What are typical broker fees?
Brokerage fees can be a little confusing, especially if it is your first time trying to understand them but I promise it is easier than 7th grade algebra…or maybe 12th grade calculus. The most important thing to remember is that Brokerage Fees are negotiable and may be different from company to company or even agent by agent. It is a good idea to get the negotiations completed before an offer to buy/sell or lease is completed. A typical brokerage commission can be broken down into two main categories, Sale and Lease.
Calculating a Sale fee is easy. “Anything left at the closing should be sent to the broker.” (after all we are the brokers). Actually, an average Sale brokerage fee for commercial property is around 6% of the agreed upon sales price, and is paid at the time of closing. When selling your property one of two scenarios can happen; 1) The property can be sold directly to a Buyer by the listing broker (in house) or, 2)The property can be sold with the assistance of a co-broker. In the event there is help from an outside brokerage firm, the 6% brokerage fee will be split 50/50 between the two parties.
As we mentioned above, fees are negotiable. The more expensive a property is, the lower the brokerage fee will be. Other items that will be taken into account is the marketing time and expense incurred to market a property. For a quick deal with no expenses incurred, a Broker will usually charge a lower fee.
Leasing Fees vary a little more. The typical Lease brokerage fee can fall into three categories: Industrial, Office and Retail. The average fees outlined below are typical for the market today, and for guideline purposes only.
If you are leasing an industrial property the brokerage fee is calculated with two factors, the term of the lease and the amount of the scheduled net rents. For example on a five year lease the fee would be calculated by taking 7% of the net rent in year one, 6% of the rent in year two, 5% of the net rent in year three, 4% of the net rent in year four, and 3% of the net rent in year five. On leases that extend further than five years it is 2% of the net rent for each year beyond year five. This is known as a 7-6-5 fee, and is paid in a lump sum upon lease execution or occupancy of the space. If the property is leased with the assistance of an outside brokerage firm it could be 150% of the above calculation and then split 50/50 between the two co-operating brokers.
If you are leasing an office, or retail, property brokerage fees are typically structured on a per square foot basis (keeping in mind the amount of net rental income). With an office lease the typical fees average $1.00 per square foot on a one year lease, $2.00 per square foot on a two year lease, $3.00 per square foot on a three year lease and $4.00 - $5.00 per square foot on leases five years or longer. If the property is leased with the help of an outside brokerage firm the fee structure remains the same but the fee amount changes, always keeping in mind what the rental income supports.
Medical office space and some up-scale retail spaces command a brokerage fee slightly higher due to the higher lease rates obtained. These fees can range from $4.50 -$7.00 per square foot no matter how long the term of the lease is. Again, if there is help from an outside brokerage firm it is 150% of the above calculation, and paid upon lease execution.
The bottom line is………each deal is different and every broker is different. Fees can always be modified to fit each deal. Good luck and call any one of us to discuss this further!
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