The major discussions that commercial real agents don’t like having with clients is about the subject of fees or commissions. More brokers have been caught in an attempt to secure representation agreements with the tenants, claiming their services are free. Well, what they should be saying is the Landlord makes the actual payment and you as the tenant is not required to make any direct payment for the services.
As usual currency changes hands and for that reason it’s not free. Therefore, it is crucial that the scope of the services to be offered by the brokerage firm as well as the fees associated with these services be defined clearly with the client.
In the event of leasing an office, it is usual that both the Landlord’s and the Tenant’s representative are paid a certain fee once the lease is carried out between the Landlord and the Tenant. The obvious is that the costs associated with the lease transaction are rolled into the negotiation terms including the leasing commission and paid back to the Landlord in the form of rent as per the terms. This is inclusive of the Tenant and Landlord agent’s commission. Owners of the building normally budget real estate commissions into their Pro-forma, therefore, any commission that is not paid rarely is it refunded to the tenants.
The leasing commissions are not flexible and are always negotiable. Take, for example, the Houston Market where the tenant representative will request for a 4% fee of the total value of the lease paid by the Landlord. On the other hand, the Landlord agent will receive a 2% of the gross value of the lease which is paid by the Landlord for the property on lease. Different cities have slightly different payment arrangements that work well for their market, but generally, this is the overall cost of the services provided.
The argument here is that the tenant is paying for the services offered by the brokerage firm as well as those offered by the Landlord’s agent’s services which mean that tenants should have a professional representation. In leasing arrangements, for example, in case the leasing agent completes a direct transaction to the tenant who have no representation, they take home a bigger fee of about 4%. Well, on this incidence, the net cost of the tenant representative is 2% of the total value of the lease. An excellent service from a tenant representative will utmost save you five times or even more of the total amount of occupancy cost over the term of the lease. Therefore, the next time a commercial real estate agent approaches you and tells you that his services are free, well, I suggest that you find a new agent to represent you in your company. Doing this will save you lots of troubles as you make the best deals in ensuring that your tenant have full representation when negotiating on the lease payment arrangements.