Expert: Jim Avancena, CPM - 5/6/2008

Question
QUESTION: I am an owner and a new broker and have advertized my commercial property for lease. The lease is $12,000 per month. The purpose of my getting a brokers license is to reduce leasing commissions. I am not sure what the customary brokerage commission in Palm Beach county fl . A broker has approached me with a customer who wishes to write a 3 year lease, he is expecting to cooperate with me but I dont know what is the customary Brokerage commission on a lease of this type and what he is expecting?

If you can help me I  would appreciate it very Much

ThanX

JIM


ANSWER: Jim-

Commission rates can vary depending upon the geographic area and are greatly influenced by the market conditions in each particular sub-market.

Currently, a standard commission for an office lease in downtown Washington DC is three (3%) percent of the total rent that is prescribed to be paid by the lease text over the three to ten (3 to 10) year lease term less the value of certain concessions depending upon the judgement of each owner regarding what concessions should be deducted/excluded.  Usually, rental abatement and certain above standard improvements are deducted prior to calculating the three percent (3%) commission.   

On a three year lease term you will likely wish to limit the amount of improvements you will provide the lessee unless they are willing to pay a higher rental rate to cover those costs.

Note also that one-half of the lease commission is normally paid within thirty days of the lease being fully executed and deposit posted, the other half of the commission paid within days following occupancy of the premises.

For the current market commission terms in Palm Beach County, I suggest to contact the local board of realtors or simply contact some other agents with listings nearby your property and ask them the commission they suggest as market for the type of commercial property you own.

Finally, since you are an owner, keep in mind that the amount of commission paid for a prospective lease can vary depending upon the terms of the lease transaction; that is, the terms can often be so good that it is worth paying more commission to capture a beneficial deal.  Similarly, if you have a vacancy that has been unoccupied for an extended period of time, it may be worth it to you to sign a lease with a hi-risk new business provided you can reduce your commission payment to reflect that the tenant may not complete the lease term, or simply pay the commission monthly over the term to the tenant's agent.  The essential point is to be certain you are very open and above board from the beginning with the other agent and space user about your commission structure.

Good luck.

-Jim Avancena


---------- FOLLOW-UP ----------

QUESTION: Are you saying 3% total to be divided equally between the listing agent and leasing agent or 3% each?

ThanX

JIM

Answer
Jim-

Three percent (3%) each.  Again, that is the current practice in one particular market area on office leases.  It could be different in Palm Beach county, especially on industrial property.

Note also that sometimes a listing agent will agree to receiving less (perhaps only two percent (2%)) than a full three percent (3%) commission being paid to the cooperating brokers.  The listing agent believes that this reduced fee paid to them on transactions involving a cooperating agent acts as an incentive to the landlord to award them the listing agent contract on the very much larger aggregate listing.  The listing broker realizes they can expect to make significantly more revenue from leasing the entire property as opposed what they will give up on only a few cooperating leases.

-Jim