I found a great deal on a piece of commercial property and passed the deal on to someone I know that is seeking this type of property. It's worth about $2.4M and he'll likely be able to get it for $1.3M. What is a reasonable referral fee to ask for?
It depends, are you a licensed real estate agent?
Ross Schneider, Big State Home Buyers | 214‑766‑8133 | http://www.bigstatehousedeals.com | TX Agent # 0622855
You can get more creative with fees on the commercial side and call them many different things as RESPA does not apply to commercial properties.
I am not an agent, I am sure that I can invoice for my consulting services, I just need to know what amount is reasonable for a transaction like that. :)
Lock up the deal yourself and then assign it for a fee. Do not trust that you will not be cut out of the transaction later to save costs.
By controlling the property you secure your position to get paid and not bypassed.
The fee will depend on how much work you do on the front end and it all varies.
Joel, normally I would agree with you about locking it up. Unfortunately, it would cost me $67,000 to lock it up, and I can't risk that not knowing if I can get it sold and closed in under 3 weeks, which is what would have to be done in this situation.
I trust my buyer, we've done business before. I just need to know what would be appropriate to ask for from him. I spend a lot of time reviewing potential deals to find the gems, and while the time spent on this deal isn't that much, the knowledge of finding the deal and connecting it with the right buyer has value.
@Dan Inc What is customary in your area? It's always best to work these details out, in writing, before you pass along the information to the prospective buyer.
Karen, I don't know what's customary, that's why I'm posing the question :)
Also, in order to work the details out in writing I would need to know what amount to propose...
@Dan Inc You said you worked with the buyer before, so what did you do then? The problem is, you've already passed the deal on to him, so you are at his mercy. In the future, get the terms tied down before you pass it along. Now, the only option you have is to ask him what he thinks would be a fair finders fee, and try to negotiate something that works for you both. Good luck.
Karen, we did a different type of transaction so I can't base it on that.
I just want to get an idea of what others would see as being fair. I'm not worried about being at his mercy. He helped me out and I am happy to help him out. I was thinking 2%-3% would be fair, what does everyone think?
So like... why aren't you buying this yourself?
Originally posted by Jake Kucheck:
So like... why aren't you buying this yourself?
Jake, that's an easy one to answer... I don't have $1.3M :)
Maybe base it on a residential wholesale model of 70% of ARV less reno less wholesale fee? That might be a 380k spread if vacant land with no reno/clean-up. I wouldn't offer an amount, I'd let the end buyer make the first offer. 2-3% seems like a low fee for $1.1M walk-in equity but commercial isn't my deal.
Chris Sweeney MBA, Emerald Real Estate Inc. | 512‑234‑1920
Since there's no set fee that you should charge, you should tell him that you're happy he's got an opportunity to make some money and that you'd appreciate a fee for turning him onto the deal.
Ask him to tell you what he thinks is "reasonable and fair". How you feel upon hearing his offer (or non-offer) will tell you pretty quickly if you think the value you provided him was worth it or not.
If you're good at sourcing deals, next time make sure your buyer signs a non-circumvent agreement with a named fee before sharing anything with him.
Too many folks get burned on fees because they trust the other guy to take care of them after they've handed over the value before discussing a fee.
Your value declines immediately upon releasing the information, so get the agreement first, then hand over the information.
Money does funny things to relationships. I've seen it more times that I care to mention.
In Australia and Japan, where we work, 2-3% (average, unlicensed) to 5-6% (excellent deal, licensed agent). A bit more for deals under $1M or roundabout.
I asked this question of a local CRE broker on Monday, April 20th and here was his response: "Standard practical referral fee is 25% of gross commission."
You should have ask for a fee before not after 25 is a reasonable amount
and if the deal does not fly call me i love paying fees
2-2.5 % would be the fee for providing full services as a listing or buyer's broker, with the associated liabilities. Referrals are usually 20-25% of that.
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