Why no buyer brokers in commercial real estate transactions?

Question

I just found out that more than 80% of commercial real estate transactions have no buyer brokers. That means buyers are not represented or protected in commercial transactions!

Is there a reason for that? Is it because the buyer broker won't be paid a commission, so no one is willing to represent the buyer?

I know that in commercial real estate transactions, the listing broker is entitled to a commission of 6%, but will that be shared with a buyer broker?

Greg Dickerson · Answer

@Aaron Xie duel compensation is most common in leasing.

On the the sales side it is less common especially with larger properties. Buyers are expected to pay for their own representation so in some cases they will hire an attorney to negotiate, review and draft any documents. Sometimes buyers will negotiate and then turn over to attorneys after the LOI has been signed.

No agent is entitled to any amount of compensation or commissions from a seller. That is completely negotiable and there are no set rates.

Joel Owens · Answer

In my world of commercial retail I have TONS of requests to represent buyers exclusively. Sellers gladly pay me. I ask for  a certain percentage regardless of what the seller agreed to the listing for with the listing brokerage.

Commercial brokerages that focus on listings only typically have teams. If 100k commission for instance 50k goes to brokerage as an example and 50k is left to be split with the 3 agents on the team. Top senior person gets say 25k and junior agent at bottom gets 8,000.

Me as a principal commercial broker with my own firm representing buyers I get it all. So when I make 100k that junior agent would have to do about 12 deals to my 1 deal for the same income. The listing brokerages only tend to sell you on whatever they have listed exclusively whether that is a good,marginal, or crappy deal. Conversely I do not represent the seller but the buyer so I look through my database of thousands of retail property owners I have built up over 15 years in the business.

My clients are not buying mom and pop type stuff. My clients  are individual multi-millionaires and some over 100 million of net worth. They are an expert in their field and they want someone equally as good when they look to invest millions of dollars in a down payment buying a property. I am a specialist so I have a specific niche. I find the having the buyers pay the buyer broker commission more of a thing in larger multifamily and not hardly at all in commercial retail. I do almost all commercial retail these days.

Some investors might ask WHY the listing brokerage would not want to double end everything? It's an easy answer. They make money on volume and reduced commissions so they want either a REIT, individual buyer with an experienced buyer broker on their side, etc. so that the transaction goes smoothly. They do not have the time to sift threw tons of properties for a buyer and answer all kinds of questions to someone that has money but is new to the space.

Those listing brokerages like working with me however because they know I will help the buyer through the process and I am experienced.

While commercial attorneys can be good to use that cost thousands to tens of thousands of dollars per transaction they are not typically looking for properties and underwriting what to make offers on. They tend to get involved at the PSA stage and handle the legal stuff.  Some attorneys might do this but all the ones I know do not. That is more the commercial buyer brokers realm.

Mike Dymski · Answer

Commercial brokers spend years fostering relationships with owners and sourcing listings.  They also have a team working each listing, all of which need to be compensated.  Split the commission with another team after years of work?  Negative ghost rider.

Jonathan Bombaci · Answer

@Aaron Xie I bought 3 commercial properties in NH and represented myself in all of them so there was no “buyer brokerage” on the deal. One was a private deal with the seller (no agent involved at all). The other 2 I let the listing agents take it all and told them to bring me anything else they have before putting it on the market. I’m a real estate agent in MA and this is one of the incentives I have out to the brokers in my target area. If you bring me a great off market deal I won’t ask them to split their commission. This incentive has had agents in the area sending me lots of stuff which allows me to cherry pick the best ones. I could bring my own agent in and request half the commission go to them but I’ll happily give up nothing out of my pocket to get in on the action before the property hits the MLS. The last off market deal I got under contract for $320 and it appraised at $400 and I think if it hit mls it would have easily gone for $380+. So I gave up 3% commission to save up to $60k on the price and it was a very smooth transaction for all parties. Seller was pleased they didn’t need to do an open house, I got a good deal, and the agent/broker was very happy with their cut.

I know I’m not the only person buying commercial that does this. At the end of the day the listing agent knows the most about the property and while you have to be careful (the represent the seller) if they’re a good ethical agent they’ll answer your questions honestly and be the best person to tour the complexes with.

Russell Brazil · Answer

Buyers typically pay their own agents in commercial, thus why you may not see as many represented, especially in low priced transactions.

Jay Hinrichs · Answer

and if you do have a buyer for a commercial or MF you as agent need to get it in writing that the seller will pay you.. if they wont then you need your buyer to..  this is not MLS with a BAC clearly denoted.

Joel Owens · Answer

Aaron it's not really being scared as a buyer it is knowing when someone is new to the space and needs help.

If someone is a white belt in a martial arts style (new buyer) going up against blackbelts (experienced seller and listing brokers) to spar wouldn't they want a black belt by their side to help guide them and offer helpful tips so they do not get knocked out and have their clock cleaned? I know if it was me I would. The listing brokerage represents the seller.

I didn't start out doing 5,10,20 million dollar deals. I started out with 500k deals. Typically the residential investor wanting to move into mom and pop commercial.

I remember taking a picture over a decade ago of a 15,000 check and thinking it was incredible. Now I only go out to eat and celebrate if the commission is typically over 100,000 on a deal. Now I have minimums into the millions in purchase price or I pass on the business. Sub 1 million dollar deals take up too much time and the money is not there so I would lose dollars per hour. Better for me to do nothing and wait for the 2 million and up purchaser to come along.

I started in residential for about 1 year and could not stand it. Then I went to assembling land for commercial developers. The when down cycle happened nobody was developing raw land anymore so went to selling bigger apartment buildings. Found retail over a decade ago and love it. It is about 99% of my business now.

Aaron Xie · Answer

Thanks for all the replies! Maybe I am wrong, but I still think that, like in the residential world, the selling (buyer) agent is valuable in that s/he brings the buyer! And I assume buyer is more rare and hard to find in commercial than in residential, so to some extent, I think the buyer agent deserves a higher commission than the listing agent does. Whoever brings the buyer is more important to me the seller.

If I am the seller of a commercial property, I would definitely ask my listing agent to split the commission with the other agent who brings the buyer. Of course, if my listing agent brings the buyer, I am ok paying him the full commission. But again, how can I prevent my listing agent from showing my listing to only his/her clients by intention in order to get double paid?

Joel Owens · Answer

My ideal client is high net worth to ultra high net worth investors that are individuals (no syndicates).

I like dealing with parties that on their own have the ability to purchase without all of these other layers falling perfectly into place.

Not saying I occasionally do not work with a syndicate but they are experienced and have a track record. New ones take up too much time and odds of closing are low.

Wayne Brooks · Answer

Commercial agents aren’t getting 6% to split with the buyer side.....2-3%.

Why no buyer brokers in commercial real estate transactions?

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