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2. An Update on Our Changing Real Estate Agency Rules

When I began my career as a commercial/industrial agent in 1980, I made the assumption that when owners quoted the square footages of their buildings to agents, that these footages must be accurate. Then I soon realized that the only way I could really guarantee the accuracy of a building's size was if I actually measured the building myself.

In my 20 years as a full-time commercial real estate agent, I never came across a single building that was larger than an owner or listing agent told me it was. But I certainly came across many that were smaller than what had been represented to me.

What, you might ask, is the reason for this? Well, there are several reasons that may be applicable here, but the main underlying reason is probably the fact that larger buildings mean more monthly rent to an owner, and also a higher sale price to the owner when they're eventually sold. And, unfortunately, there are a lot of agents out there who merely quote the square footages they've been told by owners instead of measuring the buildings themselves. And once one person inflates the square footage of a building, the myth can then be carried on for decades.

I remember one time about 15 years ago a building came on the market that had been occupied for many years by one of the most recognized companies in America. It was an old facility with multiple buildings, some second story area, and a partial basement, too. It represented probably the greatest challenge I've ever experienced in measuring an industrial facility.

The flyer prepared by the listing agent said that the buildings totaled 120,000 square feet in size, but when I measured the buildings my own calculations came to only 85,000 square feet. So when I asked the listing agent how he had arrived at 120,000 square feet for the size of the buildings, he told me he had taken the footage directly off of a flyer that was published by another brokerage company about 25 years earlier.

Unfortunately, situations like these are not unusual in our industry. While it's rare to have a discrepancy in size as big as the one I just mentioned, it's definitely not rare for agents to not measure the size of the buildings they're presenting to their clients and prospects. Much of the time agents take it on faith that the footage they've been quoted by someone is indeed the true footage of the building area. And I can tell you from my own experience that this isn't always the case. I've even found that city and county building records can represent inaccurate building square footages when compared with the true footage when measured at the building itself.

So after my early years in the business I soon learned to measure every single building I was working on. And it really paid off as there were a number of buildings I was submitting to clients that turned out to be smaller than what the owners of the buildings had told me. There was even one time when I sold a building that was 19,500 square feet in size to a clothing manufacturing company, and the President of the company called me several weeks after the transaction closed. He called to tell me that he had measured the building and that it was only 18,000 square feet in size, not the 19,500 square feet that had I told him it was. He then told me that he expected me to reimburse him $135,000.00 out of my own pocket to compensate him for this discrepancy in size.

Well I must admit that my heart jumped for a few seconds, but I also knew that I had measured the building, and that my calculation of the footage was accurate. So I then asked the President, "How did you go about measuring the building?" And he responded by telling me, "We measured it from the inside walls with one of those rolling measuring devices."

At that moment a big smile came onto my face as I told him, "When you're renting office space the area is measured from the interior walls of the building, but industrial buildings are measured from the exterior walls of the building."

Our phone conversation ended just a few moments thereafter.

In summary, you never know when the square footages you're quoting to people are accurate until you measure them yourself. Unfortunately, there are some landlords out there who may be increasing the square footages of their buildings by 5-10% in order to get people to pay more money to them, and the people who rent and buy these buildings oftentimes will unknowingly pass the mythical legend on. As long as a building looks like it may be the size they were told it was, most tenants and buyers will never bother to measure the building themselves.

But all it takes is one incident where someone calls you after they've taken possession of a building, telling you that it's smaller than the size you quoted them, for your life as an agent to get very miserable very quickly. Any damages that may result from this will probably be much greater than the commission you earned from the transaction, and you'll wish more than anything that you had measured the building before you commenced negotiations.

So how about if you just save yourself this scenario and measure every building and available space before you begin negotiating on them with your clients and prospects?

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2. An Update on Our Changing Real Estate Agency Rules

About a seven weeks ago I wrote an article titled, "The Rules They Are a Changing." In the article I discussed how we as an industry need to change our rules to reflect how to handle properties that are offered in the marketplace with discounted commission rates.

Well, I don't think I've ever received so many E-mails from agents thanking me for openly addressing a subject that has been on so many people's minds these days, while at the same time not being adequately addressed by our industry.

One of the E-mails came from Hank Sorensen, a Florida attorney specializing in representing brokers, agents, and their clients through his company, Brokers Legal Group. And Hank had some very interesting developments that he told me about regarding real estate agency relationships and the current laws of the land...

In Florida, for example, Hank tells me that "Under Florida law, every agent is now assumed to be operating in a transactional agency status, which expressly disclaims any fiduciary responsibility to the client (versus single agency, which does attach a fiduciary status), and I see no reason for an agent to ever show a low co-op fee listing in Florida if they don’t want to."

In following up with Hank, he further told me that "Transactional agency is akin to dual agency, except that in the latter, the brokerage/agent represents both parties, and in a transactional status, they represent the "transaction," and not any party specifically.  In Florida, an agent is presumed to be operating in a transactional status unless proper documents are signed making the brokerage/agent a single agent, in which a fiduciary duty attaches.  In a transactional status, any fiduciary duties are expressly disclaimed."

In addition, Hank sent me information about a court case in Iowa, Next Generation Realty, Inc. et al v. Iowa Realty, Inc. et al. The court decision in this case was rendered on February 18, 2003.

In this case the court declared that the "unilateral offering of compensation by listing firms to other participants hardly constitutes price- fixing, as the exchange of this information is obviously necessary so that the potential selling realtor can decide whether it is economically worth its effort to attempt sale of the property."

In his cover letter to me along with the information he sent me about this case, Hank further stated "Obviously no business should be required to represent clients at a loss, and having brokerages continue to work for ever-decreasing commission schedules will cause, at some point, a loss to be sustained by the brokerage and/or agent because of the reduced commission schedule. Therefore, it is up to the individual brokerage or agent to determine when they are potentially going to cross this line, which will result in the agent not showing a specific property solely due to the cooperating compensation offered in the MLS."

Now obviously this case was decided in Iowa, and Hank practices law in Florida. In addition, Hank points out that because the decision in the Iowa case was neither published or appealed, it will have very limited value as a precedential case in the state of Iowa. And outside of Iowa, Hank says it will only have what he refers to as "persuasive authority" in any other state.

Knowing that the laws will vary depending on where you're currently working as a real estate agent, it's important that you know what the laws are are when it comes to your obligations in representing your clients and prospects. So make sure that you know what the laws are in your area, and also make sure that you're constantly working within them, too.

But still it's nice to know that a court in the state of Iowa understands what we're up against today as real estate agents doing business in a world of discounted commissions, and that we shouldn't be obligated to work on transactions that could potentially hurt our success as businesspeople.

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