Main Content

How Commercial Real Estate Commission Works

How Commercial Real Estate Commission Works

December 17, 2020

AHow Commercial Real Estate Commission Works

When you say real estate, homes are the first thing that comes to mind for many in the general public. But real estate agents, brokers and other professionals in the industry know the definition includes every type of building and parcel of land that can be put up for sale.

 Commercial real estate is an attractive option, whether for an agent or commercial real estate broker. This broad category covers everything from retail storefronts and apartment buildings to offices and medical facilities, and the commission earned from securing a sale or lease agreement can be much higher on a per-property basis than is possible in residential real estate.

 However, sales can be less frequent than with residential properties. And an increased focus on the value of investments and data is often needed in commercial real estate work. Understanding how commercial real estate commission works can help you make an informed choice about whether entering this specialty is right for you — or just provide a little more context around the way other types of real estate agents operate.

Real estate: Commercial vs. residential

As a licensed real estate agent, you can technically sell all types of real property. You don’t need to limit yourself to commercial or residential transactions — or only sales involving industrial properties or vacant lots, for that matter.

 Of course, there are major differences between commercial and residential sales. Commercial real estate agents tend to receive a substantial amount of specialized on-the-job training by experienced real estate brokers and agents. These professionals help newer agents better understand the specifics of commercial transactions and how to effectively secure a lease or sale.

 Commercial agents are also generally expected to have a college degree, as Mashvisor explained. Certifications specifically related to commercial real estate, such as those offered by the Certified Commercial Investment Member (CCIM) Institute, are valuable for demonstrating knowledge and expertise.

 While it’s unlikely that a residential real estate agent can immediately make the transition to commercial sales, having a license and some basic experience in the field is a good starting point.

How commissions work in commercial real estate sales

Commercial real estate commission is generally paid based on a percentage of the total sale price of the property. The exact percentage offered as commission, and who pays it, isn’t set in stone by laws or rules made by the industry. Instead, it’s based on individual agreements, usually between the property owner and commercial real estate broker, as the Motley Fool explained. Commission percentages often follow a sliding scale, with larger sales earning a smaller percentage of the sale price.However, a flat fee structure is also used. In most cases, the owner (or the landlord, in cases of commercial real estate lease and leasing commission) provides the funds that are used to pay the agent and commercial real estate broker.

 This compromise balances the interests of the seller, broker and commercial real estate agent. Brokers and agents still earn significantly larger payouts than are possible with less-expensive properties, while sellers aren’t discouraged by having to pay, for example, a 7% commission on a property valued at tens of millions of dollars.

Commercial real estate lease commissions

Leasing is a popular option in a commercial real estate deal, providing more flexibility to the renter while still guaranteeing occupancy and offering a steady stream of revenue to the landlord.

 Southgate Realty said commercial real estate lease commissions are based on the total lease value, or total consideration, of the property in question. Lease commissions are also usually paid out as a percentage of the transaction value. However, a flat fee may be used in some instances. It all depends on the agreement between the landlord and brokerage.

 Leasing is often offered based on square footage occupied by the tenant, with each square foot carrying the same price tag. This calculation, while simple, is important to keep in mind when considering commercial real estate lease commissions. Ensuring the math is correct is vital for understanding the payout that comes with a successful sale.

Stabilizing your finances as a commercial real estate agent

Whether you’re currently a commercial real estate agent or considering becoming one, the highs and lows of commission payments are worth keeping in mind. With commercial transactions for sales and leases often following a long timeline, large commission payouts often follow an irregular schedule.

 Just Commission Advance offers commission advances on pending sales for real estate agents, helping you stabilize your budget and focus on your work instead of your finances. Easy applications, fast funding, multiple advances and more make Just Commission Advance a top choice for real estate professionals across the industry. Learn more about how we can help your business.