Profitable Commercial Real Estate Commission and Fee Ratios

If you as an agent are paid a salary or retainer in commercial real estate, then the commissions you earn will need to be at least three times that base cost for the average brokerage to remain viable.

The issue here is that the on-costs and profit required running a commercial real estate brokerage are large and must be paid via commissions.  Every agent should have a budget to achieve in fees and commissions.  The brokerage should also have a good control on expenses and marketing.

Consider the following facts for your brokers and agents:

  1. So the ratio sits well in commercial property management and retail shopping center management.  Let’s say that a good property manager earns $100k as a base salary (some shopping center managers earn much more).  The fees coming in from managing the portfolio must be targeted at $300k.  The way to achieve that fee base is in the size of the portfolio.  Certainly fees can be increased with more properties per person, but the better way to do it is via better quality properties where you earn more fees per management.  As a general rule, the smaller managed properties with low fees should be managed by a junior or trainee person.
  2. When you look at the agents involved with sales and leasing, the ratio gets a bit trickier.  Let’s say that the agent gets a $50k retainer.  You may want to have a payback system on the base cost, or perhaps a ‘debt and credit’ formula; essentially the agent should earn in commissions at least 3 times their direct cost and in this situation it would be $150K.  The other fact of the matter is that the agent should start bringing in commissions within 3 months of employment.

In closing on this point, top agents will earn a lot more commission than the three times ratio mentioned.  Four and five times the ratio is quite normal for high achievers; in that case the commission split with the agent will need to be looked at as they are in the ‘high performance bracket’ and will be seeking a better reward for effort.

You can now see the importance of establishing a commission base and a listing process for your agents.  All clients and properties will bring you income and commission over time; it’s just that you should focus on the ratio and improving it as quickly as possible.

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