Typical agent fee?

Question

Hello, I reached out to a listing I found on loopnet which wasnt available. The agent did, however, say he can help me find other properties, and sent me a commercial buyer representation agreement.

The agreement is a standard Texas agreement, but he did put a 6% commission which also states the agent can try to obtain it from the buyer if he is unable to get it from the seller.

My question is - is 6% commission for a buyers agent common? That feels a bit high, but this would be my first commercial deal.

Thanks

John Duclos · Answer

Hi Steven,

I'm an Agent in NYC and the agents fee is typically 5-6% depending on if they are a former acquaintance or not. There are a couple of things you can do to lower the commission however.

1. In the contract state that if your listing broker brings in the buyer then the commission is lower.  Since a standard commission is 6% divided by 2, many brokers will take 4% or 5% if they can also bring in the buyer. This is because they don't have to split it.

2. If you are buying and selling or buying and renting, promise the broker the listing on both sides.  If a buyers brokers knows they will get the listing on the sellers end, they are much more likely to work harder, and accept a lower commission when it is time to sell. This is because you promising the agent a double commission.  One of my mentors as a standard practice takes 4% on the sellers side if she was the buying broker previously.

Also based on your post it looks like you are buying not selling right now.  At least in New York (be i believe in most places), the buyer DOES NOT PAY ANY Commission. If the listing agent you are dealing with is doing this, just make sure your lawyer does not agree to this in any way.

Hope this helps.

Jack

Joel Owens · Answer

Hi Steven,

So you are buying in Texas? What type of asset are you going after retail, multifamily, etc.?

1.5 to 3 million you are doubling the purchase price potentially so that is a big range.

If the property is listed 6% can be typical if a broker double ends it. If the broker is representing you as a buyer then 6% is not typical.

The larger you go up in price the more stingy sellers try to be with the commission. It should be the opposite as the number of purchasers with millions to put down are less than 500k-1 million.

I always write in 3% on my LOI's that the seller pay my fee. I do this regardless of what the seller initially offers or the listing brokerage. Sometimes the listing brokerage takes a reduced fee to list a large portfolio and I do not receive that benefit. Additionally sometimes the listing brokerage is sneaky and only offers 2%. I write in language that total commission is split 50/50 and then find out they are trying to take 3 to 4 on their side because they have a team etc.

If it's an off market property where the seller is not represented by anyone then I would write in a higher commission to myself of 6%. I try to get the seller to pay it all but if not sometimes the buyer has to make up a point sometimes for my fee.

If you are putting down 40% or more into a deal sometimes a lender will allow you to roll in the commission you are paying on the buyers side into the loan. The LTV is so low that the lender does not mind doing that usually. This way you pay for it over time and not out of pocket right away. If you are only putting 20 to 30% down then lenders most times will not allow a roll in because it pushes the LTV higher than what they are comfortable with.

The rep agreements I typically do not force people to sign those upfront. It's like the broker hasn't proven themselves yet that they know what you want and can find it. I tell people upfront if they are realistic or not. I don't want to be locked into someone else either that is a flake etc. as a buyer.

Hope it helps. In Texas with the oil boom down you have to stay away from certain areas to invest in right now as loans are harder to get and values are affected.

I know Texas pretty well. One positive is it is a pro-development state. California is so regulatory heavy that many see it a s a burden to grow their business brand there. Texas is so close by so it is attracting a lot of interest plus it is a tax free state.

John Duclos · Answer

Yes, 6% is pretty standard, though once you build a relationship, or if you use one of my strats above, you should be able to get it down to 5%. Anything less and it becomes tough.

Richard Redding · Answer

I've never heard of a buyer paying the commission.....

Steven Rogers · Answer

@Richard Redding - I'm the buyer, not seller. I'm also looking above the 750k price point (1-3 mill)

@John Duclos - Ya, I'm the buyer, which is why the contract threw me off a bit. It's almost always the case the seller pays the fees, correct? And 6% for a buyers agent is realistic? That makes it seem as though selling a commercial property costs 10%+ in agent fees.

Richard Redding · Answer

6% is the standard in Texas...once you get $750k or higher you'll see lower percentages.

3% to the selling agent/broker and 3% to the buying agent/broker. It sounds like a lot, but after the broker takes their cut and taxes, the agent is keeping about 1%-1.5%. (depends on their negotiated split with their broker)

You could ask them to take less, like 4% if they also bring you the buyer.

There's discount listing services...as low as 1%, but I would proceed with caution.

Steven Rogers · Answer

It's in the 1.5 - 3 million price range. And yes, I read it as buyers commission (not the combined buyer/seller), and that I may have to pay it. Is it standard for seller to pay it, or are there cases I may have to?

Typical agent fee?

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