Have a space you need to lease out to a great tenant? The traditional next step is finding a broker in your area to find the tenant for you.
Commercial real estate brokers essentially connect tenants to available spaces while making a commission on the final sale. The higher the final sale price, the more the broker makes. While the percentage can look small from a first glance, the commission often amounts to a hefty paycheck for the commercial broker — and lots of dollars taken out of tenant and landlord pockets.
Let’s break down the typical costs of hiring a commercial real estate broker to shed some light on the process. Then, we’ll discover whether the dollars spent line up with the services you’re given.
How much do CRE Brokers make from a sale?
Broker fees are calculated by taking a certain percentage of the final sale of a commercial space. Typically, brokers don’t charge any upfront costs for their services, aside from the contract that both parties arrange. With that being said, several other factors go into what makes that number smaller or larger. The more square footage that a space, the higher the commission fee for the broker. Likewise, a more luxurious space in an upscale building also leads to a higher sale price and commission fee. A high demand for certain locations and features can drive up the sales price as well.
As a general rule of thumb, a higher sales price coincides with a slightly lower percentage for commission fees. For example, a space that goes for $7+ million might have a 2-3% commission rate, while a broker might take home 6% of a $1 million sale. Even so, both situations result in a broker making tens or hundreds of thousands of dollars off of a single sale. When we break down the time and work they put into that deal, it raises questions as to whether it’s a fair price to charge.
Are commercial real estate broker fees always justified?
Let’s put it this way… Over the course of 3 months, a commercial real estate broker organizes a deal between a tenant and a landlord. Both parties are paying the broker. The landlord fronts the commission fee, while the tenant typically pays out that amount over the course of their lease.
A commercial broker will be doing the work behind the scenes, finding tenants and spaces that may or may not be a fit. Often, brokers don’t work enough hours on that sale to justify the amount they are charging via commission fee.
Some brokers can easily make almost $1000 per hour of work they give to a sale. This happens more often in expensive, booming real estate markets like New York City, where the cost of living is high. It’s an exorbitant price, but landlords and tenants keep going back to brokers in spite of the financial burden. Why?
Well, commercial real estate brokers typically give the illusion that they are the best chance for finding desirable spaces. Since brokers form a lot of connections over the years, they often get a first look at availability. Some have knowledge of exclusive spaces before they even hit the market.
However, this isn’t to say that the commission fees are entirely justified. Simply put, the commercial real estate market is stuck in a rut of relying on brokers.
Is there a way to evade commercial real estate broker fees?
Before now, tenants and landlords could only do so much to bypass the broker conundrum. With the stake of their businesses and livelihoods on the line, most grew accustomed to stomaching the broker fees as a “necessary evil”. However, we believe that a better future for commercial real estate waits on the horizon.
With REDHANDED, tenants and landlords can connect and broker their own deals, cutting the broker out of the equation for good. We charge a simple, flat-rate fee to sign up for the site, post a property, and take charge of your business. We’ve made the costly percentages and commission fees a thing of the past. In the process, we’ve given the commercial real estate leasing process the facelift it deserves.
Now, tenants and landlords can browse available spaces and connect on their own terms. You can easily filter your search to fit your exact needs. REDHANDED’s streamlined process actually makes the commercial real estate experience a fun one. No more back and forth emails, playing phone tag, or getting cornered into a lease agreement that leaves a sour taste in your mouth — and a massive dent in your wallet.
Don’t get caught redhanded. Sign up today to connect with tenants, easily post your property, and enjoy the commercial real estate experience again.
For a limited time, we are offering the first 100 landlords who sign up access to our Founders’ Club, and free access to our premium Diamond Plan for free. All you have to do is claim your free profile.
Interested?
