The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful:
When it comes to brokerage fees, it will differ depending on how many brokers you’re working with and the value of the property being bought and sold. A property that’s under $1 million might carry 5-6% in fees, while a property valued at over 100 million would carry 1-2%. For passive investors, learning as much as you can about properties, whether passive or not, is important to really understanding these properties and the deals you’re making.
Richard Wilson: What are typical commercial real estate brokerage fees? What are people getting charged if the deal is done by one broker from buyer and seller, versus a shared fee, what’s kind of the ballpark range?
S.L. Van Der Zanden: It’s pretty common just to deal with a co-op broker if there’s two brokers involved, you take the fee that had the listing broker done the deal without a broker on the other side, it would be let’s say 4%. And if there’s two brokers, you gross it up by 50%, so now it’s 6%, and then you split that 6% in two, and each guy gets 3. Listing broker has an incentive to deals without the co-oping broker because he makes 4% instead of 3%, so there’s always that incentive that aligns with the interest of the seller or the landlord.
So, say it’s under $1 million, it’s 5-6%. Say from 1 million to 5 million, it’s 4 to 5%. And then 5 million to, say, 20 million, it’d be 3-4%. Then up to 100 million it’s going to be 2 to 3, and then above 100 million it’s going to be 1 at most 2. If it’s complex asset, that could make it be a 2 instead of a 1, it’s a pretty straight forward transaction, you’re just not going to make that extra percent.
Richard: Right, right. Yeah, makes sense. What is the best way for a passive investor to get started in allocating real estate, and putting some money and work into the commercial real estate space?
S.L.: This is a passive investor. Obviously learning as much as you can on your own, from textbooks, and YouTube, and whatever. But really finding that guide whether, again, it’s a mentor, or a sponsor, or a lawyer, or your accountant that happens to know a lot about real estate. Whether you’re buying the real estate directly on your own account, or you’re buying through a sponsor and are owning a piece of it, you really want to – between the offering memorandum (OM), between that and what you do on your own should still be the same amount of information gathering. It’s just being passive, you have the benefit of having a team of people that were paid to put all this together, but you still have to read it, understand it, and be questioning whether what they’re telling you is the whole truth and nothing but the truth. Or they’re spinning it, right? Or they’re just not mentioning it because it can’t be spun.
But when you’re starting out, I just can’t overemphasize someone to help hold your hand, or you hold onto their hand, while you’re working through the first couple of times.
Richard: Right, right. I’ve heard that from many experts in this space.
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