When you're reading tips for commercial leasing, you'll quickly find that experts frequently recommend hiring tenant representative brokers. Reps can get you access to spaces that you would otherwise never have an opportunity to lease and can help you select the office or building that is most in line with your needs. Plus, reps assist during the negotiation process to get you the most favorable lease terms possible.
The benefits of having one by your side throughout the search and negotiation process are undeniable, but you're likely to think to yourself, "Just how much will I have to pay to receive all of these benefits?" Read on to learn more about the cost of using a tenant rep broker.
Understanding Tenant Rep Broker Fees
Although rates may vary, most tenant representative brokers receive commission that is equal to 4 percent of your total gross rent for your entire lease. To calculate this, you take 4 percent of the base rate plus the operating expenses and then multiply that figure by the lease term. As an example, if you have a seven-year lease on a 5,000 square foot office rented at $40 per square foot, the commission that a tenant rep broker would typically receive is $56,000.
Commission rates may vary due to different factors. In areas that have a surplus of office space, brokers may receive higher commissions to entice tenants to particular properties. Brokers may also get varying commissions for office, retail and industrial spaces.
Who Pays for a Tenant Rep's Fees?
Here's the good news: in most cases, the landlord is the one who covers the fees paid to the tenant representative broker. Although tenant reps are incredibly helpful for companies looking for commercial real estate to rent, their services also benefit landlords, as they help fill vacancies. Because brokers allow landlords to quickly turn over empty space, they are willing to pay for their services. As a result, you can usually enjoy the services of a tenant rep without having to pay anything.
It does need to be noted that in very rare circumstances, landlords may refuse to pay the broker's fees, leaving it up to the new tenant to cover the commission. Normally, this only happens when the tenant rep broker has angered the landlord with unreasonable concessions or has acted unethically. Working with a tenant representative broker with a good reputation and extensive experience can greatly reduce the small risk of this occurring.
Be Wary of Landlord Brokers
If a representative for the landlord approaches you and encourages you to do a direct deal without a tenant rep broker, proceed with extreme caution. The landlord's broker will likely tell you that you will save money by eliminating the tenant rep fees, but the truth is that the landlord is likely to pay the same amount to their own representative even if you forgo a tenant rep. Plus, not having a broker to advocate for you during the negotiation process could mean ending up with a higher rent rate and less than favorable lease terms.