Critical Fee and Commission Controls in Commercial Real Estate Brokerage

It is very common in commercial real estate brokerage to have clients challenging the payment of genuine fees or commissions.  The only way to combat that problem is to have a strict business and credit process that records client instructions, agreements, and appointments in a legally accurate and timely way.

So why does this problem exist?  Some of the clients that we serve are less than honest when it comes to the facts of a property deal or an agreement.  When large prices and rents are involved, commissions and fees are likely to be similarly large, and any avoidance or minimisation of those costs becomes a focus for some clients.  They usually then go and see their attorney to see if a ‘loop hole’ exists for cost avoidance.  It is also the case that some clients will misinterpret what was said or done in a deal or by an agent; and others will seize on any incomplete or inaccurate documentation as a way of getting out of paying for something.

So we have some big issues here that need control.  It is wise to set some rules to work to:

• Any work you undertake for a client should only occur when you have the signed and accurately completed appointment to act.
• Any verbal authority or instruction from a client should be evidenced back in writing or by email.  This is certainly the case when it comes to an active negotiation or property document.
• Be aware that some of the legal and agency situations we create are required to be in writing and compliant to laws and legislation.  Understand how those things work and comply accurately in all respects.
• Remember who your client is in the transaction and act accordingly.  If the client asks you to act outside of legal best practice or the law as it applies to property, don’t do so.
• Commissions charged and payable should be supported by accurate and completed agency forms.
• Any commissions that are payable under a conjunction with another brokerage should be fully supported by accurate appointment documentation and mutual agreement with the other agent.  Put everything in writing to support the actions of each agent.
• Marketing fees associated with any transaction should be paid by the client before you start marketing.  That rule also applies with exclusive listings and major marketing campaigns.
• Any works undertaken for a client under a property management or leasing authority should be completely within the existing agreement and the client’s instructions.

When you are the exclusive agent in a property transaction it is easier to control these things.  Set your rules to work through and have a collection procedure that you implement quickly when clients or other brokerages do not comply with the terms of appointment.