2 min read
Brokers are a common staple of the real estate investment world, and many people seeking to sell a property hire a broker with the hopes of finding a legitimate buyer. Brokers have been commonly associated with people looking to purchase or sell real property, but let’s take a moment and consider some of the advantages and disadvantages of hiring a real estate broker.
In short, a broker is a person who connects those interested in selling real estate with those who are looking to invest or buy real estate, including hotels. The most obvious reason that many people choose to hire a broker is the fact that brokers have access to the Multiple Listing Service (MLS) and they are supposed to have expert knowledge about the market, saving you a lot of the time and energy that goes into finding an ideal transaction. But is that always the case?
The mathematical honesty is that although you might want the best deal possible for your own interests, your broker has the easier path to reaching a deal in which he or she gets a commission. Brokers are even starting to offer “exclusive contracts” that allow them to get paid, even if he or she was not directly involved in procuring the end result. Despite brokers following what industry standard refers to as “duty of care,” brokers are compensated a fee for a transaction that closes, regardless of whether it’s a good or bad deal for buyer or seller. It’s just the nature of the beast, the broker’s compensation model was designed to be an early and instantaneous event.
Are they Adding Value?
When you’re a seller of real property (including hotel investments), you must ask yourself if brokers can do anything other than listing your property on the MLS? They’re supposed to have a rolodex of leads and contacts they should be able to contact regardless of listing it on MLS. Are they helping the parties reduce their transaction cost or just sitting idle and observing the process? Many times an experienced broker can organize and initiate the legal, accounting, and transactional professionals for their clients, saving thousands of dollars at the closing table. However since it’s not an industry requirement for brokers to have this experience or expertise, they often neglect to take this initiative for their clients.
Can they help Substantiate Value?
A good broker should be able to efficiently and articulately advocate on your behalf, essentially paying for themselves. This means their voice should be influential in the transaction and explain why the sale should occur at a higher or lower price. This requires a broker to have sophisticated knowledge about the property and/or the business merits of a transaction, especially facts and trends that can not be easily quantified. Ask yourself, does a broker have this type of knowledge about your property?
Benefits of Equityroots.com Hotel Investment Platform:
Sometimes the privileges of accessing the MLS outweigh the disadvantages, making sense for a person or business to use the services of a broker. But many times, adding a broker to the transaction as the buyer simply adds cost to the seller and reduces your chances of getting a discount on the purchase price. There are some instances where a broker is very useful, helpful, and worth every penny. Unfortunately, there are probably more instances where the broker didn’t add any value to the transaction or substantiate your property’s value to the best of its abilities.
Equityroots.com depends on land-use knowledge instead of brokers to find its next opportunity. The hotel investment platform does not pay any brokers, dealers, or commissions to source its investors. The intent of this model is so that people can invest into real estate projects and hotels without paying commissions and brokers. It’s pretty clear to see the advantages for investors under this model. Our investors can build a diversified portfolio of franchised hotel assets, without paying any commissions to invest.