There are other instances where the commission is a flat fee. This isn't as common, but some brokers or sellers prefer this method where the seller agrees to pay one flat fee if the agent sells the property, no matter what they end up accepting as the final sale price.
A commercial broker may also have a minimum commission. In this case, even if the seller ends up accepting an extremely low offer, the brokerage still gets the minimum commission.
Commission on a lease transaction is usually at a comparable rate. With a lease, the commission is paid on the total value of the lease. For instance, if a five-year lease has a monthly rent payment of $5,000, the lease value would be the total rent payments made over the five years.
$5,000 x 60 months = $300,000
So the commission would be paid on the $300,000. In most cases the commission is due when the lease is signed and the security deposit and first month's rent is paid. Sometimes, the broker and landlord might agree to a structured payment so the broker gets paid over a set amount of months.
Landlords often negotiate the rate to be reduced on longer terms. If that same lease was for 10 years, the broker might agree to 8% on the first five years and 6% on the following five.
So that would look like this:
The lease payments for the first five years would be paid at 8%.
$300,000 x 8% = $24,000
The lease payments for the next five years would be paid at 6%.
$300,000 x 6% = $18,000
$24,000 + $18,000 = total commission of $42,000
A broker may even negotiate to be paid a commission on the renewal. The commission on a renewal is usually at a reduced rate. So with the same lease above, the landlord might pay 3% to the broker when the tenant renews.
These are just the common scenarios. There are an endless number of ways a commission can be negotiated and paid.
A commercial real estate sales agent works for a real estate broker. Even if the sales agent handles the complete transaction themselves, state laws require the commission to be paid to the broker. It's then up to the commercial real estate broker to pay the agent.
There are countless ways that brokers structure their commission splits. A lot of it depends on how the brokerage is organized.
Some companies just have a single broker and some agents. The real estate broker takes a piece of the commission, and the agent gets the rest. This is common for small commercial real estate firms that don't have sales managers or teams.
Splits are pretty simple in these cases. Agents might start out at a 50/50 split, then keep a larger percentage as they bring in more commission. However, a split of 60/40, or something similar, is more common. In this case the agent gets 60% and the broker gets 40%.
The split might be on a sliding scale that starts over each year. The amount the agents keep can go up throughout the year as they hit milestones for how much commission they bring in.
Some brokerages are set up with teams. There may be a multifamily team, office team, retail team, etc. Each of these teams has a manager, then agents that work under that manager.
There are more people taking a piece of the pie in these cases, so the agents may get a lower percentage. For example, the agent might keep 40% to 50%, the manager might keep 20% to 30%, and the rest goes to the brokerage.
Some companies even have commissions shared with the team, so everyone gets a piece of what each other brings in.
Other brokerages earn most of their money from charging agents a flat fee. They might charge the agent something like $15,000 to $25,000 per year and only keep 5% to 10% of their commission.
Different commission structures work best for different agents. Some agents will make more money working on a team, even though they keep less of each commission, because they work better in a team environment and their manager helps them complete more transactions.
Agents that prefer to work on their own might be better off keeping a larger percentage of their commission, but they won't have the same support.
Some firms will offer agents a draw. This may be beneficial to new agents while they're getting established, or even to more experienced agents that need their income to be more consistent.
With a draw, the broker advances the agent a set amount each week or month. The draw isn't a salary. It's just an advance on future commission. When the agent earns a commission, they have to pay back the amount they were advanced before seeing any of the commission.
Some agents have found themselves in quite a hole with draws. The amount they were advanced got so high that it was difficult to pay off. Many agents have wanted to switch brokerages but couldn't because they owed their broker too much money. The draw can be helpful when getting started, but it can also be hard to get out of.
Other agents involved in the deal
Many deals have two or more agents involved. This happens when another agent brings a buyer to the agent who has the property listed. In some cases, there can even be three or more agents involved.
The buyer's agent normally gets paid out of the commission the seller or landlord pays. This means the listing agent has to split their commission. This doesn't happen as often in commercial real estate as it does in residential, but it is still common.
While it might sound like a bad deal for the listing agent, they're at least getting a buyer or tenant to get the deal done. This also means they can still earn a commission for selling one of their buyers another agent's listing.
The most common commission split between agents is 50/50, but that's not always the case. If an agent has a property listed at 8%, they might only offer the other agent 3%. On the other hand, the listing agent may only be getting 6%, but the buyer's agent demands 4%.
Of course, just like everything else involving commercial real estate commission, there are numerous ways this can be handled.
How much do commercial real estate agents make?
If you read the previous section, you can probably already tell that there's no real way to say how much an agent makes. Instead of a salary range you see for many careers, the commercial real estate salary scale looks something more like: Commercial agents earn between very little and a whole lot.
In reality, the yearly total compensation of a commercial real estate agent varies between $0 and more than $1 million.
With this in mind, here are some numbers on average income for a commercial real estate agent from a few sources.
Survey results published in the Real Estate Express 2019 - 2020 Real Estate Agent Income Guide showed that commercial real estate agents earn an average salary of $83,535.
The National Association of Realtors Commercial Member Profile shows that commercial sales agents have a median gross income of $153,000 and leasing agents have a median gross income of $134,100.
Do commercial real estate brokers make more money than agents?
There are two types of real estate licenses: agents and brokers. Most real estate agents who get licensed as a real estate broker either stay with their firm or move to another one. Very few actually start their own brokerage. Someone licensed as a broker within a firm is called an associate broker.
Many companies will offer associate brokers a more favorable commission split. Of course, licensed brokers who go off on their own don't split their commission with anyone. However, they also have a lot of expenses to cover.
In general, the primary broker in a firm does make more money than the agents. Brokers who still sell real estate themselves may keep 100% of their commission check or put a percentage back into the business like the agents do. In addition to their own commission income, they are also earning income from what their agents make.
However, the broker doesn't always do better financially. An agent who does extremely well can easily take home more money each year than the broker does.
One of the biggest reasons that brokers earn more money than agents is because they usually have more experience. Most states require that a person have a minimum amount of experience as an agent and take additional classes and a test before receiving a broker license.
How to increase your income as a commercial real estate agent
As you've read so far, there is an enormous gap in the amount of income commercial real estate agents earn. Obviously, the agents making over $1 million per year are doing something that those making $50,000 per year aren't doing.
While experience is one thing that comes into play, there are plenty of agents who started earning well over $100,000 within their first two years. There are ways to increase your income without waiting 20 years to gain experience and seniority.
The top ways to earn more income as a commercial real estate agent are:
- Being selective on deals.
- Taking care of the client.
A lot of new agents get started by taking leads the other agents don't want. It's a good way to learn the ropes and make a little money sooner. These leads are usually people who want to buy or lease a small space, property owners who want to sell an undesirable property, or landlords with small spaces to lease. These deals don't add up to any substantial amount of commission income.
Agents who earn the most income are selective about the transactions they work on. They only work with qualified buyers and tenants and only work with properties that will result in a sizable commission.
Some people feel like they are passing up an opportunity if they choose to only work with one type of property. However, the saying "Jack of all trades, master of none" is just as true in commercial real estate as it is in anything else.
Agents who choose to specialize become experts at what they do. They learn everything about a commercial property type and their real estate market, and they know what to look for and what the properties are worth.
They also know who's buying or leasing those properties. They have other buyers they've worked with before, and they have a list of contacts for buyers who have shown interest in other similar properties they've had listed.
Agents who specialize also become known as the ones to call. Buyers and sellers in the industry know that the agent is an expert and has the contacts to get their property sold or find them a property.
Training is important in any career. The more you learn, the more effective you become. In commercial real estate, there are always new trends, new technologies, and new things to learn about different markets.
There are a lot of sources of information to use for training, but there are two well-known designations that come with a lot of in-depth training. Other industry professionals know that agents with these designations have a lot of knowledge in their field.
The two biggest commercial real estate designations are:
CCIM -- Certified Commercial Investment Member: Earning the CCIM designation involves an extensive education piece and a minimum amount of experience. CCIM designees are members of the organization and receive ongoing training, tools, and resources.
SIOR -- Society of Office and Industrial Realtors: This designation is reserved for agents and brokers who specialize in office and/or industrial real estate. This designation involves extensive training and a minimum amount of gross annual commission. The minimum gross commission amount is set by each local chapter, but it is significant. The SIOR designation is one of the most difficult to obtain.
What training is required to be a commercial real estate agent?
The level of training required to be a commercial real estate agent varies by state. Some states have different educational and testing requirements for commercial real estate agents. Other states simply have real estate agent licensing requirements, and the agent can choose to be a residential agent or commercial agent with their license.
Legal requirements involve specific training mandated by each state. Most states require somewhere between 40 and 90 hours.
Most states also have ongoing continuing education requirements. In most states the amount of continuing education required is between 5 and 10 hours per year.
Brokerages may have their own educational requirement, however. Some may require a college degree. Many brokerages have their own training program that you're required to complete. They may also have a training period that involves working with an experienced agent for a certain amount of time.
The bottom line
A commercial real estate career can be extremely financially rewarding. There are very few career options available that allow somebody to make as much money as an agent without spending years working through the ranks in a company.
The income potential does come at a price, though. Not having a base income is difficult for a lot of people to manage. Even if you do very well some months, it's hard to budget for the next few months when you don't know what will be coming in. Many agents find that focusing on saving six months' to a year's worth of expenses to have on hand is helpful, instead of splurging with every commission check.
The commercial real estate salary is a pay system quite unique compared to many other careers. But even if you have your eyes set on another commercial real estate career, becoming an agent is a great way to build the experience and knowledge that will make you successful in any position.