Should I go with a broker that doesn't require a contract? (Future commercial bakery tenant)
I am in the process of scaling up a small home-based bakery to a commercial space that I will be leasing. Thus, you can guess I am pretty new to this realm. (In Alabama)

I have interviewed three commercial real estate agents in my area (North Alabama), 2 of them brokers, to get a preliminary idea of them.

One of the brokers has highlighted that they do NOT require a contract before helping me "so if I don't like them, I can leave at any time. I'm not stuck". "Those that require contracts just want to do the minimum amount of work and you are stuck with them."

The other two have highlighted that they DO require a contract. That "then you know we are solely representing your best interest and not the owners" and "legally, if they are going to just represent your interest, you have to have that in writing".

Which is it?
[{"id": "f6nyofo", "text": "Tenant reps get hosed all the time, so getting a contract is a good practice on their end. It may not be enforceable at all, but at least you can hold them to the contract if you feel that they are not pulling their weight. \n\nUsually, the brokers should qualify the tenant to see if you are worth their time at all, things like how much can you pay a month in rent, can you pay rent for 6 months while the build outs are occurring ect. \n\nThe tenant's broker is paid by the landlord usually, so you are not out of pocket for anything. That being said, see what the reputation of these brokers are. Many times for a start up you end up working with the junior person on the team, which can be frustrating since they don't know much of anything and you end up touring a bunch of spaces that were never going to work at all. \n\nAnyway, as long as the contract does not say they charge by the hour or anything, it is not a dealbreaker. It shows that they know the business and work for a legit company. \n\nThey only get paid if a deal gets done, so make sure they don't try to put you in the first space you see. \n\nGood luck, getting a good lease on good terms can mean the difference between life and death of a business. Making sure you think of everything and find a space that meets your needs is important.", "replies": [{"id": "f6o0s59", "text": "Thank you so incredibly much for your detailed response. I have more clarity now.\n\nThis part has been the most anxiety-inducing. Thanks for the good luck.\n\nI do have a couple follow-up questions if you have the time. \n\n1) Is it worthwhile offering to pay the commercial broker a flat fee, so that they don't feel motivated to get \"the most commission\"?\n\n2) One agent said that a contract is legally required between me (tenant) and broker for them to be able to represent me as a client. Are they just wrong/confused?", "replies": [{"id": "f6o6srz", "text": "Answer to 2: no they are not wrong. Also the guy offering no contract is likely doing that because they\u2019re trying to build their business/business is slow. A seasoned broker would likely require a contract, so you could be shooting yourself in the foot by going with the one who doesn\u2019t require a contract", "replies": [], "depth": 3}, {"id": "f6opmtb", "text": "1. I don't get it. You are offering your agent more money in addition to the commission they will get from the landlord? You are trying to buy their loyalty for what? A better rental agreement? Use Redfin or Zillow to do your own comps to find fair market value. What do you think about asking your agent to share their commission with you?\n2. Well yea, the \"no contract agent/broker\" becomes contracted at the signing of the rental agreement right? Probably under the commission clause of the agreement. If you are trying to rent a hot location that is getting multiple offers, you could offer dual agency.\n\nIf this is legal in your state, the landlord's listing agent gets both the listing % in addition to the selling/rental %. This may motivate them to bump or push your offer to the landlord.", "replies": [{"id": "f6t5s2x", "text": "Oh good question on 1. I read this:  [https://www.nolo.com/legal-encyclopedia/clb-signing-contract-commercial-real-estate-broker.html](https://www.nolo.com/legal-encyclopedia/clb-signing-contract-commercial-real-estate-broker.html) which suggested considering negotiating paying the broker a flat fee instead of them seeking commission.\n\n2. OK - I wonder if when I ask the real estate brokers \"do you require I sign a contract to work as your client\" if they could be thinking of that phase of the signing (not the early phase that I am implying). Good to know about dual agency as well. THank you.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "f6o6xhx", "text": "Do not pay rent during the build out - rent commences at opening.  They will typically allow 3-4 months for a build out of a bakery.  \n\nYou can also negotiate some TIA to help build out your store if you sign a 5 year lease.  If they require a personal guarantee make sure that it burns off after year 1 or the amount of the TIA.", "replies": [{"id": "f6pq7gi", "text": "You get what you negotiate, and having a good broker who understands how long build out will be, and the permits required, and zoning issues, and parking issues ect, will save you some money. They may even have connections to get you SBA loans ect to get the ball rolling. \n\nLandlords take advantage of low credit naive small businesses all the time.", "replies": [{"id": "f6t4qxp", "text": "Gosh good to know. Now that I have been in the business world for a short time, it has been enough to constantly hear a curmudgeon's voice in my head say \"they're all out to get you!\"", "replies": [{"id": "f6t75h0", "text": "Commercial brokers, in my experience, are a step up from residential brokers in terms of being actually useful. \n\nThe trouble is, not many will want to help you if you don't have your shit together, or the deal is so small it is a waste of time. So that means you are likely to get the youngest person on a team who does not know everything and will likely be their first deal. \n\nUnless the bakery you are about to open is 10,000 SF or larger, employs 10 people and you have 3 million in cash ready to pour into the space for a 10 year deal. \n\nSmall business is tough, I had one and you learn a lot about labor laws, and taxes, and health code, and handicap code and plumbing code, and all kinds of stuff that makes you very angry at all the red tape you have to go through. \n\nSo my advice is have a lot of money saved up, decide if this is going to be your job full time, have a supportive spouse or family, and be ready for the rollercoaster. And having someone who knows plumbing code, what kind of equipment you need and if the building can handle it, what kind of parking requirements you need, what kinds of conditional use permits you can have, who a good electrician is, who their tax guy is and who they recommend as an expiditor, those things really help. \n\nWhen I got started, I was all like, \"What is an expiditor?\" \n\nYou learn a lot, but you don't have to only learn from your own mistakes. So don't make this harder on yourself than it is already going to be. Cause this will be the hardest thing you probably ever do.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "f6t4kmx", "text": "OK. Thank you for this. I have laid out a detailed startup plan and 3 years of pro forma statements, but for these I assumed I would not need to pay rent during build-out. I semi-panicked when I saw that was needed. I also had no idea what landloards would cover - so I did leave a good amount of a contingency. Thank you for giving me a little more idea of what you have seen is typical for build out allowanace.\n\nCould you please clarify what TIA is? I am planning on signing a 5 year lease, at the minimum.", "replies": [{"id": "f6tdxfq", "text": "Tenant Improvement Allowance - typically landlords will provide money to help with the build out.   Because you are a startup and therefore higher risk tenant this will be harder to negotiate than if you were a national brand.  However it is still typical for landlords to provide some TIA or free rent to help get going.", "replies": [{"id": "f6teeyt", "text": "OK good to know - thank you.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6ocfh4", "text": "Hi OP, I would suggest that since you're still finding your agent, also find if you have a local SCORE office (score.org) that you could reach out to for help. They have pros/vets from different industries that volunteer and help guide people that want to start their own businesses. \n\nAs a personal example, my mentor used to be part of management for a national steak chain who later \"retired\" to help expand a local chain. He was very helpful and straight with me when it came to discussing things like what's involved in the location search, certain lease terms to negotiate or be wary of, along with a bunch of other useful information. Be warned, they are very heavy on the importance of a business plan, so they will bring that up often. If you have a specific question or issue though, they will still help you walk through it. :) \n\nHope this helps and good luck in your business venture!", "replies": [{"id": "f6t407m", "text": "Thank you so incredibly much for this advice. I even contacted SCORE months ago as there is a local office, but never heard back from them - so I kinda figured \"maybe they aren't that helpful\". Your advice highlights the importance and helpfulness of SCORE afterall. I will reach out more diligently - as all of those things you were helped with are all the things I feel I need help with. \n\nAnd thanks for the warning on the business plan. I did do my due dilligance I think I writing a pretty substantial one. I definitely did avoid that for a while, so I think it was a good warning to give.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f6odn4m", "text": "I worked as a tenant rep for 11 years, done close to.150 commercial leases and only once have had a signed exclusive contract with a tenant, and even that was for a renewal.  \nI completely disagree with a lot of the sentiment on here.  I worked as a very small boutique shop and operated my own way. it could be this guy is in the same boat.  you don't need a broker who needs a contract.  you need a broker who's gonna find you the right space and do it diligently.", "replies": [{"id": "f6odr65", "text": "also just based on your other responses I feel bad for you because you look like you need some help, so you can pm me and I'll share some advice if you like.", "replies": [{"id": "f6t3hsj", "text": "Thank you for your feedback - it is good to understand from a pro in the business. I also appreciate your offer for help, and I very well may reach out.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6ofgf8", "text": "I don\u2019t do a contract. It\u2019s not like anything is actually binding anyways. Work with 10+ national credit tenants..\n\nHonestly never even thought about a contract but without one it\u2019s easier to get rid of you if things don\u2019t work out than worrying about keeping you\n\nEdit: I work at one of the top 3 commercial firms..", "replies": [{"id": "f6t439p", "text": "Thanks for letting me know. Kinda wondering why the heck the two others did want a contract. Weird.", "replies": [{"id": "f6tr572", "text": "Ya I qualify them by making them come I to the office to meet. If they won\u2019t come in then they aren\u2019t worth your time.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f6ooayv", "text": "Why are you so hung up on picking the best agent when you should be focused on picking the best location for your expansion? If you were selling or the landlord, I could see how a well connected listing agent could be an asset. But as a prospective tenant, you should be doing your own research and homework on properties that best fit your needs.\n\nCriteria to consider could include: location, price per sqft, and the age of the building. Have you thought about discount brokerages or real estate friends who are willing to split the commission with you? In many states, the agent only needs to be the procuring cause to earn a commission. As the Selling/renting agent, they get their money from the landlord. So I do not see how honestly they can resolve that conflict of interest. The no contract offer could just be empty marketing.\n\nWhat do you think about hiring a commercial building inspector after you have narrowed down the list of properties you are interested in? Things they inspect can include: mold, lead paint/pipes, asbestos, gas lines for ovens, electrical system that can handle commercial mixers, and water supply adequate for your bakery.\n\nMake sure you read your lease. Commercial leases tend to be NNN, where you pay for maintenance, taxes, and utilities. Don't want to end up on the hook to replace an aging, defective, or out of code sprinkler system.\n\nAlternatively, do you really need your own bakery? Are there any baking co-ops in your area you can join? If you are only selling at farmers markets, grocery stores, or online, maybe you can rent hours and sub-lease the space and equipment while lowering overhead and maintaining scalability. I can see it now, the Wework of baking... weBake. Quick start planning your IPO.", "replies": [], "depth": 1}]