How Commercial Real Estate Commissions Work

Put simply, commissions are paid based on the representation of the two parties in the lease transaction. Generally, it goes like this:

• Once a lease is signed, the landlord (usually the owner) pays a commission to the Listing Agent or landlord rep and the Tenant rep.
• Commission ranges vary and might depend on the transaction's value, otherwise known as total consideration.
• in terms of tenant rep situations, a tenant doesn't generally pay a commission to their rep. The commission is paid by the owner at the time lease is executed unless otherwise negotiated.

Other Factors to Consider:

One of the most common mistakes a tenant makes is touring properties without hiring a tenant representative.

Tips:

If you do plan on hiring a tenant rep, do it before you tour a property. They can tell you a lot of information about the market and going rents in certain areas.

If you plan on find a space on your own, be certain that any properties you're interested in are shown to you by the listing agent or owner. This is important because in most cases, all an agent has to do is to bring the tenant to a property and they're legally entitled to a portion of the leasing commission as a "procuring" broker. A tenant may never see this person again but since they're the ones who showed them the property, they'll be paid a commission. The situation can become more complicated when later, a tenant hires a tenant rep who is not the initial agent who showed them the property and a commission dispute occurs. It's just better to set things up the right way from the get go.

How Agents Get Paid

Typically, once a signed lease has been executed, the commercial real estate agent is paid a commission. The commission is paid by the owner or landlord of the building and is usually paid one-half up on lease execution and one half upon occupancy of the tenant. The commission is usually calculated as a percentage of the lease value or total consideration.

And just to keep things complicated, the commission is first paid to the agent's broker.  At that point, the broker pays a portion of it to the agent, called a split. Commission splits range anywhere from 50/50 to 90/10 in favor of the agent. Although, 50/50 is most common.  If a tenant rep is involved, the broker would pay half of the total to the tenant rep and a split of the commission to the listing agent.