Will start by saying I have never worked for a firm that has paid a retainer in exchange for "first looks" at off market deals. I have seen this on the capital side, paying a rainmaker type to pitch the firm to family office/high net worth capital on joint ventures.
On the deal side, has anyone ever done this? How would it be structured? From the buying firm's perspective, I imagine it would need to be done on a MTM or shorter term/renewable type of agreement, but at what type of fee? We are discussing the concept with a private broker who has a good track record of selling deals off-market, his value proposition is that without a retainer, he'd be pitching deals to buyers who are more aggressive than us and have the discretionary capital to close faster than we can (we need to raise LP equity on each deal). So basically, we'd be at disadvantage. 1% buyer paid fee on off-market deals, or pay a flat monthly retainer whereby we would have a defined window of time to either move forward or pass, at which point he would be able to shop the deal to whoever he wanted. Our target for acquisitions this year is $100MM. He made the point that if we did deals without a retainer, on $100MM off market we'd be paying him $1M or $83K per month averaged out. He's proposing we pay him on a 30 day renewable retainer, $40K which is half of what we would conceptually pay if we did deals on a per deal basis.
I have no idea of this is potentially a good deal or potential highway robbery, but I wanted to ping the forum for their views.
So what happens if his deal flow dries up and he doesn’t bring you anything? I’ve never seen or heard of that, but it doesn’t mean it doesn’t happen. Additionally, if his deal flow is that strong, and network that good that he can show it to better buyers first, and he would make more not having the retainer - consistent cash flow is nice - but something doesn’t add up.
This is not a typical arrangement, from my experience. It sounds a bit shady, particularly as he's probably not letting his clients on the other side know that he has a separate agreement which is impacting his judgement about who to show which deals.
At least in Asia, it's typical to take really good brokers who can bring off market deals out to nice meals, drinks and so on... but a retainer sounds strange.
I have to agree, month to month payments without performance is unusual. Perhaps he has several buyers paying him this way...
One of my previous employers did this (institutional pension fund advisor with 5B AUM). They were hard up for deals years ago and we worked with someone who showed up with a pipeline in tow. The challenge for the firm was optics, they did not want to show their investors a Buyer Fee as part of the transactional cost. They paid a monthly retainer for about 10 months, closed 2 deals and had another under contract but screwed around and tried to retrade the price so the seller pulled out. The economics ended up working out, if they had paid the standard 1% buyer fee it would have amounted to $750,000 in fees vs. the $30K monthly retainer they were paying.
If he's listing deals for a client and you're paying him to give you the first go at it, it sounds like you're paying him to rip off his client. If you're paying him a monthly fee to rep deals for you that's fine, but I don't know why he wouldn't just want to take both sides of the commission, it's probably higher than what you'd pay him each month.
So is he not going to show the properties he is listing to buyers that don’t pay his shakedown fee? Off market is great and all, but how many firms does he have this deal with and is he going to do the same thing to you on disposition?
To explicitly spell out early access to deals for a specific payment seems off, isn’t this the kind of thing that is more nebulous of showing your good buyers deals first when they are off market.
if he wants a salary tell him he shouldnt be a broker.
This sounds like a major fiduciary/agency issue waiting to happen. If the broker has these deals signed up and is showing them to you pre-market before or instead of more agressive/qualified buyers, he is doing a disservice to his client. I can't imagine many sellers would be ok with knowing their broker is "on retainer" to show preference to a certain buyer, and masking that arrangement would be unethical. If you are a real buyer brokers will need no incentive to bring you deals, and if not this is not the way to compensate.
The broker does not have a listing agreement. He has a personal relationship with the seller (close friends with the president of the company). As a result, the president is giving him the opportunity to shop deals that normally would be given to a professional brokerage company. If we (the buyer) were to call the seller directly and inquire as to these properties being for sale, they would tell us no thanks and hang up the phone. The only reason we are getting the shot is due to the relationship. Seller doesn't give a shit who is being shown the deals provided that pricing expectations are met.
If these deals actually had any chance of closing for a price that the owner was interested in, the broker wouldn't need a salary from you.
If you have to pay a broker a retainer they are a shitty broker.
I have several brokers that feed me info on off market deals or deals with contracts expiring. None of which I pay a fee too (I've never actually closed a deal with them).
Brokerage is all about information and relationships. One broker doesn't have all the inside bits and relationships for an entire market. Don't put all your marbles in one basket with this one goof. You would limit your deal flow immensely. Start building lasting relationships with several good brokers and deals will start to flow.
I've seen a version of this in practice before. The broker signs a short term (6-12 month) agreement...the company (developer) and broker create an exclusive relationship (basically right of first refusal). The broker gets a monthly draw from the company which is then counted towards his commission once a deal closes. In return...the broker would owe the company for the aggregate amount of the draws if no deals were closed. It really would only work if the broker has a track record and there is some kind of existing relationship between the parties.
It could be feasible that if a company puts a deal under LOI or contract...you could start to offer the broker monthly draws until the closing. Of course...this still contains risk if the deal doesn't close. But you could deduct that draw amount from any future deals you might do with that broker.
In the situation presented by the OP...it seems like the broker essentially wants to become an employee. The greater question is why the seller is not paying the commission. A savvy broker would know that you get the off-market seller to agree to a price. Then...just add in the commission on top of that price. Therefore...the broker commission is baked into the land acquisition cost and no one has to question why there's a line item or expense being paid by the buyer to the broker.
Sounds like a terrible idea. You don’t want to pay a broker before they delivered on their end of the bargain. These guys can be very lazy and dishonest. They get paid when the deal is done and there is no amount of complaining or salesmanship that can convince me otherwise.
retainer for off-market deals? That sounds like a disaster opie
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