Many commercial real estate agents have a question as to exactly what the right commission should be when it comes to selling or leasing a commercial property. In most cases, the choice is yours, and should be based on the work required in the listing, together with the trends of the local property market.
Competitive pressures will always push commissions and fees lower. It may be that you have acceptable line in the sand drawn when it comes to fee calculation. In most cases you should have some leverage in your fee base. It is generally acceptable to move up or down 0.25 per cent as required.
There is no point taking on a listing if you are going to lose money. Given that time is money, a low fee will drive less interest from both your agency and yourself.
Here are some rules that I set regards fees and commissions.
Look at the fees that the other agents are charging through the local area. You can only compare agents to agents based on experience and relevance to the property type. A top agent will always command a good fee. A poor quality agency will always seek to reduce fee to attract the listing. The fact of the matter is that these poor quality agencies cannot service a high quality property with the required marketing and industry knowledge. The client will always get what they are willing to pay for.
Don’t focus on reducing your fees. Focus on unique and specialized marketing campaigns that produce more relevant enquiry. The client wants to move their property more than they may want a reduced fee. Focus on your points of difference and relevance to the client.
Show the client how other properties in the local area are struggling with some of the competing real estate agencies. Tell the client what those other agencies are doing wrong, then tell the client how you can improve on their efforts. Property marketing is not an experiment. It is a very specialised process for which your commission and marketing fees allow you to provide a very specialised service. It is more important for you to be known as the top local agent locally, than the cheapest.
As a general rule, all of your listings should be on an exclusive listing basis. In this way you can control your market place, client contact, and negotiations. Every exclusive listing should be supported by vendor paid marketing funds. Those funds should be paid in advance prior to the campaign commencing.
In the property market today, there is generally a good selection of properties for sale and for lease. Many agents are struggling to get results were some of the listings. Many of those listings are on an open basis. The media by you can see the problem and the solution that is required. This market requires dedicated effort on the part of the agent, and that will only be achieved by an exclusive agency for a long period of time.
Pitching and presenting for a listing should therefore involve a very specific process of information, knowledge, and marketing strategies. Refine your presentational system so that the exclusive listings become easier to achieve. Practice will get you there faster.
They say that commercial property management is a service part of the commercial real estate industry. Certainly it is that however it is very specialised, and the knowledge required behind the job is extensive. It requires top property managers that really know what they are doing on a daily basis.
When you take on a new client or a new property management it is tempting to give a base service fee that is set on the passing income. Whilst the formula is useful, it pays to understand what the landlord owner of the property wants regards reporting and service in the management of the property. If you adopt the base fee approach, you also have issues of the fee reducing when the property vacancy level rises.
Here are some ideas about working with new commercial property management clients and setting your fees:
Whilst you may want to set a fee based on passing net income (or gross income if that is your priority), always set a base fee that will be a minimum fee if the vacancy level rises in the property. The base fee will protect you when the vacancy level rises.
Your ordinary management fee that you charge should cover the general activities that are required for financial and physical management on a daily or weekly basis. It does not have to cover the extra activities that may be considered special in the property. They can be for the unusual things such as leasing upcoming vacant space, market rent reviews, attendance at court, lease assignments, lease subletting, and annual budget or reporting activities that take a lot of time and effort, beyond what you consider the ordinary property management tasks. You have a choice here so set the right fee for the work involved. Understand exactly what the property will throw at the property manager.
Ask questions of the client before the management agreement is signed just so you know exactly what they want regards reporting and control from the property manager. Rarely will you find that two landlords are the same. Consider the time involved in giving them the reports and the feedback that they require.
Look at the complexity and the age of the property. Older properties require extensive control and management. The maintenance activities in the property may also be higher on a regular basis.
The size of the tenant mix and the complexity of the lease documentation will place pressure on the property manager from a time and knowledge perspective. More tenants in the property will lift the time requirement.
Assess the vacancy factor for the property now and in the future. Is the property manager required to market the vacancies and what fee will they get for that?
So there are some special considerations here that should be worked through. When you carefully consider the property and the time involved you will soon see the property management fee that you charge in a different perspective.
In commercial real estate today, we see far too many agents offer discounts and marketing cost benefits as part of the sales presentation or pitch. If the client is looking for a discount before they will make a decision on the listing, then they are not the client that you need. It is better to walk away from these clients. If they are basing their listing decision on ‘cheap’ and ‘shortcuts’ they are likely to be difficult clients when it comes to negotiations with serious and reasonable prospects. Here is a tip from our Newsletter.
In this market buyers or tenants are very aware of market conditions, and they will not offer above market prices or rents, or enter into unrealistic negotiations with unmotivated vendors or landlords. There are lots of other properties to choose from today.
The reality of commercial real estate market today is that sales and leasing transactions are slow and difficult to put together. The average transaction does not occur quickly or easily. Real focus and effort is required on the part of the salesperson or agency to resolve the property pain for the client, and that takes time and a strategy. The word ‘discount’ doesn’t feature as a requirement or have any relevance.
Discounted commission or discounted fees in the sale or lease process create the following issues:
The agent will be more inclined to work on properties where the fee is more realistic and appropriate for the volume of work concerned.
The agent knows that the client is not totally committed to the sale or lease process and on that basis it is more likely to be an adversary in the marketing and negotiation activity.
Sometimes a client will look to the agent to cover the marketing costs as part of the promotional campaign. Most agents in that case will selectively and restrictively market the property within a small budget.
The reality of property sales and leasing today says that we have fewer buyers and tenants to work with for the average property listing. Levels of enquiry are slower and negotiations are longer. Getting the message out to the marketplace is more important than ever before.
So the best agents today in their sales or listing presentation will firmly commit to the following process in front of the client.
They will define the best strategy and timing to take the property to the market. This will include due consideration for market conditions, competitive properties, methods of promotion, levels of enquiry, and pricing or rental strategy.
They will comprehensively determine the target market that best suits the property to be promoted. When the target market has been defined, it is much easier to create a specific marketing campaign and seeking vendor paid marketing funds.
They will recommend the marketing campaign across a number of initiatives relevant to the target market. Most marketing campaigns run for a period of six or eight weeks and then slow right down. A full 60% to 70% of the marketing funds should be spent and committed to the first half of the campaign. This is how you build momentum and enquiry. It should also be said that the every aspect of the marketing campaign should be tracked for results; if something is not working, you change it.
Good agents will personally commit to direct marketing including canvassing the streets and businesses, cold calling, and database contact and review.
There are many more reasons to appoint an agent on a full commission than to provide discounts. Clients should be given the specific reasons why discounts and shortcuts do not work in this market.