Traditional real estate commissions, based on a percentage of rental income or sale value of a transaction, work very well when brokers represent landlords, sublandlords, and sellers. In those instances, their objectives and those of their brokers, are completely aligned. The higher the price, the higher the commission. See…that works perfectly!
But, what about the tenant representative broker and the corporate advisor, whose job is to protect the interests of the tenant or buyer? In this case, the primary objective of the tenant representative broker is very often to reduce occupancy costs. In most cases, tenant representative brokers are paid commissions based on the same percentage of rent standard as brokers representing landlords and sellers…the higher the price, the higher the commission!
Does that work? Is that right? Don’t traditional commissions based on percentages put the tenant representative broker in a position of being in conflict with his / her own client? Moreover, since most commissions are paid by the landlord, even those payable to the tenant representative broker, doesn’t that pose additional conflicts for the tenant and tenant representative broker relationship? Afterall, doesn’t being the one who pays the tenant representative broker give the landlord undue influence over the how the tenant representative broker might perform on behalf of his / her client?
In many instances, commissions paid to tenant representatives can be substantial. Despite the ability to mitigate the potential for conflicts of interest, tenants are very often hesitant to accept the responsibility of cutting a check for large sums, especially when they haven’t done so in previous transactions.
Rent and other financial components are not the only points of commercial real estate transactions that tenant representative brokers address. Given that fact, how can they charge for the true value they create in a manner that is both aligned with the objectives of their tenants and will result in fair compensation to them? Any thoughts?
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