Expert: Jim Avancena, CPM - 11/6/2007

Question
I am a recently licensed Broker in Illinois and have made the move from residential to commercial real estate.  A colleague of mine and I have formed our own brokerage representing a single client as their tenant representatives.  This client is currently interested in pursuing locations in the states surrounding Illinois.  I am inquiring as to how commisions or referral fees are structured when dealing with out of state landlords and brokers.  Any help would be welcome.

Answer
Andrew:
Don't be shy.  You are a Broker, you have apparently a strong relationship with this single client and you should be paid a full or cooperating share of the commission.  If you are not licensed as a broker in other states where you need to make transactions, have an arrangement with your client that you will have the other non-Illinois located landlords pay a fee that is equal to a full or cooperating brokers fee in that jurisdiction (you must have the integrity to check with other brokers in that marketplace to learn what a fair market commission should be) for "administrative costs" or consulting fee.

In the same way that a tenant improvements allowance, or other tenant concession is a part of structuring the deal, the landlord will agree to pay your tenant client a payment for "administrative" or "move related" costs when your client moves in.  Your client then pays that amount of fee to you.

Many major national corporations have real estate departments that handle these brokerage transactions internally and they expend substantial corporate dollars to have their real estate staff people fly to other parts of the country, rent hotel rooms and cars, etc. to identify and lease facilities for their corporation.  

Real Estate Departments are usually seen as a necessary drain on corporate profits because real estate departments provide essential services, but don't bring in any off-setting income.   For this reason, corporate real estate managers rely heavily on being paid administrative fees or other form of lease concession by a landlord to offset the real estate department overhead expense.  Usually the fee is equivalent to what a standard commission would have been.

Note that this arrangement requires that you have a strong and trusting relationship with your client.  You also need to be very circumspect about all of your actions as their representative.  If there is ever a question raised about a problem that arises with a lease or purchase of a property, they control your fee and can withhold paying you.

I represented two major US corporations for about ten years, and in many ways both firms appreciated the flexibility in a trusting business relationship.  Both were very generous and often paid me one time fees for work that was critical but likely would not result in a commission being paid.  Mutual trust is the key to such a relationship, and it helps significantly to work directly with the higher level operatives in a corporate real estate department.

Finally, in many areas in the United States, it has - in recent years - become much easier to attain a one man Brokers License in other states by reciprocity than it was in the past.  So if you only need a license for yourself, and you don't need to open 10 offices with 500 agents in that state, you may find it is not difficult to get a license by reciprocity.

I hope this is helpful.

-Jim