thing that brokers do, which is being the punching bag for everyone else.  If you wanted to argue that brokers exist so everyone can blame them and that keeps transactions from getting bogged down in petty nonsense, I'd buy that!  Doesn't mean brokers deserve to make the money they do, but it least it's a true value-add to a deal.

We are literally in process of negotiating with an owner a 3.75% cap older multi deal in a Class A market. We have 3 turns of a LOI ongoing. We are VERY close to the owners asking price. He's looking to buy as well. I pitched a few 1990s-2000s 5.5% cap deals in surburban markets to him and he "thinks multifamily is falling apart and prices will get better" and passed. 

So you didn't actually do your job.  You're sitting here complaining about how everyone wants to buy for a nickel and sell for a dime, but you're making the same argument for yourself.  If educating buyers/sellers is one of the things a broker is supposed to do, and you're not actually doing it because the buyer wants to wait... then you just crossed off yet another line in the tiny list of "things brokers claim they do."

Uhm, WHAT THE ****? If you're such a genius, then why won't you accept my sub 4% cap offer if multifamily is "falling apart". This is the kind of crap you deal with constantly as a broker. Then you learn that people act irrationally. The smart people ask irrationally in totally different ways. 

Sure.  But they have risk.  They own the asset.  What you're complaining about is exactly what I was decrying earlier in the thread - you want a huge payday for doing nothing.  I mean, look at the verbiage you're using.  "Act rationally".  What does that mean?  In this context, it means "I want to sell this deal and make a commission as quickly as possible."  I mean, look at your above example!  You're trying to sell a building, and the buyer wants to wait for pricing to get better... and this is what you call "acting irrationally"?  As far as I'm concerned that's an extremely rational decision!

When money is involved, people act in weird ways sometimes. Well, guess what, there's millions of dollars involved in this business, so you see all sorts of weird behavior. As a broker, you have to navigate this. You have to learn how to "cool down" a client. And sometimes, you gotta learn how to turn the heat up to negotiate a better deal for the client.

OK, well all the buzzwords sound nice, and it would land a little better if you hadn't just above described all the ways in which you failed to do exactly this on a series of busted transactions.

I have a development deal in escrow where I introduced the buyer to the equity partner and they are in the deal together. 

I sold a large multifamily deal to a buyer I brought was able to pay the highest price because that buyer had a specific source of funding & business plan that made the deal pencil for them, even at a price 15% higher than anyone else and 5% higher than 2nd place bidder. They weren't in the market until I engaged them and brought them to the table.

Great!  As I said, there are occasions when you find a rare success story like this.  But it sure sounds like you remember this deal because it was such an outlier.  It also does nothing to show that a widely accessible MLS wouldn't have done your job just as quickly.

It's fine to bag on brokers. We are the punching bag in the industry. But ultimately, it's the principal deciding what price to sell at. Ultimately, brokers can educate the client but the client is the customer. And that customer wants the best price. Which means, people start underwriting deals "with more aggressive assumptions". 

Sure.  I'm not saying brokers are the only ones who act in a gray zone.  But they don't have any skin in the game!  Your client may fudge his T12 to make the deal look better, and the broker will go along with the lie because they have no fiduciary duty, but at the end of the day your client is the one paying a mortgage and maintaining the building, and you aren't.  He has risk, you don't.

It's not that you should or shouldn't hire the broker that sold the property to you. But realize this, the business is very, very cut-throat. Principals are cut throat to brokers in different ways. And if the broker is capable of selling the deal and you don't give the chance to sell it, then you best believe they will think of you as a less than capable or ethical market participant.

Yeah, excuse me, "ethical market participant"?  Whose ethics?  Yours?  I don't see anything innately "ethical" about a demand that you get to resell a building you sold me 5 years ago.  This argument, this entire worldview, presupposes that what is best for the broker is the moral center of the universe.  When you sold me my MF asset and pushed along the old owner's shitty collections assumptions, and I got into the building and realized my gross revenue was down 5% from what YOU underwrote and showed me, I'm gonna be pissed, because you (and your client) sold me a bag of goods.  And you have the effrontery to also tell me that I'm obligated to use you when I want to sell it?  What if you did a bad job?  What if you underpriced the asset because you didn't understand it?

This is exactly the kind of bullshit line that gives substance to the accusation that brokers are sleazy, unethical actors.  You want to have your cake and eat it too - recurring business divorced from any expectation or reality of success.

And you will then feel the "cut throat" nature of the industry the next time you have to work with that broker, whose business is built entirely on relationship building.

Again, it's amazing that you can talk to me about "ethics" while spouting off this kind of tripe.  Do you truly not understand what it is your saying here?  You are, quite literally, stating that if I don't give you a listing, you'll basically blackball me next time you have a good asset to sell.  But it isn't your asset!  You're actively admitting that you're willing to screw over your client, the owner, because you have a grudge and won't explore a full universe of buyers!  

This is my entire point, summed up in black and white by the person defending brokers!  You are a class of unethical actors with no responsibility to do a good job for your client, a fact which you just admitted.  Every attempt to justify a broker's existence ends up revealing the scuzzy underbelly of the actors concerned, and every attempt to paint brokers in a good light effectively admits that they don't do anything useful.  If you can't be useful without being a shitheel, and you can't be a good actor without ceding any potential use case, then maybe it's time to admit that the entire industry shouldn't exist.