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In simple terms, commissions are paid based on the
representation of the two parties in the lease transaction. A
short summary is listed below:
1. After a lease is signed, the landlord (owner
of the property) pays a commission to the Listing Agent (or Landlord
Rep) and the Tenant Rep.
2. Typically the commission ranges between 4% and
6% of the value of the transaction (also called total consideration)
with 1/2 going to each side of the representation.
3. In terms of tenant rep situations, a tenant doesn't
pay a commission to their rep - it is paid by the owner at the
time the lease is executed.
Of course there are other factors to consider:
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1. One of the most common
pitfalls a tenant encounters is touring properties without
hiring a tenant representative.
Hints:
If you plan on hiring a tenant rep, do so in advance
of going on a property tour.
If you plan on trying to find space on your own, make
sure that any properties you have an interest in are
shown to you by the listing agent (or owner, if the
property is not listed). |
The reason this is so important is that in
most cases, all an agent has to do is to bring the tenant
to a property and he/she is legally entitled to a portion
of the leasing commission as the "procuring" broker.
A tenant may never see the agent again, but since that agent
showed them the property, that agent will be paid a commission.
These situations can get even more complicated when, later
on, a tenant hires a tenant rep different from the initial
agent who showed them the property and a commission dispute
ensues. It is best to set this up properly from the beginning.
2. Commercial real estate commissions are,
in most cases, calculated as a percentage of the rent due
under the lease. The higher the rent and longer the term,
the more commission is paid.
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How do agents get paid?
Commercial Real estate agents are typically paid a commission
when a signed lease has been executed. The commission is paid
by the Owner (or Landlord) of the building and is generally paid
one-half upon lease execution and one-half upon tenant occupancy.
The commission is most often calculated as a percentage of the
lease value (or total consideration). The range is usually between
4% and 6%.
Example:
A tenant signs a 3-year lease
for 2,000 square feet at $20 per SF per year.
Total Consideration = $120,000 (2,000 SF * $20/SF
per year * 3 years)
Property Owner is paying a 6% commission (1/2 to
Landlord Rep, 1/2 to Tenant Rep) —————————————————————————————————————————————
Total Commission = $7,200 ($120,000 * 0.06)
To further complicate matters, the commission is
first paid to the agent's Broker. The Broker then pays a portion
of the commission to the agent, known as the split. Commission
splits range anywhere from 50/50 (most common) to 90/10 in favor
of the agent. If there is a tenant rep involved, the Broker would
then pay half of the total commission to the tenant's rep and
a split of the commission to the listing agent.
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