Has Your Back Office Ever Made A Mistake Calculating A Tiered Commission Split?
Daniel Levison | October 23, 2020
Commercial real estate commissions can be significantly more complicated to track than fees earned when selling a house or even selling a commercial building. Once you peel back the layers of the onion, commercial transactions, especially leasing commissions can get very complex very quickly with tiered split plans being the standard structure for most CRE brokerage companies. In determining compensation for their agents this function is likely the most critical, most manually intensive and likely mistake riddled process in a CRE’s back office.
The process can quickly get frustrating and mistake riddled if the process is being handled with multiple Xcel spreadsheets that aren’t integrated and communicating with each other. Without transparency for all of the parties involved to see exactly how fees are generated and paid a level of distrust and dissatisfaction begins to grow between the agent, the brokerage company’s leadership and back office.
Commission agreements can be unique to each transaction, and, even with an efficient commission tracking software, it typically takes a dedicated resource to make sure all the beans are counted and the books are balanced with each new and unique transaction. We have spoken to dozens and dozens of back office personnel saddled with this responsibility and they have told us that a single check can easily take over an hour to process. CommissionTrac can reduce that time down to minutes.
Shelly Protus, Office Manager CBRE Albany:
For calculations and a lot of tracking, we used MS Excel. For invoices I was using MS Word, which meant that for every single invoice I had to type in all of the data and double check everything. It was not a difficult process but it was tedious and time consuming
Even though we could use Excel formulas for some of the calculations there was always the possibility of human error. We knew a long time ago that we needed to find something better, but we never really took action. But my workload kept growing and got to the point where it didn’t matter what I did, I just felt like I was drowning. I felt like I was not making any progress.
Since we’ve started using CommissionTrac any currently pending transaction or anything that’s closed is right there in CommissionTrac. I can access our data very quickly to check the status of the account, the status of payment. I can pull up the lease or the sale document, I can check the brokers involved. Everything I could possibly need related to that transaction is right there without having to check a couple of different places or pull a hard copy file somewhere. So that’s really nice: having everything together.
The invoices have been spectacular for me. I love pressing a button and having an invoice generated for me. Instead of spending 10 minutes sitting there typing a document, I now have it in 30 seconds.
As the previous owner of a twenty person CRE brokerage business in Atlanta, I can tell you unequivocally, that nothing frustrated our agents more than when we, in a timely fashion, could not validate, to the penny, how we came up with their bi-monthly commission distributions. The lack of transparency to provide real time information on their personal earnings was always a concern to myself and my partners that it could possibly lead to some agents leaving over the frustration.
Who’s concerned about the transparency and the process in a commercial lease transaction?
The Landlord Paying the Commission
Very often, commissions are paid out in multiple payments. One payment when the tenant has executed the lease agreement and a final payment is made when the tenant physically moves into the space. The complexity can occur if there is a long lead time before the tenant physically moves into the space and the procuring agents split plan resets before the final portion of fee is paid.
Additionally most landlords rely on the brokerage firm to invoice them for the remaining portion of the commission, and if the brokerage firm isn’t using a sophisticated intuitive platform the second portion of the fee can, and often can, slip through the cracks potentially never to be received.
The Agents Earning the Commission
Surprisingly, most agents don’t understand exactly how their back office is truly calculating their compensation, or have true clarity and transparency into the amount they think they’re supposed to receive versus the commission actual amount paid.
Basically there’s no set percentage that is required to be paid, but most commercial agents earn anywhere from 4-10 percent, depending on the size of the transaction. The commission is negotiated by the involved parties, and whether they were the procuring cause of the deal or not affects the final commission earned. If the listing agent isn’t the procuring cause we typically see the listing broker getting an override equal to half the procuring agents fee.
With multiple factors being part of most commercial transactions, calculating a typical commission provides significant opportunities for mistakes to occur without a platform created to handle the complexity. It’s a dizzying amount of math and an extremely time-involved process.
Add to that agents continually interrupting back office personnel asking – has that check come in or has my invoice gone out yet and you have a recipe for human error and miscalculated commission fees.
Historically, it’s also been a very opaque process as well (unless, of course, you’re using a platform like CommissionTrac.)
The Leadership of the Brokerage Business Sharing the Commission
Without a commercial real estate centric platform it’s difficult for the brokerages leadership to fully understand if commissions are being paid correctly and if expenses are being recaptured properly. The overwhelming majority of CRE brokerages still use dozens of Excel spreadsheets and paper files to determine agent payments. This process and approach can make it difficult to explain and transparently show agents their compensation.
When utilizing the Commissiontrac platform every agent, as well as principals and bookkeepers have the ability to log into either a management or personal dashboard and see company or individual deal data, detailed payment history down to the penny as well as KPI’s relative to their business. The bottom line is that a real estate agent, and especially one who works with commercial properties, have to get creative to get deals done.
While creativity can help get the client a good deal and satisfy the landlord’s needs, it can make commission calculation and accounting a chaotic puzzle.
It might be no surprise that some of the best agents are the ones causing the most headaches in brokerage’s back office because they are the ones willing to spend that extra effort negotiating to create a win-win for the client and the landlord.
We created CommissionTrac with the mission to help brokerages avoid errors, provide transparency to agents, principals and landlords while saving a brokerage company’s back office team valuable time. An accurate and efficient accounting back office platform can also help your brokerage business become more productive and profitable.
If your organization struggles with providing your agents transparency into their distributions, split plans, and future booked but unrelieved income, or if you are an agent and you’d like your brokerage to have more back-office transparency, then check out CommissionTrac and book a demo today and see why –
Over 1,200 users and affiliates of Colliers, CBRE, Cushman Wakefield, NAI, SVN, Lee & Associates, as well as the largest national ‘tech-enabled” brokerage business, TenantBase have chosen CommissionTrac as their back office solution.
And if you are a CCIM, SIOR or member of NAR you qualify for a discount on our platform.
Authors: Daniel Levison – CRE Holdings (CommissionTrac, Commercial Property Consultants, SharedSpace) and Turner Levison, CEO, CommissionTrac