How Do Commercial Real Estate Brokers Get Paid?
In Minnesota, brokers are paid by commission, meaning they receive a set percentage of the value involved in a transaction for services performed. Clients and brokers agree on the commission before working together. Generally, the commission is paid by the seller or owner. However, that can be negotiated.
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Having a broker on your team is a huge asset and saves you time, money, and stress. They use their understanding of the commercial real estate market, skills in negotiating deals, and navigating resources which are critical to help you get the best deal possible.
Commission percentages vary according to complexity of the deal. When an owner and tenant or buyer and seller each have representation, the brokers split the commission fee. For example, if the negotiated commission rate is 6%, the listing broker gets 3% and so does the broker for the tenant or buyer.
For more information, read our blog, "How Brokers Get Paid."
Examples of Negotiated Commission Structures
(Dependent on the Complexity of the Deal)
• Commercial Sale Commission
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1. Building Sale Example with Two Brokers
(Sale commission/fees for retail, industrial, office, and other commercial buildings)
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Total fee: 5%
Listing broker: 2.5%
Buyer broker: 2.5%
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2. Building Sale Example with One Broker
(Rate negotiated and discounted by 1% because no buyer broker was used*)
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Total fee: 4%
Listing broker: 4%
Buyer broker: NA
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*Note: Not using a buyer representative may save you 1%, however, most buyer reps will save you more than discounted rate.
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3. Investment Sale Example with Two Brokers
(In most cases, investment sales do not offer a co-broker fee)
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Total fee: 3%
Listing broker: 3%
Buyer broker: Not offered
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4. Land Sale Example with Two Brokers
(Commission/fees are generally higher for land sales, as deals takes a lot longer, are more complex, and time-consuming)
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Total fee: 8%
Listing broker: 4%
Buyer broker: 4%
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• Commercial Lease Renewal Fees
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1. When using a broker to help negotiate lease renewals, fees correlate to the type of space, complexity of the deal, and possibility of relocation.
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2. Typically, fees are paid upfront by the owner/landlord when the lease is signed.
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3. Be aware of the fee structure before you agree to partner. Above-market fees can affect your renewal.
• Commercial Lease Commission
1. Building Lease Example with Two Brokers
(Lease commission/fees for retail, industrial, office, and other commercial buildings)
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NET RENT DEAL
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5-Year Deal Average: 7.5%
Listing broker: 2.5%
Tenant broker: 5%
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Fee payments follow a decreased structure:
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Year 1 • Total fee: 10.5%
Listing broker: 3.5%
Tenant broker: 7%
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Year 2 • Total fee: 9%
Listing broker: 3%
Tenant broker: 6%
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Year 3 • Total fee: 7.5%
Listing broker: 2.5%
Tenant broker: 5%
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Year 4 • Total fee: 6%
Listing broker: 2%
Tenant broker: 4%
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Year 5 • Total fee: 4.5%
Listing broker: 1.5%
Tenant broker: 3%
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Year 6+ • Total fee: 3%
Listing broker: 1%
Tenant broker: 2%
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GROSS RENT DEAL
(Significantly less than a NET rent deal)
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5-Year Deal Average: 4.5%
Listing broker: 1.5%
Tenant broker: 3%
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Also follows a similar decreased pay structure as a NET rent but with different percentages.
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2. Building Lease Example with One Broker*
(Lease commission/fees for retail, industrial, office, and other commercial buildings with no tenant broker)
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NET RENT DEAL
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5-Year Deal Average: 5%
Listing broker: 5%
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Fee payments follow a decreased structure by dropping 1% each year
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GROSS RENT DEAL
(Significantly less than a NET rent deal)
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5-Year Deal Average: 3%
Listing broker: 3%
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Fee payments follow a decreased structure by dropping set percentage each year
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*Note: Not using a tenant representative may save you a little, however, most buyer reps will save you more than that.
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3. Building Lease Example Based on Square Footage per Year (PSF/YR) with Two Brokers
(Lease commission/fees for retail and office)
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1-5 Years Total Fee: $1.50 PSF/YR
Listing broker: $0.50 PSF/YR
Tenant broker: $1.00 PSF/YR
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5+ Years Total Fee: $0.75 PSF/YR
Listing broker: $0.25 PSF/YR
Tenant broker: $0.50 PSF/YR
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4. Building Lease Example Based on Square Footage per Year (PSF/YR) with One Broker*
(Lease commission/fees for retail and office with no tenant broker)
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1-5 Years Total Fee: $1.00 PSF/YR
Listing broker: $1.00 PSF/YR
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5+ Years Total Fee: $0.50 PSF/YR
Listing broker: $0.50 PSF/YR
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*Note: Not using a tenant representative may save you a little, however, most buyer reps will save you more than that.