How to Negotiate a Real Estate Commission

Negotiating a real estate commission is an important aspect of getting a property leased or sold. You are hiring someone to do something for you. Accordingly, you want to have a broker that is motivated to focus on your need to sell or lease the property. You do not want to look back and realize that you grounded the broker too hard when negotiating the commission. You negotiate a real estate commission based on the type of transaction, the type of property, and the size of the transaction. It can also vary according to geographic area, the economic climate, and how busy the real estate market is.

Here's how to negotiate a real estate commission in seven steps.

Determine the proper usage of the property
When negotiating a real estate commission the first step is to determine what type of real estate is involved. If already developed, is it residential, industrial, office, restaurant or retail? If it is raw land then consider how it is currently zoned and perhaps complete a highest and best use analysis. Even if the property is currently used for a specific use you may find that there is a higher and better use for the property.

What is your preferred type of transaction?
There are many real estate transaction types to consider when negotiating a real estate commission. A property can be sold or leased. The seller can provide financing or require all cash. It can be leased as a vacant lot or developed and leased to an end user. Each transaction has different levels of complexity and challenge. Before a commission is structured the viable types of transactions should be identified so the commission agreement reflects the transaction.

Determine the value of the transaction
Is it a $5,000,000 property sale, a 10 year lease at $120,000 per year net rent, or a one-year residential lease? The monetary size of the transaction has direct bearing on how you will negotiate the real estate commission schedule. The larger the transaction, typically the smaller the percentage of the sales price or value of the lease should be. At If you are trying to achieve an above market sales price, aggressive rental rate, or need to attract a unique type of tenant, you should factor in the time it should take to make the transaction happen and the probability of success. Consider the risk involved for the listing broker. You are asking the broker to invest his time, efforts, and experience without any guarantee of being paid. The more difficult the deal, the higher the percentage of the deal not happening the way you want, the higher the commission that the broker will want, and should be paid.

Determine what the "industry standard"
Even for simple transactions like selling a home the standard commission could easily range from 4% to `10%? The local range can be determined by calling a few residential brokers and asking them the question. You should not have to reveal your name or identify the property to get this information. Make sure you acquaint yourself with any commission formulae that may be customary. For example, it is typical that a long term commercial lease provide for a commission based on x% of the rental income for the first five years then y% for the next five and so on.

Evaluate the degree of difficulty in making the transaction happen
If you are trying to achieve an above market sales price, aggressive rental rate, or need to attract a unique type of tenant, you should factor in the time it should take to make the transaction happen and the probability of success. Consider the risk involved for the listing broker. You are asking the broker to invest his time, efforts, and experience without any guarantee of being paid. The more difficult the deal, the higher the percentage of the deal not happening the way you want, the higher the commission that the broker will want, and should be paid.

Shop around for the right broker
Contact a number of brokers that specialize in selling this type of property, and interview them. Tell them you are considering an Exclusive Listing Agreement. Ask each broker for a Marketing Proposal based on marketing your property. If you feel the transaction is especially challenging tell the broker you are "open" to paying more commission, but only if is justified. Ask the broker to assign a marketing value to the property.

See what each broker comes back with. You are looking for several things.


  • Most important, you want to measure how effective the marketing plan presented will be. Brokers do not buy properties. Their role is to find buyers. That is the expertise they bring to the table. How each broker describes their plan will help you pick the best broker for your specific need.
  • The commission rate is also important as it is your cost. You can expect a percent of the transaction, a flat fee or even a graduated scale commission based on the nature of the transaction and the experience of the broker.
  • Resist using friends or offspring of friends unless they are obviously well qualified within the applicable sector of the real estate industry. Your broker is supposed to represent and protect you. It is nice to help someone get started but not if that means you are not getting what you are paying for. New broker should be backed up by more experienced brokers. It is fine to let young people work the account but make sure your agreement is with the right person who can deliver for you.

Make sure you are comfortable.
When you are finished with your review of the marketing proposals from the brokers and have selected the plan and broker you want to use, evaluate the total commission. Discuss this issue openly with the broker. You are hiring someone to do something for you. Accordingly, you want to have a broker that is completely motivated to focus on your need to sell or lease the property. You do not want to look back and realize that you grounded the broker too hard when negotiating the commission.

If the total commission is fair and reasonable to both you and the broker, you should be ready to write it up.