Who Pays Commission in A Commercial Real Estate Transaction?
Commercial Real Estate Transaction Commission Structure
In typical commercial real estate transactions, the commission paid out is to at least one or <br> two commercial real estate agents.
1. Commercial Listing Agents: These agents are responsible for marketing commercial real estate, screen questions for the property owner, landlord, or seller. They serve the best interest of the commercial property owner or landlord and offer landlord representation.
2. Commercial Buyer Agents: These agents are responsible for searching and locating real estate space for sale, renting, or buying identified commercial property for the tenants and investors. They cater to the best interest of the tenants and investors and thus offer tenant representation.
Who Pays The Commission In Commercial Real Estate?
In the majority of cases in commercial real estate transactions, the owner/landlord ideally pays the commission. Herein are two categories that depend on whether the commercial property is for lease or sale:
When the commercial property is sold, the property owner is responsible for paying all commissions upon deal closure. Wherein the price of the commercial property includes the commission.
Well, why then did we begin by stating, the owner/landlord ideally pays the commission? In some commercial real estate transactions, the owner/landlord pays his agent while the tenant or buyer pays his agent. However, ultimately the commission comes out of the sales price or rent of the commercial property.
For example, if the sale price of the commercial property is $ 300,000 and the commission fee is 5%, once the commercial real estate sells, the property owner will receive around $285,000 from the sale. And the deducted amount of approx. $14,000 is the commission for the commercial real estate agent. This calculation is simple and does not reflect other costs such as closing fees. Thus, in this sense, the buyer is the one who pays both the listing agent and buyer agent's fees.
When a tenant leases the commercial property, the owner or landlord pays half the commission once the lease is signed and the final half of the commission when the tenant occupies the property. This commission is known as lease commission and is typically not transferable to the tenant or buyer.
All of this is negotiable and can be adjusted prior to signing any agreements. A commercial real estate agent representing a highly desirable tenant may request a “full commission” for their participation. A “full commission” could be at, or close to, what the landlord would have paid in full, if his representative had procured the tenant. He would leave the landlord paying not just the tenant’s agent the full amount but also needing to compensate his agent for the transaction. Most often in these cases, the landlord’s agent takes a reduced amount as compensation for the transaction.
If you hire a commercial real estate agent as your representative, it is advisable to discuss their service terms and commission fees.
Pillar Real Estate Advisors offers both tenant representation and landlord representation services. Talk to us today and find out how you can save on the costs of renting or buying commercial real estate. We have professional and expert advisors who can take you through a step-by-step process to get an understanding of your potential investment.