Investment sales brokerage is in dire need of modernization. According to CoStar data, 80% of investment sales transactions over $2 million are double term, meaning the listing broker also identifies and represents the buyer and receives 100% of the commission. The common pattern hampers asset values and ultimately hurts client returns. This is a problem that needs to be solved, says Kevin MaggiacomoPresident and CEO of SVN Commercial Real Estate Advisors.
“This understated marketing strategy results in buyers being overlooked and properties most often trading at less than fair market value.” In a recent whitepaper, SVN encouraged brokerage firms to adopt cooperative policies that create better transparency and competition between listed assets, which ultimately leads to a higher price.
Other industries are already operating on this type of cooperative structure, Maggiacomo says, citing equities, residential real estate and even commercial leasing, which he calls “incredibly efficient” when it comes to transaction transparency. “Almost every industry is networked in such a way that they have a centralized platform that provides full market visibility,” he explains. “The fact that major industries in the economy, with the exception of the commercial real estate brokerage industry, are networked demonstrates that the open and transparent nature of these markets provides a fair and efficient means of selling products through the creation of organized competition. . The result is the highest price the market is willing to bear.
The current structure of CRE commissions is at the heart of the problem. Brokers know they can limit registration to their internal database of potential buyers to increase their personal profits, not to mention customer return. “The investment sales commission program is broken and does not align with the seller’s goals and objectives. The model incentivizes listing brokers to double trades to earn 100% of the commission,” Maggiacomo explains. “The incentive is powerful.”
It’s not just the money. A large marketing campaign also takes more work. This means responding to more phone calls, emails, and inquiries, and all that work doesn’t earn the broker a higher profit. Yet, even if brokers don’t naturally move in this direction, customers are beginning to demand it. There is more information and understanding about brokerage, and customers no longer know what to expect.
Don’t expect change to happen quickly. “It’s going to be difficult for the industry to operate in a different way, although there are powerful forces that will pull them towards a transparent and cooperative market in the end,” Maggiacomo says. Achieving the goals will require three steps. First, there must be a 50-50 commission split; it must be required by company policy; and finally, it needs to be leveraged organizationally, which means everyone needs to do it all the time.
Maggiacomo notes that SVN was founded on these principles, but the industry as a whole has been slow to adapt. He says it’s changing. “Brokers control relationships with buyers. The more brokers who are informed of the availability of an asset for sale and the more buyers affected, the more offers there are and, ultimately, a higher selling price,” says Maggiacomo. . “The broker of tomorrow is the one who transforms the data that everyone has seen into information that no one else has. She is an advisor to the client.