NNN Listing agreement -- what are the commissions?

Question

My current tenant looks like they will NOT renew. My agent has just sent me a listing agreement. This is a first time for me, so I want to pick the brains of the collective for their thoughts.

Commission is 5% if the agent ends up representing the tenant and the landlord. If it's an outside agent for the tenant, the commission is 6%. Weirdly enough if we simply renewed with the current tenant, the commission would be 5%, 2% to my agent and 3% to the tenant's agent. Thoughts on this? I've asked for a total of 5% for a new tenant.

If it's a Net Lease, I need to pay commission on the assumed insurance, taxes, etc. This doesn't seem right to me. Is this standard, or can I ask it to be removed? Why should commission on gross costs?

Anything else I need to be aware of?

Steven McPherson · Answer

Everything is negotiable, and yes, you can ask for anything to be removed. My advice would be to contact a few different brokers and ask their fees, and that will give you a good idea of what you can negotiate.

What City is this in? In some markets, it's standard to pay commissions on base rent only. But in others I've worked in, the agents get paid for the NNN expenses included.

In my experience in Dallas-Fort Worth, I will usually charge 6-6.75% if a cooperating broker is involved, with 2-2.5% going to the list side and 4-4.5% going to the tenant rep. If no tenant rep is involved, it will be 4.5% only. So it sounds very similar to what you are describing.

Joel Owens · Answer

Its whatever you negotiate. I have found after using dozens of leasing brokers for single tenant that most suck. About 20% do what they say they will do. The rest put you in their listing system and put time in first week then if have to actual work they only come back to it every few weeks with update. Meanwhile owner has to backfill it themselves and still pay a fee. I dont sign agreements now I tell them bring me the tenant and I will pay you if I want them.

You have to watch single tenant leasing brokers also. They are repping the tenants lots of times and will tell you your dark building can only get this much rent when taking your listing agreement to give their tenant in tow a cherry deal. I had this happen recently where I have A location dirt. Leasing rep said rents 18 a foot when Crexi had 28 and comps for days of actual in place rents for that box size. They were just trying to land a quick lease job for their tenant they get 6 to 7 sites to sign a year from while trying to screw the seller. Do your own rent comps to see what data says and make them defend their conclusion if you do not agree. If they can't defend and go running they are scamming.

John M. · Answer

4% if your rep brings a tenant. 6% for an outside rep. Pay structure is on the base rent only and also on the initial term. Absolutely No commissions on renewal terms! 1/2 paid to rep on lease signature, and the other 1/2 paid when the new tenant receives their Certificate of Occupancy!

Ryan Stomel · Answer

On the commission calculation question — your instinct is right, and it's worth pushing back. The industry standard I've seen in SoCal is commission on base rent only, not on NNN reimbursements. Those pass-throughs aren't income you're earning from the lease, they're expenses getting passed to the tenant, so paying a leasing commission on taxes and insurance never made sense to me. I've had brokers try to include them and I always negotiate it out.

On the dual-rep commission structure (5% vs 6% with outside tenant rep) — that split is pretty standard, though I'd try to get the total cap at 5% regardless of whether an outside broker is involved. The 6% total with a co-broker situation is more common in some markets but you have room to push.

One thing worth nailing down in the listing agreement: make sure there's a specific carve-out for direct renewals with the current tenant without a commission, and clarify the tail period so you're not paying commission if they come back 6 months after expiration on their own. Those details bite people more than the rate does.

Evan Polaski · Answer

As noted, some of this is market by market, and all agreements are negotiable.

The piece that seems odd, although seemingly a non-issue, is a full 5% on renewal. First, if the tenant were to renew, which I know you state they aren't, you should handle that directly without the help of an agent. Attorney drafts renewal agreement, both sign, and all is well.

Again, likely a non-issue since tenant presumably has told you they are not renewing, but I would at least amend contract to bring down the renewal commission, in the off chance your agent does find a way to get them to renew.

Beyond that, it is not common, in my limited experiences, to have NNNs included in commission calculation. I worked for a landlord that would consider gross leases, too, and if one was signed, commissions were still calculated on effective net rent in those cases too. But as noted, this is likely landlord, brokerage and location dependent on customary practices.

Robert C. · Answer

Like @Steven McPherson said, everything is negotiatiable.

Interview a few leasing agents, ask about their marketing plans, recent lease closings, time on market, and ask each of them what they think market rates are for this property.

NNN Listing agreement -- what are the commissions?

NNN Listing agreement -- what are the commissions?

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