How do Commercial Real Estate Brokers Get Paid: A Comprehensive Breakdown

Wondering if you should work with a commercial broker to find your next property? Buyers who are on the hunt for commercial properties may consider avoiding working with a broker out of concern for the cost. However, unlike in many industries, working with a commercial real estate agent doesn’t necessarily mean that you’ll have to pay that agent – at least not directly. In most cases, working with a commercial real estate agent doesn’t take anything out of your pocket, but it does give you professional insight on the available properties, a better understanding of the sale or lease agreement, and the benefit of having an expert negotiator on your team. 

So how do commercial real estate brokers get paid? Let’s find out in this blog post! 

Understanding Commission Rates: The Core of Brokerage Income

Commercial real estate brokers get paid a commission on the deals they close. These commissions are paid for by the landlord or seller, which means that no money comes out of your pocket.  

The commission fee is built into the deal, and the full amount will get paid to all brokers involved. This may include the listing agent, listing broker, buyer’s agent, and buyer’s broker. Every one of these parties involved in the same will get a share of the commission.

That means if you do not have someone representing you, the full commission amount (100%) will go to the broker who is representing the landlord or seller.

Many people mistakenly think that if they don’t have a broker, they’ll get a better deal. The truth is that you’ll most likely pay the same amount either way – whether you have your own broker or not.

Regardless of your choice, the commission percentage for the sale is set beforehand. The entire commission amount will be paid, but if you don’t have a broker as a buyer, it will just go to the landlord or seller’s broker. Because of this, it’s definitely in your best interest to have your own representation.

Who Pays the Broker?

Commercial brokers are usually paid by the property owner or the landlord. This includes both the listing broker and the buyer’s broker – if both are involved in the sale of the property.

Remember that you – as the buyer – are the one who is providing the funds that the owner or landlord is receiving. So in a way, you are paying the real estate commission for all parties involved!

But, since you’re going to be paying for the sale or rental either way, you might as well have a buyer’s agent involved who can help you find the best property for you and negotiate the best deal once you do find that perfect location.

How Does Commission Work in Real Estate?

The commission structure for real estate transactions works slightly differently for leases and rentals versus sales. Commission rates can vary from sale to sale and are negotiated. It’s illegal to set an industry standard for sales commission or lease commission in commercial real estate transactions. However, in most cases, this amount can range from 2%-8%.

For leases, the commission is based on the total rent over the course of the term.

On the other hand, sales commissions are based on the final sale price. Typically, the higher the sales price, the lower the percentage.

For example:

* split between tenant/buyer and landlord/seller representatives

It is very important to understand that it will not save you money to be your own representative.

In fact, you will more than likely rely on the landlord’s representative for some guidance during the process, but as the seller’s agent, their fiduciary duty is with the landlord, not you. Because of this, you will probably end up paying more in rent and have fewer concessions if you do not have your own representative looking out for your best interest.

What Does the Process Look Like With or Without a Broker?

Let’s look at a couple of scenarios of how the process might look with or without your own licensed broker:

Scenario #1: You have a tenant representative broker

With a tenant rep broker, you’ll be guided through the whole process by a professional who’s focused on your best interest rather than the seller’s.

Your tenant rep broker will help you find available spaces that match your search, guide you through the process, and negotiate with the landlord for the best deal.

For commercial lease transactions, the landlord pays the broker the first half when the deal closes and lease is signed, and the second half when you move in. Sales commissions are paid 100% at the time of closing.

Scenario #2: You do not have a tenant rep broker

If you don’t have your own buyer broker, you’ll spend the same amount of money on your new property, but the amount of work you have to do will increase greatly (and you won’t get the benefits of having an experienced professional in the commercial real estate industry on your side!). While many potential buyers think that they can save money on agent fees by going directly to the landlord or property owner, this simply isn’t the case.

Without a tenant rep broker, you’ll spend time doing your own research, but probably not enough to know what a fair market rate would be or what concessions you should ask for. In this case, you’ll be dealing directly with the landlord’s broker. As mentioned above, the landlord rep is loyal to the landlord, and therefore, the deal will be in their favor.

You will not get the best deal going this route. At the end of the day, the landlord’s broker will be earning the commission your own broker could have earned, but you’ll pay the exact same amount.

How Do I Find the Best Commercial Real Estate Broker?

Commercial real estate agents pretty much come with all pros and no cons. Commercial real estate professionals can save you time and money compared to doing all your own research. Even better, there’s no extra cost to you.

But now that you understand the benefits of having a competent broker, how do you find the best commercial realtor to help you on your search?

• Look for someone who’s experienced and knowledgeable. In real estate, the number of years a realtor has had in the business doesn’t always matter as much as the number of sales or lease agreements they’ve closed. Find someone who has plenty of deals under their belt. Talk to them to see if they’re knowledgeable about the local market. And, if possible, it’s always a good idea to check their reviews (Google is a great place to start) to see what past clients are saying.
• Find someone who’s organized. An organized broker will respond to calls and emails promptly and follow through on their commitments to you. The world of real estate moves quickly, and it’s important to have a broker who will jump on deals before it’s too late.
• Look for someone who goes above and beyond. More than just a commercial real estate license, some real estate professionals have gone above and beyond to acquire additional training and education courses that show that they truly desire to do the best job possible for potential clients. SIOR, CCIM, and MBA are designations that can alert you that your realtor is serious about being the best in their industry and doesn’t just see reality as a side gig.

In addition to these positive signals, there are a few negative signs that might tell you to steer away from a real estate broker:

• A large brokerage company (if you’re a small business). For small businesses and individuals, a large commercial real estate brokerage firm can mean that you might not get the individualized attention that you deserve. Large brokerage firms can provide success for big businesses. But for small business owners and individuals, these groups tend to not be as relationship driven or have the time to commit to smaller sales that aren’t making them as much commission. For small businesses, independent contractors or small firms usually have more time and ability to commit to your needs, and can move more nimbly to help you jump on the right property before it’s snatched up.
• Part-time brokers. At the same time, you want to find someone who’s thoroughly committed to their field of work and not just doing it as a side hobby. Many CRE agents enjoy closing sales on the side in addition to another job – and it can be a great side gig. But one of the most important factors for finding the most helpful agent possible is to work with a broker who you know is going to put in 100% of their time and effort into helping you on your search. Understandably, full-time brokers also usually have more experience.
• A broker who’s not connected. A successful, local broker will have good relationships with other brokers in the area, as well as commercial property management firms, attorneys, lenders, and inspectors. These well-connected brokers can do a better job of guiding you through the process and connecting you with the people you need to work with for other steps, too. If you’re trying to decide between commercial agents, ask around in your community to see who other people recommend.

Find Your Next Property With Regent Commercial Real Estate

As experts in the commercial real estate space in the greater Charlotte area, our team at Regent Commercial Real Estate is dedicated to helping our clients find the best property for the best value. As an SIOR and CCIM-designated real estate broker, our job is to take the hassle and confusion out of finding the right commercial property for our clients.

With nearly 1,000 leases and sales under our belt, our process for buying and leasing properties is designed to not just close sales, but to partner with you to find the property that best fits your business’s needs.

Ready to find your next commercial space? Contact us today, and let’s get to work!