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Funny Real Estate Sign #5

Gary Fong Real Estate

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The Tenant Went Bad. And It's Your Fault!

 

About five years ago I was the leasing agent for a building owner and leased his building to a transportation company through a co-broker. I don't know how it works in your neck of the woods, but here in New Jersey if the tenant renews their lease we're paid a commission on the renewal. Close to time of the tenant's renewal the co-broker contacted me and asked me to follow up with the property owner regarding collecting the renewal commission. He thought the tenant was in the process of renewing the lease. So, I emailed the property owner saying that I understood the tenant was staying and asked him for a copy of the new lease terms so I could prepare an invoice.

I was taken aback when I received his reply:

"The man is into us for $120K in back rent. I think that you and the co-broker should make good for getting us this stiff. How about those apples. When can I expect the co-broker's  and your first checks to compensate our losses?"

Geez, what a crybaby! This person wasn't what I would consider a professional landlord, but he was a prominent businessman and, I thought, sophisticated.

Shaking my head I politely responded with that although I was sorry he felt that way I successfully provided a service, and made no guarantees as to the tenant's ability to pay the rent. I also asked him that if he had invested in AIG or Lehman would he call his stockbroker and ask him to return his commission. I also said that owning real estate was just like any other investment meaning that there's risk. To make a long story short, I ended my message by inviting him to read my post  I'm Not Your Partner.

But what really irked me about this whole thing was how did he come to this conclusion in the first place? That somehow it's the broker's responsibility as to the tenant's ability to pay the rent.

If you think it through rationally, how does the broker have any control over the way the tenant conducts business? Is the broker suppose to pay a monthly visit to the tenant's office to manage his books, making sure that there's enough cash in the account and that the rent gets paid first? If the tenant's business starts to slip is the broker suppose to insert themself into a management position and effect a turnaround? Get real!

I'll tell you how he and a lot of other landlords came to this conclusion. The brokers have allowed them to come to it! The "Village Idiots", part timers, dabblers and the ones that don't know what business their in. If your reading this and don't know what I'm talking about then maybe your one of them.

Allow me to clue you in. We're in the service business! We provide a service by finding a tenant and negotiating the business terms of the lease. It's the landlord's choice to accept the tenant and if he does, he assumes the leasing risk that's associated with the tenant. The broker is not a partner with the landlord in the downside risk.

Now that you understand your role, some of you still won't be able to help yourselves. You'll go out tomorrow and in desperation to "get that listing", let the landlord bully or intimidate you into accepting some ridiculous commission payout and terms. Guess what? Your being set-up not to receive your full compensation just in case the tenant stops paying the rent. Nice hedge for the landlord if you allow it. 

So the next time you're confronted with your commission being tied to the tenant's performance, ask the landlord how does he expect you to enforce it?

I never did hear back from that property owner, and I doubt that he took the time to visit this blog to read the post I referred him to. After all it wasn't what he wanted to hear.

I did take a ride by his property and saw a broker's sign on the front lawn. One of those aforementioned brokers . I could only imagine what listing terms the broker had to agree to, but hey, they "got the listing". 

Wimpy

You remember Wimpy? That Sleaze-ball in Popeye.

For the younger real estate people out there wondering; Who's Popeye? Popeye  first appeared in a comic strip in 1929 and was later developed into a TV cartoon character. Wimpy played a supporting role who had a serious addiction to hamburgers. So-much-so, he would have sold his own mother down the river to get his mouth around one.

His famous line was: "I'll gladly pay you Tuesday for a hamburger today." Spoken like a true addict.

Well, let me tell you what a "Wimpy" is in the real estate business.

I'm sitting down with a property owner just finishing up a listing presentation, when he says to me "lets talk about your commission". (When the first thing mentioned is my commission, I know it's never good and things are about to go sideways.) He goes on to say that If I take this listing for a (significantly) reduced fee, he will also give me a listing on another property that he's planning to sell sometime in the future.

So I reply, Oh, what you're offering me is a Wimpy! (perplexed look) You know. Wimpy? On Popeye? I'll gladly pay you Tuesday for a hamburger today? At this point, if we can't come to an agreement, I pass.

I never let the conversation evolve to see if on the second listing I'll receive my customary commission rate, plus the portion of the commission that I didn't receive on selling the first listing. There's probably a third future property to list, if only I take a reduced fee on listing the second property too. Talk about diminishing returns!

I don't believe there is ever a second property. The whole thing smells like, well, a rotten hamburger. Although, I'm sure some of my competitors are willing to take a "Wimpy" for a listing.

You know, I never saw anyone take Wimpy up on his offer. And, I never saw Wimpy pay anyone back.