Leveraging the competitive market can save you money on commercial real estate commissions. According to multiple experts we interviewed, typical commission rates range from 4-8%. However, property value, location, and current market trends can influence these rates.
Unlike residential real estate, where commission rates are often fixed, commercial real estate commissions are negotiable. This means you can usually negotiate a better rate with commercial brokers.
When buying or leasing commercial real estate, consider requesting multiple bids to find the lowest rate, working with a wholesaler, or exploring off-market deals to save on commission. Working with a trusted real estate broker will ultimately help you maximize your profits.
What is commercial real estate commission?
Commercial real estate commission is the fee that property sellers pay brokers to facilitate the real estate deal. The total commission is often split between the buying and selling brokers unless the deal involves multiple parties (or a single party).
Commercial agents receive a portion of the broker's commission for their services, often splitting it 50/50. These agents represent the broker, leveraging their network to find potential buyers, oversee property inspections, set up financing options, and ensure the transaction proceeds smoothly.
What is the average commercial real estate commission rate?
Most commercial sellers pay 4-8% between participating brokers for selling their property. For example, selling a $5 million property at a 4% commission rate would result in a $200,000 commission fee. If the commission is split evenly, each broker receives $100,000 when the deal closes.
Commercial commission rates also fluctuate more often than residential commission rates, which average 5.32%. Due to these variations, it's crucial to negotiate with your commercial broker to settle on a favorable rate before finalizing any agreements.
Factors impacting commercial real estate rates
Location
According to Matt Morgan, a commercial real estate agent at IPA Commercial in Riverside, CA, a property's location moderately influences commission rates.
Properties in popular locations often sell at lower commission rates because they're easier to move. In contrast, properties in less desirable areas sell at higher rates to attract broker interest.
Price of the property
Property value plays a significant role in commission rates for commercial brokers. Higher-priced properties usually have lower commission rates, while smaller, lower-priced properties often require more time and effort to sell, resulting in higher commission rates.
Seamus Nally, CEO of TurboTenant, explains: “Properties in the tens of millions of dollars may end up with a commission rate lower than 1% (though that's still a massive amount of money due to the value of the property)," he says.
Local market conditions
The local market and property type affect the demand for many commercial properties.
Adam Robbins, Strategic Real Estate Advisor at Real Estate Bees, finds that more stable premium markets see lower commissions as low as 1%, while rates in smaller markets are closer to 6%.
The job market also influences local demand for commercial properties. For instance, commercial office buildings are less popular today, driving up commission rates due to the higher risk of selling them.[1]
How to save on commercial real estate commission
1. Negotiate a lower commission
Negotiating commission rates is key to getting the lowest rate possible. Joe Stance, broker/owner at Stance Commercial Real Estate, says buyers and sellers hold the power in commercial real estate because brokers need the deal.
"Brokers want and need the deal, so don't hesitate to push them on the rate or walk away if it's too high," he says. "With the right strategy and persistence, you can save on commissions as a buyer or seller."
When negotiating, explore multiple options and ask about commission rates in your area. Highlight what you bring to the table, such as the potential for repeat business. If an agent won't budge on commission, move on to find someone who will.
2. Search for off-market deals
Avoiding traditional listings and working without a realtor can score you a bargain on commercial property. However, there’s more risk involved if you don’t have industry knowledge.
Matt Morgan points out that private deals save you on commission. Still, many commercial buyers don’t have the right connections.
“If you can connect with buyers or sellers directly and handle the deal yourself, the savings are substantial," Morgan says. "The key is having the industry connections and know-how to access such opportunities, which many private parties lack.”
The cornerstone of successful off-market real estate deals is your network. To grow your network, ask about potential deals with your current professional connections and attend investor meetups to connect with property owners. These connections may lead to solid opportunities.
3. Explore wholesale deals
Commercial real estate wholesalers find distressed and off-market property deals for short-term investments. To secure the contract, the wholesaler puts down earnest money for a portion of the selling price and acts as a middleman to find a buyer.
Connecting with wholesalers specializing in commercial properties is a good idea because it gives you more access to off-market options. This expands your network and allows you to find cheaper properties.
However, wholesale deals come with inherent risks. Most deals are cash-only, limiting financing options and requiring a substantial upfront payment. Also, wholesale deals are typically sold "as-is," giving you less negotiating power for repairs than with a brokerage.
