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Please provide a thorough overview of standard industry practices for commercial real estate in the US. In particular, please find out the typical commission splits for commercial real estate brokers, and what brokers in charge for commercial real estate typically make
Hello! Thank you for your question on the standard industry practices for commercial real estate in the US with focus on commission splits for commercial real estate brokers and how much these brokers typically make. The short version is that commercial real estate agents typically make 4-6% of the gross lease value as brokerage commission, which is split 50-50 between the listing agent and tenant broker. These brokers earn around $85,000 annually.
Below is a deep dive of my findings.
METHODOLOGY
In order to answer your question, we searched through various corporate websites, industry reports, government reports and trusted media sites. From our research, we were able to understand that the commission structure as well as the annual income of commercial real estate brokers vary widely depending on the type of property and geographic location. Therefore, we have provided a general commission structure as well as commission breakdown for different types of properties. As for the annual income of the commercial realtors, we have provided breakdown based on geographical location and designation.
COMMISSION STRUCTURE
The commission to a commercial real estate broker is usually paid by the landlord and not the tenant. The general commission structure varies between 4 and 6%, which is usually split 50-50 between the listing agent and tenant broker. Depending on the demand and supply of the property, the commission may be split 90-10 in favour of the listing agent. The commission is usually calculated on the "gross lease value paid to the landlord", that is the monthly lease multiplied by the lease period in months. Though this is a general structure, the brokerage may vary depending on each deal.
When leasing industrial properties, usually, a "7-6-5 fee" is paid as commission. This means that for the first year, 7% of the yearly lease is paid as commission, for the second year 6%, third year 5%, fourth year 4%, and fifth year 3%. If the lease period is more than five years then 2% of the yearly lease amount beyond the five year period is paid. If the property is leased with the help of a tenant broker, then the above-mentioned fee is increased by 150% and is split 50-50 between the the listing agent and tenant broker. This amount is paid as a lump sum upon the lease execution.
When leasing an office or retail space, the brokerage fee is sometimes structured on a per-square foot basis. "The brokerage fee is generally $1 per square foot for one-year lease, $2 per square foot for two-year lease, $3 per square foot for three-year lease and $4.00 - $5.00 per square foot on leases five years or longer." Even when a tenant broker is involved in the deal, the structure remains the same. Please note, this structure is followed only if its feasible with the rental income the property fetches.
For medical office space and upscale retail space, the brokerage is usually in the range of $4.50 to $7.00 per square feet irrespective of the lease period. If an external broker is involved, the fee is increased by 150% and is split 50-50.
For commercial real estate sales, the brokerage fee is usually 6% of the sale price and is paid at the time of closing. If there is a tenant broker involved in the deal, the brokerage is split 50-50.
ANNUAL INCOME
As per Bureau of of Labour Statistics, the 2016 median pay for real estate brokers ( both residential and commercial) is $46,410 per year or $22.32 per hour. However, as per Investopedia, commercial real estate agents typically earn more as the they have a credible reputation and deal in high priced repeat businesses. This income varies depending on the geographical location.
As of 2015, the commercial real estate agents in Northeast region had an annual income in the range of $80,000 to $100,000, with agents in Pennsylvania earning the lowest and New York earning the highest.
In the Western region, the commercial real estate agents in California earned around $100,000 and those in Hawaii earned around $65,000.
In the Southern region, agents from Louisiana typically earned around $75,000 yearly while those in Mississippi earned about $105,000.
In the Midwest, the average income ranged between $70,000 and $95,000 with South Dakota earning the lowest and Illinois earning the highest.
These figures more or less fall in line with the National Association of Realtors' estimates that an average commercial Realtor makes $85,000 annually.
Payscale estimates the annual salary ( not income) of commercial real estate broker as $64,501 per year. Combining this with the data from National Association of Realtors, we can estimate that they earn around $20,000 in commission and bonus.
The 2016 Real estate compensation survey by Cel& Associates breaks down base salaries of commercial real estate agents ( in office/industrial positions) by their designation. The details are as follows-
Top Leasing Executives-
Median Salary- $200,600
Actual Bonus as % of Salary ( Average)- 101.9%
Senior Leasing Executives-
Median Salary- $134,500
Actual Bonus as % of Salary ( Average)- 111.5 %
Leasing Manager-
Median Salary- $103,500
Actual Bonus as % of Salary ( Average)- 96.1%
Typical Leasing Agent/ Representative
Median Salary- $65,200
Actual Bonus as % of Salary ( Average)- 51.3%
Regional Marketing Director/Manager
Median Salary- $90,100
Actual Bonus as % of Salary ( Average)- 16.1%
CONCLUSION
To wrap it up, commercial real estate agents typically make 4-6% as brokerage commission which is split 50-50 between the listing agent and tenant broker. The commercial real estate brokers earn around $85,000 annually.
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