If you’ve decided to jump into the exciting and competitive world of commercial real estate sales, you’re no doubt wondering how exactly the commission structure works. Just like residential real estate, you’ll need to apply the same basic principles when working within the commercial space, in order to close a deal and collect a commission.
Before setting forth on a quest to make your mark as a commercial real estate agent, we advise arming yourself with the proper knowledge regarding the commission structure, so you can do your best work without having to worry about the finer details.
THE FOUNDATION OF COMMISSIONS
Commercial real estate commissions depend largely on the type of sale, which typically varies between sold properties and lease agreements. For instance, the sale of a property means agents receive commissions directly from the property owner upon closing. In contrast, lease agreements involve the property owner or landlord paying 50% of the commission when the lease agreement is signed, and the remainder when the tenant takes up occupancy within the property.
COMMISSION RATES, EXPLAINED
While commercial real estate deals typically imply adherence to a commission structure based on market trends and expectations, there is always room for negotiation. Once the real estate agent/broker and seller agree on the specified commission amount (a percentage of the final price), both are ready to move forward. Both agent and seller must be in agreement on the final amount, which is often where minor negotiations take place.
Commission rates are typically calculated and agreed upon based on market trends, and the price of the property in question. As a rule of thumb, rates decrease by percentage as property prices increase, which makes logical sense. A commercial property valued under $1 million dollars may carry a commission rate of up to 8%, whereas an eight figure property would net a rate as high as 3%. Since negotiations often take place between buyer and seller, many opt for a flat fee option that guarantees a mutually agreed upon rate, taking into account the undetermined final selling price of the property.
Conversely, commission rates based on lease transactions operate on a slightly different methodology. In those cases, commission rates are based on monthly payments, as well as the overall length of the lease agreement. The total amount of accumulated rent will be calculated, at which point a commission fee is determined. The longer the lease term, the more wiggle room landlords may have to negotiate a fluctuating commission rate, taking into account possible shifts in future real estate market and economic trends.
UNDERSTANDING THE SPLIT
If you are an aspiring real estate agent, you’ll find yourself working under the supervision of a broker, who is responsible for ensuring that all agents are in compliance with local laws and regulations. These may vary depending on provincial and territorial levels, but the overall idea remains the same. Working with a broker means paying a broker fee, which is typically 50% of commercial property commissions for new agents.
Once the agent becomes established and begins closing more sales, the dynamic of the agent/broker split can shift in the former’s favor. It’s not uncommon to see established agents giving 40% of their commissions to a broker, while they retain the remaining 60%. This provides incentive for the agent to excel at their career, for the benefit of themselves, and the broker. This principle applies mostly to small and medium-sized operations, while larger brokerages often have highly methodical teams set up to handle much more lucrative and complex commercial real estate deals. In those instances, the real estate agent receives around 50% of the commission, while the remaining half is divided up between team managers and the brokerage.
A TEAM EFFORT
Commercial real estate deals often differ from residential real estate in the fact that more than one agent can be attached to each deal at any given time. This occurs when a buyers agent and a listing agent are both involved in a deal, which requires more planning when it comes to commissions.
Listing agents market commercial properties and manage interested leads on behalf of the seller or landlord. Buyers agents are involved in the act of locating appropriate commercial real estate properties on behalf of buyers and potential lease tenants. In this case, both agents will split a portion of the commission in exchange for accelerating the closing of a sale.
RECEIVING A COMMISSION
After a deal is closed, the reward comes in the form of a commission, but the nature of the timing can differ. For instance, lease transactions require finalization and signing of pertinent documents by all parties involved, before a commission is released. Sales transactions require a fully completed sale, but depending on the size of the deal in question, the commission may be divided up and delivered via “staging payments,” which can begin before the transaction has fully closed.
For these reasons, it’s not always easy to accurately predict exactly when a commercial real estate commission will be paid out. This can be challenging for new commercial real estate agents struggling to make a name for themselves as they embark on this new career path. There are, after all, expenses to consider, both on a professional and personal level. Thankfully, there are solutions to help mitigate this issue.
COMMISSION ADVANCES
If the unpredictable timetable for commission payouts presents a challenge, real estate agents and brokers may opt for commercial real estate commission advances, which deliver money upfront, without the need to wait. Rocket Advance understands the structure of commission advances like few others, and our system delivers commission payments to agents right away, based on the nature of your current commercial real estate deal. This is good news for those who need their commissions upfront, so they can instead focus on pursuing more business, and greater rewards.
The best part of commission advances is that they operate on a system completely different from traditional lending methods. There is no need to perform credit checks, since the commission advance is based on a deal already in the queue. Best of all, agents can submit multiple commission advance applications for several deals at once, all based on the transaction(s) in progress. This can be highly advantageous when strategizing to accommodate seasonal patterns, unexpected fluctuations in the economy, or shifting real estate trends.
WE CAN HELP
If you’d rather not wait to receive your commercial real estate commissions, give Rocket Advance a call right away. After filling out our application form, we can process your commission advance quickly, often on the same day! We pride ourselves on our promptness, professionalism, and dedication to providing an invaluable service to Canada’s real estate agents and brokers.
