Self Storage University Podcast: Episode 60

Thoughts On Signing A Broker NDA

Many self-storage brokers are going to want you to sign a Non-Disclosure Agreement (NDA) before they will give you the information on some properties. But is that a good idea? In this Self-Storage University podcast we’re going to discuss what NDAs are and offer some tips to consider when you have to sign them.

Episode 60: Thoughts On Signing A Broker NDA Transcript

A non-disclosure agreement or an NDA is something that many brokers will want you to sign before they will let you look at that self-storage property information. This is Frank Rolfe of the Self-Storage University podcast. The question is, what is an NDA? And should you sign one? An NDA stands for non-disclosure agreement, it's an agreement that basically states that you will not disclose all of that private information regarding the property to other people, but it typically also has additional wrinkles such as you will not talk to others on the property, you will not talk to the manager and often it will also bind you to that broker, such that if you buy that property at any point, you owe that broker a commission and there's some wrinkles to it that you need to be aware of. Now, as for the agreement itself, I leave it up to you and your attorney, because I don't dispense legal advice, I'm not a lawyer, and any written document that you ever sign, you need to fully understand sentence by sentence, paragraph by paragraph.

But here are some general observations on the whole issue regarding NDAs and looking at storage properties to buy. The first thing is, if you refuse to sign NDAs entirely, if you say No, I'm not going to ever sign a non-disclosure agreement, I refuse, I'm morally opposed. You will have great difficulty looking at many deals because most of the deals, not all deals but most of the deals handled by brokers are gonna require you to sign some form of document in the form of an NDA before they will give you any of the pertinent information. So while you don't have to sign them, you can be a conscientious objector or a protester and say, No, I refuse to sign any of these kinds of things, the problem is you'll have very much reduced deal flow, so there's nothing that says you must sign them, but again, if you don't, It'll be very, very hard to get to the general flow of deals that are out there.

Number Two. Make sure that any NDA you sign is in fact with the listing broker, let's go over that for a moment, if you have a storage facility, you wanna sell, and you list it with a broker, Well, that broker is the listing broker, whoever officially is the broker that is taking that property out to market, but sometimes you'll have brokers who are not the listing broker. They have nothing to do with the property. They're just aware of it, they saw it online or they talked to somebody and they know of it, you can't sign the NDA with them because they're not really even one of the parties to the deal. So if you sign an NDA with the non-listing broker, what you've effectively done is you have bound yourself to somebody who's not a real player in the transaction, and that could definitely come back to haunt you if that broker is no longer really working in your best interest to get the information, or if there's multiple offers on the table, you're not going to want to be aligned with someone who's not in control of the deal, so before you sign any NDA, one thing you wanna check out and confirm is, is that broker the actual listing broker. And the answer is no, well, then I don't think I would sign that NDA. I would rather go to the listing broker to sign any type of NDA.

Note number three, you wanna know if it's a big firm or not, because big firms tend to operate with a lot greater respect of the law and a lot greater conformity than those that are tiny, so at the big brokerage firms, you may find out they're like... Marcus & Millichap for example, NDAs are quite common and they're not known to abuse them, but the world is filled with horror stories of people who signed NDAs with small brokerage firms or individual brokers, that later ended up getting into litigation regarding the NDA. The NDA is only supposed to be there to protect the seller of the property from having their information tossed around publicly, because it could damage them with lenders or with their peers or their customers. But it's not to be a tool to scare you into having to buy something for a fear of you, you'll be sued, so you wanna basically do a little background check on the broker you're sinning up that NDA with to make sure that it's legitimate. That you're signing to something that's only the conduit to get the information that you needed, not signing something that you will later regret.

Next, you gotta make sure that this NDA only relates to that one property, some of your disreputable brokers will try and make in that NDA, this kind of blanket policy that covers not just that one storage facility, but pretty much every storage facility you ever look at again going forward, and clearly that is not going to work, because in your career of looking at things to buy, you look at many, many properties, hundreds of properties. You cannot have them all encumbered under one blanket NDA, so you've gotta make sure the NDA is only applicable to that one storage property. And you may also wanna have a addition to the NDA such that this NDA doesn't run forever, maybe it only runs during the period in which that listing broker has the listing. Now, it's perfectly reasonable for there to be some period of time at the end of the listing that they would still be covered, such that they would get a commission if you bought it. You wouldn't wanna have a situation if you were a broker, where I show you something and you deliberately wait until my listing period ends and then try and buy it from the seller direct.

But it can't be typically in your best interest to have that thing run till the end of time, who will even be there to be the referee or measure, if it is till the end of time. And even bigger, what happens if they then list it with a different broker. So what if you have a Broker A, and you sign the NDA with Broker A, that promises Broker A a commission till the end of time, and then when they fail to sell the property, it goes to Broker B. Now you wanna go to Broker B of course, and get the most updated information and try and strike a deal, but now you're encumbered with an NDA, with Broker A. Who's probably knocks you out of the running to buy it. That also could get you in trouble if you later buy it and then Broker A comes back to you demanding their commission too, you really can't afford to pay two different brokerage commissions on any property, that just doesn't work.

Also read that document in its total to make sure there's not one shred of something you do not understand. I've seen some disreputable brokers try and stick things into NDAs that have nothing to do with an NDA, hoping you won't read it and that you'll simply sign it. And that isn't going to work. Now, also make sure in your NDA that it denotes the relationship between the broker and the seller, I've also seen people try and slip in things where in under the NDA, not only will the seller pay them a commission, but so will the buyer. So just be extremely careful when you sign these things, but at the same time, remember that if you refuse to sign them all together, you have a very, very low deal flow.

Now, there's lots of different ways to find storage facilities, there's cold calling, there's direct mail, there's online listings, but then of course, there's brokers. They're not the only way to find them, and the other three typically do not come with an NDA, however, brokers are a good source of deals to buy. So if you wanna go ahead and get deals through every source possible, all at the same time, you're definitely gonna wanna get familiar with the brokerage community, and at some point, you will definitely probably have to buy or sign an NDA. It's not life-threatening. It's not the end of the world. Again, it's very, very important before you sign any such agreement that you read it from one end to the other and understand every sentence and every paragraph, because the slightest little departure from the original goal, which was to get just simply the information on the property can be very very damaging to you later on.

Now, we have all heard horror stories of people who sign NDAs without reading them or understanding them, that have come back to haunt them. It's very important that you stay clear of these hurdles, because again, you wanna be in the storage property acquisition business. You don't wanna be in the litigation for nothing business. And I will tell you that most of the stories that I have heard of people who have fallen afoul of NDAs, have sadly revolved around situations where it really wasn't that good a deal anyway. So the really good deals were typically represented by good brokers, and their NDAs are simply something there to safeguard the seller and their private information.

So when you're working with a lesser broker and unknown broker, a property that's not that good and they suddenly want you to sign some big old NDA, that should definitely be a danger sign to you, because if the deal isn't that hot, why are they so protective of the information to begin with, and what are you really signing and is there really a meaning for it. The bottom line, do it all but just be very, very protective of anything that you sign, remember that when you sign a document, you sign on to lots of liability if things go wrong, and the last thing you need is to have a distraction of liability when you're simply trying to make a good storage investment. This is Frank Rolfe of the Self Storage University podcast. I hope you enjoyed this. Talk to you again soon.