Thursday, July 15, 2010

Some thoughts on broker/lawyer relationships

Why are so many brokers and lawyers mortal enemies?  I cannot being to tell you the stories I've heard about broker x and lawyer y fighting with one another to the detriment of a deal.  I think there are two main reasons for this: (1) lack of communication and (2) interference.

I had a great conversation with broker and fellow blogger Duke Long yesterday that made me want to write about this.

In many deals if not most, brokers are at the table before the lawyers, negotiating the business terms and working the deal.  That said, smarter client in my humble opinion get legal counsel involved earlier, such as at the LOI stage.  They often take ownership of the deal, guiding it through for the client and to collect that commission.  Sometimes we lawyers laugh at the brokers, thinking that they do nothing to earn their money -- which, by the way is way too much anyway since it is so much more than the legal fees.  That happens sometimes, but not as often as lawyers think in my opinion. (And heck, sometimes lawyers don't earn their fees too.)

Conversely, some brokers unjustifiably see lawyers as deal killers. But our function is to point out flaws in deals, possible problems and raise issues so a deal can be properly underwritten.  OK, once in a blue moon I will find a deal that "needs killin'."  But that is few and far between -- a very rare occurrence.  And even then, my advice is simply there to accept or ignore, to point out good and bad things about a transaction.

A lack of communication is often a problem here.  Brokers, please realize that we are just out to protect our client's interest.  That is what we are paid to do, and if we don't, we are in major league trouble not to mention incompetent.  Lawyers need to realize that brokers have a vested interest in getting a deal done and should work with them toward that end.  Getting to the closing table ought to be the goal.  That is why I like to talk to my client's broker in the deal, so he or she knows where I am coming from and that I am simply not some annoying impediment to a commission.

That leads me to interference.  We each need to respect the other's boundaries.  Brokers should try to lawyer the deal; when a legal issue comes up, refer it to counsel.  It is not only the right thing to do but usually the legal thing to do, unauthorized practice of law and all that. (Note: Here in Illinois, a lawyer that has a broker's license cannot act as both the lawyer and the broker on a deal.)  And lawyers should, unless there is a compelling reason or unless you are asked, stay out of the business side of the deal.  A lot of us are frustrated business people or (in my case) business owners ourselves.  But by and large that is not our function, substituting our client's judgment with our own.  And they hired a professional to help with that.  (There are exceptions to every rule, of course, but I see this all the time.)  And often our business advice as lawyers is not quite as stellar as we might think it to be.

As a general rule, I have had terrific relationships with brokers.  We respect each other.  Have I run across some for which I have had little respect?  Sure, but not as many as you might think.

In short, there's room at the table for everyone.  We each have our function, advising our clients and getting deals done.  I think brokers and lawyers would get along a lot better if they just realized that instead of trying to bash the other as a waste of money or time or a detriment to the deal process.


Richard B said...

Interesting comments and observations, but I see one very important and childish element missing - egos!

Unfortunately attorney's and brokers have an extremely hard time coming to grips with the fact that while a broker (in most cases) is not an attorney, a good broker will fully understand the commercial real estate lease and purchase agreement. Conversely an attorney who specializes in real estate transactions will understand the business and economic terms.

As a tenant broker only, too many times I've worked with attorneys, my tenants and the landlord's, only to find myself pushed aside so that the attorney can establish their control position and (seemingly) justify their hourly rate (or cost for the negotiation if a flat rate). There isn't any question that there are those attorneys that have a difficult time "dealing with the broker commission", please, get over it. The attorney will always get paid, even if the transaction falls apart.

Many times, when working with a good attorney, they will look over my shoulder and I over theirs, a good arrangement for all.

We all need to understand that the goal is to serve our clients and finalize the transaction. Why have unnecessary infighting among professionals attempting to establish a pecking order that is completely counter-productive. The broker and the attorney must cooperate with their respective clients, otherwise, potential disaster.

Until the "ego thing" disappears (unfortunately, never going to completely happen), there will be the potential for continued problems and disagreements.

Only after we have been practicing our trade long enough do we begin to realize the important things and our egos aren't one of them.

David said...

Richard, you may be right. I think when I was a younger lawyer I treated the brokers with more disdain, probably out of a lack of knowledge. Now that I have a few gray hairs, I think I get it, so to speak. The less our egos are involved, the better it can be for our clients, and that is or should be the ultimate goal.

coydavidson said...

Some of the best lease deals I have been involved with where the client was best served, were transaction where an outstanding RE attorney and the broker worked together early on in the process and truly understood the role each should play.

I am always pleased to find out that a client has an excellent attorney on the team whether its in-house or outside counsel.