Investors who have commercial properties they wish to acquire or dispose, landlords seeking tenants to lease space in the commercial properties they own, and tenants seeking to lease space in a commercial property, all hire a commercial real estate Broker.
So, how does a commercial real estate Broker get paid…and who pays them?
Commercial Real Estate Brokers Get Paid on Commission. All commercial real estate brokers get paid on commission based on the representation of the two parties in a transaction. In a sale transaction this would be the buyer and seller, and in a lease transaction this would be the landlord/owner and the tenant.
The amount a commercial real estate Broker receives on a commission is calculated as a percentage of the total commercial property sale price or lease value. While it’s illegal due to anti-trust laws to set a market- or industry-wide standard for commission percentages, most Brokers earn anywhere from 4% to 8%.
The manner in which a CRE Broker is paid, and who is responsible for the payment, depends on whether the commercial transaction is a sale or a lease.
Commission on Commercial Real Estate Sales: Commercial real estate Brokers receive a commission on the sale of a commercial property by representing an owner, a buyer, or both. The amount of the commission is calculated as a percentage of the final sale amount. If there are two different Agents involved in the transaction they will split the commission 50/50.
For example, say the negotiated commission rate on a commercial property is 6% and it sells for $600,000, that is $36,000 is commission. The full $36,000 will go to the listing Broker (representing the owner) if they are the one who procured the buyer. If another commercial real estate Broker brought the buyer, then the two Brokers would split the commission 50/50 each earning $18,000 on the deal.
In most commercial real estate sale transactions it is the responsibility of the property owner to pay all commissions upon closing.
Commission on Commercial Real Estate Leases: Commercial real estate Brokers receive a commission on lease transaction by representing a landlord/owner, a tenant, or both. The amount of the commission is calculated as a percentage of the total lease value, also called total consideration. If there are two different Brokers involved in the transaction they will typically split the commission 50/50. This is, unless otherwise noted in the lease agreement.
For example, say a tenant signs a 5-year lease for a 3,500 square foot suite at $10 per square foot.
5 years x (3,500 SF x $10) = $175,000 Total Lease Value
If the negotiated rate is 6%, the total commission on this lease will be $10,500 ($175,000 x 6%). If there were two commercial real estate Brokers on the deal (one representing the landlord/owner and one representing the tenant) then each broker will earn $5,250 ($10,500./ 2).
In leasing transactions the landlord/owner of the commercial property is the one who pays the commission fee. Typically, half at lease signing and the remaining half upon tenant occupancy.
Seeking a Commercial Real Estate Broker? Whether seeking to invest in properties, dispose of current assets, lease up your building, or find space to lease, the brokerage experts at First and Main RE have the transactional experience and market knowledge to get you the best deal possible. Contact us today to see how we can help you see the highest return on your investment.
Posted by: Jennifer Mussato
Jennifer Mussato is president at Denver-based First and Main RE powered by Keller Williams, a real estate group that specializes in commercial leasing, acquisitions, dispositions and investment strategies.