Brokers in commercial real estate transactions are ubiquitous, but do they add value for the principals they represent? We assumed so - c’mon, some of our best friends are brokers - but now we have an insightful working paper with data-driven answers, so we can specifically ask: In general do brokered deals sell for higher prices than they would have without a broker? Answer: Sorry, no.¹ But that belies a more interesting and nuanced set of truths, including why brokers are still likely accretive to pricing for the Haystack’s readers even if neutral to pricing in the main.

At a high-level, real estate’s structural illiquidity relative to stocks or bonds creates an information asymmetry problem that brokers are supposed to fix. Basically, no real estate principal trades enough individual assets to know the market well, leaving them exposed to mispricing risk. Brokers, in theory, bridge this market intelligence gap. Also, principals are not as skilled in coaxing buyers up in price, brokers would tell you.

To test these questions, the researchers analyzed more than 100,000 office-property transactions in the U.S. between 2000 and 2016 and developed a model to determine expected pricing, then examined each transaction for specific characteristics. Was it brokered? Did the broker and seller work for the same firm? How large and sophisticated was the seller? How did it price relative to expectations? This granular approach yielded insights not only into whether brokers move the needle, but precisely under what circumstances their involvement is value-enhancing—or not.

The study highlights a familiar challenge in agent-principal dynamics: some level of misalignment. Brokers have imbalanced financial incentives in favor of a transaction and small changes in the sales price do not change their compensation materially. So a broker might do what he/she can do to ensure a deal gets done even if not in the client’s best interests. That’s the potential misalignment.

The study found this misalignment likely drives behavior but other factors can matter more. Specifically, sell-side brokers have negative price impacts for inexperienced clients but “this impact turns positive” for sophisticated clients, especially those with “multiple broker relationships,” which we’re guessing you are. Specifically, for transactions of small experienced clients, a broker increases selling price per square foot 6.3% to 8.1%, or up to $877,000 of additional purchase price, and for large and experienced clients, 3.2% - 5.3%, or up to $538,000.

For low-sophistication sellers, retaining a sell-side broker ends in a lower-than-expected transaction price. This is “where help of an expert would be needed the most,” the researchers point out, as these clients are likely “to suffer from the adverse consequences of information asymmetry.” In fact these sellers underprice the average building in the dataset by about $162,000. Rather than mitigating information gaps, brokers in these situations “seem to exploit” the information asymmetry, exacerbating the principal-agent misalignment.

Notably, the research finds that brokers add zero value for large, experienced sellers if those sellers have only one broker relationship. A takeaway for you: Running a competitive process to pick a listing broker is probably the easiest way to maximize sale price, as “brokers perform better for clients they do not do a lot of business with.” A competitive process at the outset combined with the prospect of future business all seems to position a selling broker for maximum positive effect. 

The study also sheds light on broker influence over pricing strategy. Deals generally list at a lower price than they transact at, with the asking price for deals without a broker set 8.5% below the sale price, and with a broker it’s an additional 5.7% below that. The researchers speculate agency misalignment may be to blame for this trend. In some cases during the sales process the price rises enough to overcome this ‘extra’ broker-driven initial discounting, but typically it does not.

Overall, the research confirms that brokers have real value-driving skills and can influence favorable pricing results, but they do so primarily for specific clients. The sellers that win are transaction-savvy and want brokers to compete for the listing, underpinning how important it is to be an engaged practitioner. As they say, “experienced monitoring capabilities are necessary to get the broker to perform at his capabilities.” Unfortunately, this finding defies the marketed benefit of hiring a broker - it turns out they only overcome information asymmetries when the client’s “information asymmetries are not large” in the first place. Seller beware!

The Rake

Three good articles.

• Early Warnings of CRE Price Problems - MSCI

  While current CRE transaction data appears stable, leading indicators suggest pricing pressure ahead as corporate credit spreads widen and foreign capital retreats from U.S. markets.

• What a Decade of Yield Spreads Says About CRE Investment Trends

  - GlobeSt.

  Trepp's decade-long analysis reveals CRE cap rate spreads over the 10-year Treasury have compressed from 393 basis points in 2015 to 180 basis points in Q1 2025, with industrial properties now trading at just 33 basis points above Treasuries while office spreads remain elevated at 228 basis points.

• Sovereign Wealth Funds: The $10T Giants Reshaping Real Estate - CRE Analyst

  Sovereign wealth funds now command nearly $10 trillion in assets, transforming from unknown entities to primary capital sources in major U.S. real estate markets over the past two decades.

The Harvesters

Someone making real estate interesting. They don't pay us for this, unfortunately.

 Who: French Cowboys

What: A hospitality platform “in Texas for Texans” specializing in small-scale hotels they renovate into drive-to boutiques, plus a thriving vacation rental management business.

The Sparkle: The FCs landed in the Texas Hill Country and started building a hospitality business from the ground up. Today they have five assets, well over 100 vacation rental homes, and with proof of concept are talking with significant equity partners to scale. We highlight them simply because they’re old school - scrape together capital for a few deals, prove your operational model works, and then grow. And yes they’re French.

From the Back Forty

A little of what’s out there.

A report from the Energy Department found that data centers consumed about 4.4% of total U.S. electricity in 2023 and are expected to consume as much as 12% of total U.S. electricity - 580 terawatt-hours - by 2028. One terawatt-hour can power all of California for more than a week.

Link: https://www.energy.gov/articles/doe-releases-new-report-evaluating-increase-electricity-demand-data-centers

Thank You To Our Sponsors

Editor’s Note: The Real Estate Haystack believes in sharing valuable information. If you enjoyed this week's newsletter, subscribe for regular delivery and forward it to a friend or colleague who might find it useful. It's a quick and easy way to spread the word.

1  Piet Eichholtz, Rogier Holtermans, and Paulo Rodrigues, Working Paper, “Conflicts of Interest in Commercial Real Estate Brokerage,” https://www.reri.org/research/files/2021_conflicts_of_interest_in_commercial_real_estate_brokerage.pdf.