Based on a number of recent transactions I’ve been privy to, I believe that it would be in the interest of commercial real estate property owners to be acutely aware of the duties that the broker representing them is required to be in compliance of:
- undivided loyalty: your best interests are promoted and protected by the brokerage and the broker representing you. As a client, your interests should take priority over the interests of the brokerage, its agents, and any other party.
- disclosure: your broker must tell you everything they know about the transaction or your client relationship that could have an impact on any decisions you make.
- confidentiality: your confidential information should not be shared with anyone outside of the brokerage without your written consent, except where required by law, even after your client relationship ends. This includes, for example, your motivation for selling, and the amount you would be willing to pay or accept.
- avoid conflicts of interest: your broker must avoid any situation that would affect their duty to act in your best interests. If a conflict arises, they must disclose it to you and cannot provide any additional services to you unless you agree in writing to continue receiving services.
If I was a commercial real estate seller, I’d pay attention to the following disclosures that you can expect from your broker:
- commission structure and associated costs: is the commission structure fully disclosed, including who covers marketing and other sale-related expenses?
- additional unanticipated expenses: have you been fully briefed on the costs that you are being asked to incur in the process of selling a property, such as necessary repairs, renovations, or upgrades to make the property more attractive or compliant with Toronto zoning by-laws?
- accurate market valuation: have you been provided with a complete picture of the true market value of a property, or has a higher listing price been proposed without detailed analysis to back this just so that the broker wins the listing even if the current market conditions in the city don't justify it (potentially leading to unrealistic expectations)?
- potential conflicts of interest: how to their relationships with other parties (such as neighbouring property owners, potential buyers, or other brokers) affect their focus on representing your best interests in the transaction, which then plays out in the advice or recommendations given?
- market trends and optimal timing: has the broker explained the current market conditions for your specific asset type (e.g. retail plazas in Toronto), as well as the best timing for a sale? Understanding how specific market trends in the city could impact the property's sale price allows you to maximize its market value, and ensure that the disposition if executed at the right time.
- negotiation tactics and seller leverage: has the broker discussed with you the extent of your leverage in negotiations and do you sense that your representative will prioritize securing the best possible price (rather than prioritizing a quicker sale)?
- marketing reach and effort: who exactly is part of target audience that your broker is going to focus on selling your commercial real estate asset to and what marketing strategy is going to be employed? do you have the confidence in the broker’s ability to successfully execute on the marketing plan?
- highest and best use, as impacted by legal and regulatory considerations: are the city’s zoning by-laws, the city’s and province’s environmental regulations, the province’s building code requirements, and all other critical legal and regulatory matters that impact the highest and best use of your property clear to you and your broker?
- buyer’s financial position: does your broker have the experience and resources to assess the financial qualifications of potential buyers, to help ensure that deals don’t fall through (which happens when buyers are unable to secure necessary financing, causing delays or additional costs for the seller)?
- long-term considerations and exit strategy: will your broker look to find out the buyer’s long-term strategy (such as the option of holding the property if market conditions aren't favorable or exploring alternative exit strategies) in order to help the seller in the negotiation process and in assessing the buyer’s likelihood of closing the transaction?
- inquire specifically about the broker's commission structure, costs, and marketing strategy;
- get an independent property appraisal to understand your property’s the true market value;
- consult legal and financial professionals to navigate complexities specific to the city;
- get briefed on market conditions and understand current trends to make informed decisions; and
- review all contracts and agreements thoroughly to ensure clarity and transparency.