Commission Tips for Commercial Real Estate Sales Today

When it comes to your career in commercial real estate, commission will always be important to you as you move through the year.  In any given sales year, you really only have 10 months in which to create the necessary listing bank and completed transactions.

January is usually a difficult month when it comes to property enquiry and completed transactions.  Most clients and prospects take holidays in this period.  That being said, some agents will come back to the industry early after the Christmas break so they can find the right people that are active and looking for commercial property in that quiet time.  The strategy does work if you decide to adopt it.  They say that ‘the early bird catches the worm’, and in commercial real estate that rule does apply.

Commission structures change throughout the industry based on property type, industry standards, and industry regulation.  When the property market becomes more challenging and slow, there is a tendency for some agents to discount their fees and commissions.  The fact of the matter is that discounting fees is a precursor to agency downturn.  You are the expert when it comes to property enquiry and property marketing.  You do not need to discount your fees.  You do need to sell your services comprehensively.

Here are some observations regards commissions and fees structures:

  1. In many locations you will find that the commission base for a commercial property sale is usually around 3% for properties that will sell up to a price of around five million dollars.
  2. Over a sale price of five million dollars, the commission structure tends to reduce.  The lowest commissions I have seen in the industry were around 1.25 per cent of the sale price.  That is based on a property selling for $500,000,000.  It is quite unlikely that you will ever find commissions going below 1.25 per cent nor should they.  The fact of the matter is that a large and significant commercial property for sale requires significant effort when it comes to marketing.  The best people and the best strategies are required to achieve a great result for the client.  A totally committed agency team appointed to a significant listing will produce far better results for the client than any reduced commission benefit.
  3. All of this being said, if you are still going to reduce your commission for some reason, ensure that you get a commitment from the client for an exclusive listing to your agency for a long period of time.  That will usually be for a period of at least six months.   As part of that process, also get a commitment from the client to vendor paid marketing.  That vendor paid marketing should be paid to you upfront prior to the campaign commencing.

If the client expects you to reduce your commission, then you should expect the client to commit to your agency in a well-structured marketing campaign.  Show the client that you have the right strategies and people to promote the property comprehensively into the target market.  Tell the client what will be occurring over the marketing period.  Give them an established process that they can fully appreciate as part of accepting your listing appointment.  Use a Gantt chart to display your actions and intentions.

The marketing of commercial and retail property today is not an experiment.  It is a very specialised process requiring top salespeople and experienced agencies.  Develop your skills and sell them into your client base.  Show the client that you have the database and the connections to spread the property marketing message into the industry.  They must be able to see that your agency can get the best price in the shortest possible time.

How to Negotiate Commission in Commercial Real Estate Today

In commercial real estate agency activities, you will know the importance of commission to the agent and to the business. A commission and your fees should be clearly supported by a legally accurate and enforceable appointment to act. That appointment should be signed by the client before you take any action on the property.

The client that signs the appointment should be the person that is legally entitled to do so. Whilst this fact may seem so basic, many agents and salespeople will bend the rules when it comes to agency appointments and suggest that they will get them signed later at a more convenient time.

Do the right thing

There is only one time to have an agency appointment signed, and that is at the start of the relationship between the agency and the client. Any work on the listing should not commence until the agency appointment is correctly confirmed and acknowledged by all the required parties. That being said, it is remarkable how so many agents overlook the requirement of the agency appointment or its accuracy. At the end of the day, this simple action can threaten the ability of the agency to recover the fees and charges applicable to all of your hard earned efforts.

Show me the money

When you have a confirmed and accurate agency appointment involving particular fees and charges relating to marketing, get those monies up front and into the appropriate agency bank account before the marketing commences. Many agents have been left out of pocket due to the attempted avoidance of costs and fees by the client after an unsuccessful sale or lease situation. In a tougher property market, not all listings will sell or lease quickly and effectively. On that basis every listing needs to be correctly structured, confirmed, and in place before the marketing and promotion of the property commences. Failure to do so is fraught with danger. Do not give the client any opportunity to avoid their costs, expenses, and obligations under the appointment to act.

Unsigned or incomplete

When it comes to the marketing of a property without the appropriate agency appointment, the client is in the box seat when it comes to manipulating the end result fees commissions and charges. Many a client has taken the opportunity of stepping away from financial obligations due to an incomplete agency appointment; many clients will give the agency appointment documentation to a good solicitor with the sole purpose of finding a loophole where they can avoid paying full commissions and fees.

Whilst many agents have learnt the bitter lesson of incomplete or incorrect documentation, do not put yourself through the financial pain or inconvenience. Do not give your clients any reasons or opportunities to avoid paying their financial obligations.

Handling the requests for discounts

Every so often you will come across clients that believe they are due for a discount on the commission charged at the completion of the deal. They will claim that they have some valid reason for discounting your commission contrary to the terms and conditions of the agency appointment. If this has not happen to you yet, it is only a matter of time. You must have your answers ready.

The correct and full commission is that which is allowed in the agency appointment. That is the fee to be charged. The agency should not be out of pocket for any reason whatsoever providing of the transaction was successfully and correctly handled by the salesperson.

What does the salesperson think?

If the salesperson believes that a fee should be discounted for some particular valid reason, then let that salesperson take the full impact of the discount in their percentage of the overall fee. In other words the agency should not be out of pocket because of the actions or concerns of the salesperson; the salesperson should take the financial hit if they really want to process a discount at the request of the client.

Do a great job and avoid the problem Professional business practices involve fair and reasonable commission’s fees and charges for the services provided. If you do a good job in the promotion, marketing, and negotiation of a property listing, there will not be a dispute or request for discounts on commissions and fees. Stay on the right side of the service equation and help your clients achieve the desired results.