Expert: Jim Avancena, CPM - 11/3/2008

Question
Can you please advise what an agents typical commission would be on real estate property with the listing price of 4mil?  Also, what is the typical time frame that an agent should be allowed to hold a commercial listing?

Answer
Joni-
Please allow me to answer your two questions in reverse order.

There is no typical time for an agent to hold a listing.  The typical "time frame" can be influenced by many things, including: 1.) the type of property being sold and related characteristics; for example, if you are selling raw land, the zoning and potential use granted - or uses that could be granted via a zoning variance, 2.) the amount of time required for the various due diligence work and how much of it has already been anticipated and responsibly prepared for a potential buyer ; for example, if selling an existing office building, has a high quality abstract of the leases and rent roll already been made? and 3.) is the property priced appropriately and proper title will be provided the buyer at closing.   

Unless the property owner is concerned with an issue unrelated to selling the property; a shrewd owner will only cancel a listing agent if the owner has objectively determined that the agent is lacking certain essential interpersonal or professional skills required to perform successfully and/or is not AGGRESSIVELY involved each day in all the marketing and selling activities that are accepted as the best methods for identifying a buyer for the property.  

There are endless reasons - far too many to list here - that are unrelated to the agents abilities or work effort that can block a sale of the property.  It is important that the agent maintain solid communications with the owner/asset manager and report their on-going activities and results as well as discussing why the property may not be selling and any comparable sales data.   It is also important that the agent determine if continuing to list the property is a realistic / profitable use of their time.

The owner, however, clearly has the right to change listing agents after he has given a hard working agent reasonable time to find a buyer.   Some sellers feel that by changing the brokerage, new energy and interest will attach itself to a sale of the property.

A reasonable commission varies with the type of property you are selling, the conditions and vitality of the local commercial real estate market, the amount of time the property has been on the market, the owners' real reason for selling the property, the terms of the sale - especially if the owner is required to participate in the financing in some manner, and, the established practices in your part of the country.   It is not uncommon for the commission to change for one reason or another if agreed to by all the parties - that includes the broker.  Often it is in the interest of the broker to accept certain changes to the commission structure.

The best answer to your question should come from local agents that have actually sold property in the last few years that is similar to your listing.  You will most likely find that a pattern regarding the commission structure will emerge when you contact those agents.  You will also learn tons of valuable information from the other agents about the sales process and the type of property you are selling.  If the commission on a property is significantly different from the other similar properties sold, be certain to review all the terms and circumstances of the sale.

I understand your interest in needing to know the "typical" or standard practices in our industry in your marketplace.  Note however, that I have sold several types of properties during my career, and I can assure you that the process involved in every listing and sale will be different from the others.

Good luck.

-Jim