The majority of the time brokers are paid in the form of a commission by the owner or landlord of the property.
Office buildings have brokers hired by the landlord to lease vacant space. When a lease is signed, the landlord's broker is paid a commission for representing the landlord. The landlord's broker does not represent the tenant! If the tenant does not have its own broker, the landlord's broker is paid the entire commission.
However, if the tenant is represented by its own broker, the commission is split between the landlord’s broker and the tenant’s broker. Even though the landlord pays the tenant’s broker, the tenant's broker still represents the tenant.
A:
Buying Property
Just as in leased space, property owners hire brokers to market
properties they want to sell. They sign engagement agreements
with a broker where a commission amount is specified and included
in the total price of the property. The owner’s broker gets
the entire commission if the buyer is not represented by their
own broker. When the buyer has a broker, their broker splits
the commission with the owner’s broker. Just like with leasing,
the buyer incurs no out-of-pocket costs for the services performed
by their broker.
A:
Selling Property
The owner of the
property almost always pays the brokers commissions to both
the broker representing the owner and the broker representing
the buyer. There is no standard commission fee structure
for selling property. Fees typically vary depending on the
gross sales price and are paid at closing. It is important
that the owner sign a listing agreement with the broker that
details the listing price, commission, fee structure, marketing
costs and term.
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- An exclusive broker can be objective in advising the tenant
or buyer, since compensation is not dependent on making the
deal on any particular property.
- It signals to landlords and sellers that the tenant is professionally
represented: they will have to compete with other landlords
and owners for the tenant or buyer’s business.
- It protects the tenant from legal entanglements that inevitably
arise when multiple brokers are involved, and from the annoyance
of constant solicitations from brokerage companies marketing
for new clients.
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Q: Should
a not-for-profit buy or lease real estate? What are the
factors to consider? |
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A: The answer is as individual as each client.
If timing is everything, leasing may be the best option
for an organization that’s growing and wants the flexibility
to expand and contract. If your organization has a good
cash flow or has money from a capital campaign, it may be
best to buy, especially if your needs are for 10,000 square
feet or more.
Not-for-profit
organizations don't pay property taxes or sales taxes on
utilities on properties they operate for fulfilling their
mission. These savings allow not-for-profit organizations
to own and operate a building for significantly less than
a commercial owner. When a not-for-profit leases from
a commercial landlord these costs are included in the lease.
This can make leasing much more expensive than owning. |
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Q: What
are real estate trends now? Can our business benefit by
making a new deal in a down market? |
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A: The
market is changing. Office rates are rising. In addition,
tenants are seeing building operating expenses significantly
increase and "Plus Electricity" leases
are becoming more common. There is new speculative office
space under construction. However, these buildings will
command high rental rates and are not expected to impact
rates in older office buildings.
Industrial
(including combination warehouse and office) is also
experiencing
a drop in vacancies with rental rates increasing at
a modest rate as leasing remains strong. Unlike office
buildings,
construction of new industrial space will help to moderate
the increase in rates.
Sellers continue
to want high prices and will get them if their properties
are well
located,
in good condition and have solid tenants. There are
real
estate investors with significant amounts of cash
seeking properties that have tenants or can easily
be converted
to income producing property. This makes the market
very competitive for Buyers who intend to use the
property for their business and not primarily as an
investment.
Many
buyers are thinking creatively and purchasing properties
that at first would not appear to be suitable for
their use.
On the other
hand, there remains a significant amount
of vacant office and warehouse space. Landlords
continue to offer incentives to attract new tenants
and keep
existing tenants. There are still deals in leasing
space!
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Q: Somebody’s
trying to give our organization some property. Are there
issues to consider? |
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A: There are many issues involved in accepting
a gift of real estate. Due diligence prior to accepting
the gift can ensure that the organization both benefits
from the gift and limits liability in accepting it. Solender/Hall
has developed a policy for not-for-profit organizations
to use when evaluating real estate gifts. It is located
in the Resource Center. |
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Q: Shouldn’t
our executive director or chief executive be able to handle
all our real estate planning? |
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A: Your executive director or chief executive
should certainly be actively involved in making real estate
decisions. However, they should have outside counsel that
locates and evaluates real estate everyday - not once every
few years. Making crucial real estate decisions and completing
a transaction can be extremely time consuming and complex.
This is one situation where not using an expert can cost
your organization significant money. |
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