When you work in commercial real estate one question that will quickly arise is ‘How can I make more commission?’ As a general rule you will make more commission per transaction from a sale than you will on a lease (assuming the lease is not large or the rental exceptionally unique).
That then leads to the decision as to how much focus you should have personally on sales stock versus lease listings. There are ‘swings and roundabouts’ to the process; here are my thoughts.
As you plan your business activities for the year or the quarter, the question is worthy of solid consideration. My view is that you must have both leasing and sales as points of focus when you are active as an agent.
Here are my reasons for saying this:
- A leased property today will quite likely be a sale property in the future. The secret in sale listing conversions is in you maintaining direct contact with the property owner for months if not years. Top agents do that all the time.
- You can learn a lot from leasing and rental strategies that will help you with investment property sales. There is a radical difference between a good lease and an ordinary one. That difference is likely to help the sale process when it is to happen.
- Working with vacant properties will get you involved with business leaders and tenants. Some of those people are likely to want to purchase a property one day, due to the pressures on occupancy costs and or ownership.
- As the property market changes during the year the shift will occur from sales to leasing and back again. Typically a business tenant will look to shift premises at the end of the lease or restructure rental for a better deal on a new lease in the same premises. You can tap into this valuable resource by knowing the intentions of your local tenants on a property by property basis.
- Understanding how to read a lease in a comprehensive way will help with income optimisation, expenditure analysis, and rental projections. All three of these issues are part of investment property performance.
- What is happening in your local area when it comes to new property developments and vacancies? Are there plenty of landlords needing vacancy solutions? You can get closer to landlords and property owners if you offer specific leasing solutions.
Now you can see why leasing is so important even if you want to focus on sales and the higher commissions per transaction.
Now let’s go to another point that many agents struggle with. It is how much commission they actually get or should get from a transaction. Here are some facts that are valuable when you deal with the question:
- Don’t ask for higher commission percentages until you are a proven real estate performer. When you reach that level it is easier to put your case and attract the better income.
- Look at the income you achieve during the year from settled sales or closed leases. There is a case to argue where improved performance in sales or leases should allow you to improve your income or commission ratio. Upward personal performance as an agent that is proven over time is worth an adjustment in reward or income. A sliding scale of income is a valuable process when you negotiate your yearly ‘package’.
- When you want a larger share of commissions from your brokerage, have a good look at the level of administrative support that they give you now. There is a cost for that support, so don’t get too ‘bullish’ on lifting or pushing your commission share ratios upward; it is very easy for a principal to give you less support as an offset in providing you with a higher income. I would rather have good support from the administrative team that allows me as an agent to get out the door and find new business and more clients.
- Sharing commissions as part of a conjunction arrangement with another agent on a listing is quite common. The ratios you agree on in doing so should be in keeping with the work of the value that is carried and provided by each agent. If another agent is being paid from your listing be it a sale or lease, make sure they support the deal in valuable work.
So now you can see ‘both sides of the coin’ in attracting better commissions from selling and leasing commercial real estate. Make the right choices.