In this week’s Landlord Tips and Tenant Tips we will discuss HOW and HOW MUCH Commercial Real Estate Brokers get paid.

Thank you all for the great comments last week on Steps to Hiring a Commercial Real Estate Broker; THE Checklist Once you’ve decided to hire a broker (Click here for THE Checklist), and selected one you can hold accountable it’s time to understand how we get paid and when it’s due.

Before we dig into the WHEN, and HOW MUCH know that this is my full time job. I am a professional.  Think of me as a paid consultant like other professionals. Your Doctor, Lawyer, CPA or other service provider. This is how I feed my family. This is my Career. I am paid 100% on commission earnings. I pay my own expenses. There is no bi-weekly paycheck, expense account or company car. I sell my knowledge, expertise and my time to meet your real estate goals.

WHEN the transaction closes we get paid a commission or fee. Simple. It can be a check, bag of cash, or chickens. Closing on a sale is the easiest to determine. The entire amount is due and payable at settlement when the deed is recorded. Leases aren’t quite as cut and dried. Customarily those are paid in two installments. The first half when the Lease is signed, the second half when the first rent is paid to the Landlord. No closing = no payment.

HOW much is it? On sales a percentage of the sales price and on leases a percentage of the total rents over the term. It is paid by the Landlord or Seller as a custom. The percentages are negotiated in the listing agreement or offer but generally speaking the percentages are higher on the lower priced properties, and lower on the larger transactions. For example a $300,000 raw land lot may be 10%, but a $89,000,000 office building portfolio will be a lower percentage. The marketplace is very good at setting rates so be sure you discuss the rates of brokers when you interview them. Money is not often a comfortable topic to discuss. It is even less comfortable to end up in a disagreement because everyone avoided “the money talk”. If money is not important then you can skip this conversation. If it makes you feel better blame it on me. Say, “John makes me bring up the money part before we can finish”.

At this point it is important to mention the co-broker or Tenant representative broker. Co-brokers work hard to represent the Tenant or the buyer. Please, please, please hire a broker. You won’t save any money if you don’t. The commission is already built into the price. We all cooperate. Everything goes so much smoother and you have someone to blame!  Your broker represents your best interest and is going to give you good advise. How do you know they represent you?  Sign a contract that outlines your relationship.  They should present you the Agency Disclosure form in SC. Most states have a Disclosure and Representation Agreements which outline who the broker owes their loyalty and fiduciary obligations to. Do not assume, discuss and hire the broker so you know they are in your corner.

A successful commercial real estate practice is built on referrals. Before you can pay or receive compensation for a referral (cash, chickens or bottle of wine) you need a license. The law is very clear on this and it is enforced. So, if you call your broker friend with a referral just expect them to refer you business back one day don’t expect or ask for a check. This is a very basic explanation of HOW and HOW MUCH Commercial Real Estate Brokers get paid. There are endless alternative structures so discuss this with your broker so you understand each other’s expectations.

“The commission on one closing seems like so much because you don’t get paid for all the work that doesn’t close.”