Optimizing Your Commission Rate in Commercial Real Estate Deals
Turner Levison | January 30, 2017
Commercial real estate transactions may seem simple to the casual layman who understands the process of buying a house, yet when dealing with commercial buildings the process can be a bit more complicated.
The buying and selling agent have to work on behalf of their direct contacts who in turn have to answer to their bosses who then need to justify the outcome to investors.
Ideally, everybody benefits from the transaction. The agents earn their commission, the seller gets rid of property they don’t need for a fair price and the buyer now owns a building they need as either an investment or for direct use.
The Commercial Real Estate Process
Compared to how it used to be, the commercial real estate process today has been vastly simplified. It used to be that when a building was placed on the market and a potential buyer had been found, there were layers of approvals that the deal needed to reach.
Unfortunately, this created a process in which any company employee could potentially stall the deal. The agent had to work with a company representative, but offers and counteroffers had to first be approved by an accountant for validity, an attorney for legality, then be approved by the representative’s manager before going to a CEO to determine whether or not to continue negotiations. The CEO has to either discuss the decision with investors or a board of directors, or at the very least prepare an explanation of why the transaction was good toward the company’s long term success, etc.
This bureaucratic nightmare is what makes commercial real estate commissions such a tricky subject!
Partly because of internet communication and especially due to company specialization, the process can now be made simpler. When one agency takes responsibility for the transaction within preset standards by the client, the bulk of a commercial property transaction can be conducted in-house.
Specialized software allows an agent to conduct multiple steps with a simplified process which allows the deal to happen faster.
Over the Term Commission
The phrase “Over the Term Commission (OTTC),” has received a negative connotation by many commercial real estate agents. It’s good to know the money is there, but it doesn’t pay bills to know money is coming sometime in the future. What’s worse, there’s no guarantee that you’ll receive your commission until after the deal is finalized.
A Commission Management Platform (CMP), such as CommissionTrac, takes the hassle and confusion out of these deals and helps you keeps track of them so they don’t get lost in a flurry of paperwork on somebody’s desk inbox. Everybody involved with the deal can log in with the program and see exact, up to the minute details about the transaction.
This means nobody has to go find “that one employee who has the info” in order to know what’s going on. The ultimate result is a streamlined approval process and payments that happen faster!