Commercial Real Estate Commission Question

8 Replies

I recently made the jump from residential residential real estate to commercial real estate after about 20 years, buying and renting single family homes and small multifamily. I purchased a 40k sqft industrial warehouse in Florida which I have rehabbed and is listed for sale. My agent is very good at spotting opportunities and in the almost 2 years that I have known him, seen many off market deals work out for other investors. This warehouse is looking like it'll return 70+% in less than a year if it sells or 12-18 cap if it leases.

I know literally every thing CRE is negotiable, but what is a standard commission? What would you pay an agent to have him call you first rather than giving a great lead to someone else? I have a good relationship with the broker and he says his typical commission is 10% but he agreed to 7% on this deal, if it sells. Because we have a good relationship I'm not sure if he is joking or serious. I've seen him lower his commission to 3-4% to make an offer work.

Details of this deal.

  • Purchased for $1.225m with a 500k hard money loan at 12% +2 points. Closed in 3 weeks.
  • Rehab and other expenses to date of $400k.
  • Listed for sale at a very reasonable $2.86m with purchase offers starting to come in around $2.6m. 
  • Lease rates would be between $20k-30k/month depending on tenant improvements (TI).

Any thoughts or feedback is appreciated.

Are you asking specifically about what to pay him for finding off market deals for you, or listing commissions? You appear to mention both in your post but it’s unclear which one you’re asking about. 

If I were listing this property in my market, I would charge 6%. 10% commissions aren't unheard of, but I've only seen them on deals with a lot of hair, i.e. they present unique circumstances that would require more than normal effort on behalf of the listing agent in order to sell. Working with environmental contamination or complex title issues are examples that come to mind. 

Your agent could have also just decided that 10% is what his time is worth regardless of the deal, and only wants to work with clients willing to pay that. But bottom line like you said in your post, everything is negotiable.

I wouldn't pay 10% for a purchase.  You can take care of him on the sale when you make money.  An envelope of cash is very memorable.