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Commercial Real Estate Investment/Commission on Option/renewals/extension

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Expert: - 9/12/2008


Question
Jim,

I am in the process of hiring a listing agent to list my commercial unit.  He is asking for a commission on any renewals, extensions, enlargements, exercise of options, or new leases for the same property.  I understand that commission on the option years is commonly practiced but are renewals too?  It seems thats just too much.

Answer
Jay-

Mostly I would say you are correct, however, real estate commission agreements can have varying commission structures for what is considered "market" depending on your location.

The fact is, commissions are also sensitive to variance as a result of specific terms of the offer.   If the broker brings you an agreement that you are inclined to accept, however the client is a bit shaky because they are inexperienced at their business, it is common for an owner to accept the agreement subject to the broker accepting a lower rate of commission to reflect the risk the owner is absorbing for leasing to an inexperienced tenant that might go out of business after six months - when, by then, the other broker has already spent his commission share of the extended term lease.   

Additionally, the opposite of that situation can be true.  If a broker brings you a extremely high credit tenant like IBM, he/she might ask for a slightly higher commission than market because it reduces any risk you might of had collecting the rent each month.

My suggestion is that you ask other local brokers experienced in the type of transaction you are considering and ask them what local practice in your area in recent history.  You could also check with your local realtors board.

Brokers are often prepared to negotiate fee terms as part of the noremal give and take in every transaction, so remember, the other broker might not really expect you to accept his/her fee terms, but he/she is willing to see how much he can get you to pay!  Its best you get as much professional information from others before you make your decision.

Good Luck.

-Jim  

Commercial Real Estate Investment

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Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

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