Commercial real estate brokers get paid a commission on the deals they close. These commissions are paid for by the landlord or seller, 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. That means if you do not have someone representing you, the entire commission amount will go to the broker representing the landlord or seller. Do not think that you will get a better deal if you don’t have a broker, because you won’t. The entire commission amount will be paid, it will just go to the landlord or seller’s broker. It would be in your best interest to have your own representation.
Commission rates are negotiated and it is illegal to set an industry standard, but can range from 2-8%. For leases it is based on the total rent over the term. Sales are based on the final sale price. Typically, the higher the sales price, the lower the percentage. For example:
|Deal Structure||Consideration||Commission||Total Commission*|
5-year lease x 2,000 SF x $12.00 per SF
|Sale Price: $4,000,000||n/a||6%||$240,000|
|Sale Price: $15,000,000||n/a||3%||$450,000|
* 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 their fiduciary duty is with the landlord, not you. 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.
Let’s look at a couple of scenarios:
You have a tenant rep broker
Your tenant rep broker finds you the space, guides you through the process, and negotiates with the landlord for the best deal. For leases, the landlord pays the broker the first half when the lease is signed and the second half when you move in. Sales commissions are paid 100% at the time of closing.
You do not have a tenant rep broker
You may have thought you would save some money by going directly to the landlord. You have spent your own time doing some research, but probably not enough to know what a fair market rate would be or what concessions you should ask for. You will be dealing directly with the landlord’s broker. As mentioned above, their loyalty is to the landlord and 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.
Regent Real Estate are experts in their field and would welcome the opportunity to talk to you about your real estate needs. Contact them today.