May 31, 2019
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Is it true that the tenant does not pay the broker’s commission fee? The reality is different than advertised.

“The tenant does not have to pay the broker’s commission fee” – the majority of people who wanted to rent some space on the commercial real estate market could come across that slogan.

It does not matter if it comes to renting a single office, an entire floor in an office building, warehouse or commercial space – in this sector, it has been assumed that the broker’s fee covers the landlord, that is, the owner of a property.

Unfortunately, this is only true in theory.

According to this rule, the tenant would sign a contract with the landlord (and it would be the broker who would have enabled them to contact each other), and the first money he or she would have to spend would be the monthly fee for using the space.

That is right. Up to this point, everything is correct.

Going further: if the tenant does not pay the broker’s fee, it has to be covered by the landlord. In fact, someone has to pay the agent, who put in a lot of time and work in the process.

How much can a commercial real estate broker earn?

Let’s see.

Let us take a 500 square meters of office space, which is just right for a small business, in the center of Warsaw as an example. In this area, one square meter of space costs about 15 euros on average. Let us assume that the contract is concluded for five years.

It is easy to count that the company will have to pay 7,500 euros per month for this area. Thus, it will pay 90,000 euros annually, and in five years it will have to spend 450,000 euros.

Almost half a million euros. That is how much a five-year contract for this office space is worth, from which a broker will probably get about 5-10%.

With a commission of 5%, the broker would receive 22,500 euros, and when commission rate is 10%, the agent would get 45,000 euros. Good earnings. Sometimes the broker will not earn anything for a long time, but then, thanks to one contract, he or she can live peacefully for many months.

The question arises: is the landlord really to pay this fee with a smile on his face and not try to compensate for this in any way?

Unlikely.

Broker’s commission fee – who really pays it?

Despite what is written in the advertisement, the tenant will always incur a cost related to the rental process – precisely because the landlord officially bears it.

It is true that the tenant will not receive an invoice for the broker’s service. However, he must think about it over:

How much lower would be my rent if the landlord did not bear such a high cost for the broker’s service?

But let’s say that the rent can not be any lower due to certain limits set for the entire building.

Maybe I would get one or two months off for free?

Or the owner of the property would offer me better conditions by increasing the standard of the office and buying a projector and modern glazing to it?

One thing is certain – both the landlord and the tenant are losing due to the costs of brokering. On one hand, the landlord can not offer the tenant a lower rental price or better conditions, and thus, he is less competitive. On the other hand, the tenant have to pay more than he could (the broker’s commission fee is spread over several years) or he gets less than he could get.

Is it possible to rent a space without a broker?

Remember – the broker is not an indispensable element of real estate transactions.

The main role of a broker is to contact a landlord with a tenant, and nowadays, technology can do just that.

The difference is that technology does it for a much lower price and on more transparent terms.

Source: Realko24