With no norms, agents often work both sides of deal
The lack of a norm is most apparent when trying to discover who real estate agents work for in Warsaw. Sometimes they are working for the buy side of a deal, sometimes the sell side. And sometimes they're working for, and being paid by, both sides.
The last arrangement comes as a shock to many Anglo or North American companies, where agents cannot, or won't, play both sides of a deal. But the practice is more common in some continental European countries. In Warsaw, it is often seen in the office market and is prevalent throughout the residential market.
"In Canada, it would be against the law (to take money from both sides), in Poland it's acceptable," said Douglas McMurray, managing director of Colliers International here.
Agents have mixed opinions on which method of representation is better and some said that while it would be unacceptable in their home countries to sit at both sides of the table, it's a matter of cultural and market perception.
"We feel it's quite difficult to be an objective adviser if you get fees from both sides," said Eelko Korteweg, managing director of Netherlands-based Debenham Zadelhoff DTZ, whose company takes fees from either the tenant or the landlord, not both. "Our role is more advisory. We are like lawyers, we are going out to win a case for clients."
U.K.-based Healey & Baker also is of the you can only be on one side of the transaction opinion. "Otherwise it would be a conflict of interest," said Chris Grzesik, a partner at Healey & Baker in Warsaw. But he doesn't condemn those who differ from this practice, saying it's common in some markets and should not pose a problem if there is disclosure.
"There is nothing wrong with that as long as both sides are aware of it," Grzesik said.
And those who are not coming from the Anglo-North American bent don't see why this example should rule here.
"English agencies will say it's unethical," said Agnieszka Kubas, a partner at Couderq & Kubas, which charges both the tenant and landlord when brokering a transaction. She added that agents inevitably do much advisory work for both sides during a deal so it's fair to charge both.
"It is fair provided we are not trying to cover that," she said, adding the practice is common in France.
If agents can't always agree on which side they should be working for, there is certainly little unanimity when it comes to how best to charge fees when working in Warsaw.
"In Poland, it is rather what you can negotiate," said Colliers' McMurray.
The most common practice, though, is that agents charge 10% of one year's rental cost or one month's rent from developers for finding a client. "It's sort of typical," McMurray said.
Couderq & Kubas' standard fee for a lease contract is one month's rent from both the tenant and landlord, Kubas said. She added that agencies working for one side would ask for a higher percentage of the overall annual rental income. How much higher? That's open to debate.
"No agent here will open up and say these are our rates," said Healey & Baker's Grzesik. But expected fees are 12-15% of annual revenue, he said. Even this, though, depends on the extent of the agent's involvement in the deal. "There is no standard," he said. "It's tailor made."
Although the fee structure could become a case of caveat emptor, agencies argue the client makes out in the end. They said fees for agents in Poland are low compared to the West. In Canada, an agent will normally charge a landlord 25% of a contract's annual income, McMurray said.
Clients themselves sometimes take a different interpretation into how fees should be structured. Some developers prefer to pay agents a percentage of income throughout the life of a contract, rather than paying a one-time charge. The reason: some developers want agents to think of the future.
"I prefer a percentage of the aggregate value of a lease contract as it induces an agent to sign long-term deals," said Sven von der Heyden, a German investor who has developed a building at Nowogrodzka 68 and is developing the Skorupki building.
"That gives me stability," Von der Heyden said. While he works primarily with Knight Frank Nieruchomosci, he has also worked with other agents in town. Von der Heyden said that in such a contract, a developer would pay 1.5-3% or the total value of a contract.
Given the vagaries in the market for agents, let alone the real estate market, some clients might wonder whether it is worth using a broker at all. Developers and tenants vary on this point.
Von der Heyden said he is happy to pay for an agent's expertise, service and advice. But others, especially over the past two years when demand has far outstripped supply, saw little reason to hire agents because clients were knocking down their doors.
Even today as the property sector only slowly switches from a sellers' to a buyers' market, some developers continue to sell at their own space. BRC Holding, which is developing the 55,000 square meter Les Tours building on ulica Grzybowska to be opened in April 2000, decided against an exclusive agent to have "freedom of selection of clients," said Sylwester Oldak, president of BRC. The developer has already signed contracts for space in Les Tours, but Oldak would not name prospective tenants.
"Some developers do that," said Healey & Baker's Grzesik.
Another alternative to agents is for developers to hire their own staff who are in effect in-house brokers. "Golub (the developer of the Warsaw Financial Center) has Rob Mathias, but Rob Mathias is an agent, this is his job," said Grzesik.
Obviously, agents hate to see business slip away. And DTZ's Korteweg argued that agents add value for tenants and developers. "It's very difficult for two or three people to follow what's going on," he said. "We have a very good overview about what is going on in the market."
This is a point developers acknowledge. Even BRC agreed there are benefits to hiring an agent. "The advantage of an exclusive agent is that it conducts its own marketing campaign," Oldak said, adding that his firm might hire an agent if it has problems filling space in Les Tours.
Some tenants also feel they can do without agents. Two companies that recently moved into the Pulawska Financial Center, Opel Bank and U.S.-based energy firm Apache, said they didn't see the need for an agent.
"We had a reasonable deal with DTZ and the Pulawska Financial Center without the use of an agent," said Mark Bauer, Apache's managing director. "For us, we didn't feel it was worth the additional money."
Opel Bank decided to negotiate with DTZ (which represents the Financial Center as landlord) directly, even though it had two offers from agents to represent it, said Christian Weidemann, vice president of the bank, which in mid-January moved into 1,000 square meters of space.
"We had two offers from agents to represent us, but we refused because they were too expensive," Weidemann said. He added that the agents, who he declined to name, expected the equivalent of one month's rent for representation.
Weidemann wouldn't say how much Opel Bank is paying for its space. But the Pulawska Financial Center's asking price per square meter is $35 plus $5 in utility charges. This means the company could have saved up to $40,000 by going it alone.
Agents argued that by using them, tenants often save money as well.
"We feel we can save a lot of money for them," said Korteweg, adding that since DTZ often represents landlords it knows where tenant costs can be cut.
The last arrangement comes as a shock to many Anglo or North American companies, where agents cannot, or won't, play both sides of a deal. But the practice is more common in some continental European countries. In Warsaw, it is often seen in the office market and is prevalent throughout the residential market.
"In Canada, it would be against the law (to take money from both sides), in Poland it's acceptable," said Douglas McMurray, managing director of Colliers International here.
Agents have mixed opinions on which method of representation is better and some said that while it would be unacceptable in their home countries to sit at both sides of the table, it's a matter of cultural and market perception.
"We feel it's quite difficult to be an objective adviser if you get fees from both sides," said Eelko Korteweg, managing director of Netherlands-based Debenham Zadelhoff DTZ, whose company takes fees from either the tenant or the landlord, not both. "Our role is more advisory. We are like lawyers, we are going out to win a case for clients."
U.K.-based Healey & Baker also is of the you can only be on one side of the transaction opinion. "Otherwise it would be a conflict of interest," said Chris Grzesik, a partner at Healey & Baker in Warsaw. But he doesn't condemn those who differ from this practice, saying it's common in some markets and should not pose a problem if there is disclosure.
"There is nothing wrong with that as long as both sides are aware of it," Grzesik said.
And those who are not coming from the Anglo-North American bent don't see why this example should rule here.
"English agencies will say it's unethical," said Agnieszka Kubas, a partner at Couderq & Kubas, which charges both the tenant and landlord when brokering a transaction. She added that agents inevitably do much advisory work for both sides during a deal so it's fair to charge both.
"It is fair provided we are not trying to cover that," she said, adding the practice is common in France.
If agents can't always agree on which side they should be working for, there is certainly little unanimity when it comes to how best to charge fees when working in Warsaw.
"In Poland, it is rather what you can negotiate," said Colliers' McMurray.
The most common practice, though, is that agents charge 10% of one year's rental cost or one month's rent from developers for finding a client. "It's sort of typical," McMurray said.
Couderq & Kubas' standard fee for a lease contract is one month's rent from both the tenant and landlord, Kubas said. She added that agencies working for one side would ask for a higher percentage of the overall annual rental income. How much higher? That's open to debate.
"No agent here will open up and say these are our rates," said Healey & Baker's Grzesik. But expected fees are 12-15% of annual revenue, he said. Even this, though, depends on the extent of the agent's involvement in the deal. "There is no standard," he said. "It's tailor made."
Although the fee structure could become a case of caveat emptor, agencies argue the client makes out in the end. They said fees for agents in Poland are low compared to the West. In Canada, an agent will normally charge a landlord 25% of a contract's annual income, McMurray said.
Clients themselves sometimes take a different interpretation into how fees should be structured. Some developers prefer to pay agents a percentage of income throughout the life of a contract, rather than paying a one-time charge. The reason: some developers want agents to think of the future.
"I prefer a percentage of the aggregate value of a lease contract as it induces an agent to sign long-term deals," said Sven von der Heyden, a German investor who has developed a building at Nowogrodzka 68 and is developing the Skorupki building.
"That gives me stability," Von der Heyden said. While he works primarily with Knight Frank Nieruchomosci, he has also worked with other agents in town. Von der Heyden said that in such a contract, a developer would pay 1.5-3% or the total value of a contract.
Given the vagaries in the market for agents, let alone the real estate market, some clients might wonder whether it is worth using a broker at all. Developers and tenants vary on this point.
Von der Heyden said he is happy to pay for an agent's expertise, service and advice. But others, especially over the past two years when demand has far outstripped supply, saw little reason to hire agents because clients were knocking down their doors.
Even today as the property sector only slowly switches from a sellers' to a buyers' market, some developers continue to sell at their own space. BRC Holding, which is developing the 55,000 square meter Les Tours building on ulica Grzybowska to be opened in April 2000, decided against an exclusive agent to have "freedom of selection of clients," said Sylwester Oldak, president of BRC. The developer has already signed contracts for space in Les Tours, but Oldak would not name prospective tenants.
"Some developers do that," said Healey & Baker's Grzesik.
Another alternative to agents is for developers to hire their own staff who are in effect in-house brokers. "Golub (the developer of the Warsaw Financial Center) has Rob Mathias, but Rob Mathias is an agent, this is his job," said Grzesik.
Obviously, agents hate to see business slip away. And DTZ's Korteweg argued that agents add value for tenants and developers. "It's very difficult for two or three people to follow what's going on," he said. "We have a very good overview about what is going on in the market."
This is a point developers acknowledge. Even BRC agreed there are benefits to hiring an agent. "The advantage of an exclusive agent is that it conducts its own marketing campaign," Oldak said, adding that his firm might hire an agent if it has problems filling space in Les Tours.
Some tenants also feel they can do without agents. Two companies that recently moved into the Pulawska Financial Center, Opel Bank and U.S.-based energy firm Apache, said they didn't see the need for an agent.
"We had a reasonable deal with DTZ and the Pulawska Financial Center without the use of an agent," said Mark Bauer, Apache's managing director. "For us, we didn't feel it was worth the additional money."
Opel Bank decided to negotiate with DTZ (which represents the Financial Center as landlord) directly, even though it had two offers from agents to represent it, said Christian Weidemann, vice president of the bank, which in mid-January moved into 1,000 square meters of space.
"We had two offers from agents to represent us, but we refused because they were too expensive," Weidemann said. He added that the agents, who he declined to name, expected the equivalent of one month's rent for representation.
Weidemann wouldn't say how much Opel Bank is paying for its space. But the Pulawska Financial Center's asking price per square meter is $35 plus $5 in utility charges. This means the company could have saved up to $40,000 by going it alone.
Agents argued that by using them, tenants often save money as well.
"We feel we can save a lot of money for them," said Korteweg, adding that since DTZ often represents landlords it knows where tenant costs can be cut.
