Do I have to pay realtor commission and property Management fees on a lease?
I listed a commercial property for sale but have only received offers to lease it for many months. So I am considering leasing it instead of selling it. I asked the realtor what the charge would be and she said 6% of the entire term of the lease upfront. The lease is 3 years. Then since I am not a local landlord I would also have to pay a property management company to manage it. Which I was quoted at 10% of the lease. Is this the only way to do this? It seems like a lot of fees and the Realtors while I appreciate them finding the client, taking all the money up front like that leaves me with all the risk. What if the leasee bails without paying after a few months?

Had I originally wanted to lease I would have just hired a property management company and paid them 10% to find the client and handle everything. It was only after being unable to sell the building that I've started to consider leasing it instead.

Anyone have any advice to the situation I'm in? Seems like a lot of fees to get this place leased out.
[{"id": "ffvbduk", "text": "A property management company would still charge a leasing fee\n\nRisk? Vet the tenant. Welcome to rental properties\n\nedit:6% leasing fee for commercial property is normal", "replies": [{"id": "ffvgeo1", "text": "gotchya. So normally you would be on the hook for a leasing fee and then also PM fees? And from other comments it seems 6% is a normal leasing fee and 5% is a normal PM fee?", "replies": [{"id": "ffvqu5d", "text": "Just make the tenant pay the leasing fee.", "replies": [{"id": "ffvug8e", "text": "That's hysterical.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ffvd2cg", "text": "What market? Size space? You can gross up the rent for the commission and structure the lease as a NNN lease where tenant pays taxes, insurance and management fees. I also often structure deals where broker gets paid quarterly on rent received and rarely pay more than 3% of the base for the original term only.", "replies": [{"id": "ffvg765", "text": "OK thanks. I will try to talk to the brokers as the deal closes. I wouldn't mind paying quarterly or whatever. 6% upfront is a lot to come up with when you don't have the money because rent hasnt been collected yet!", "replies": [{"id": "ffvm60j", "text": "Do you have a listing agreement with a reputable broker?  You're going to retrade the deal with your own broker....AFTER the deal closes?  At a lesser fee and in installments?\n\nYou're familiar with liens, no?  If not, I might consider getting up to speed.", "replies": [{"id": "ffvmk3f", "text": "Oh no the deal hasn't closed yet. I'm just preparing in case a lease happens what the standard is in the situation. I'm not trying to like get out of any deal or anyting I'm just making sure that I understand everything and ensuring the deal that we signed is a normal industry-standard. The agreement I signed says 6% for lease or sale. Anyone can cancel the agreement at any time. Or it auto cancels after 18  months. My question was more towards was this the right move for me in the first place? And is it normal to pay the 6% and then also pay a property management fee? As this is my first time doing any of this.", "replies": [{"id": "ffw2oo6", "text": "&gt; just preparing in case a lease happens what the standard is in the situation. I'm not trying to like get out of any deal \n\nDude if you signed a listing agreement that said 6% then man up and pay 6%, that's a standard fee in my area too. \n\nYou should be thankful this broker is bringing you a deal, I've seen CRE vacancies sit vacant for years. That being said, you haven't signed an agreement for PM yet so you could hold off on that. \n\nWhat type of tenant and building? Some CRE is more hands on than others.", "replies": [{"id": "ffwp97c", "text": "Restaurant. Could a family member watch over or would you recommend a professional company?", "replies": [{"id": "ffx7mhe", "text": "&gt; tenant \n\nIf it's a NNN lease then have the tenant be responsible for all the maintenance and repairs. \n\nJust have a family member drive by or stop in once a month and you should be fine for one building. \n\nI wouldn't hire a PM for a single-tenant building.", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ffvd8pp", "text": "Pretty standard, yes you have risk but you can put in your leave if tenant leaves after a year they owe you the pro rated leasing fees. Doesnt mean you will collect though.", "replies": [], "depth": 1}, {"id": "ffve1o0", "text": "You don't HAVE to do anything, nor does the broker or property manager, unless your contract reads as such.  Read the listing agreement you have in place.\n\nPersonally, I think you've got it backwards.  Find the best broker to sell or lease your space, and pay them market (6% is relatively standard for leasing), and then worry about the PM play (if there is one at all).  \n\nDon't under value leasing brokers.\n\nSigned,\n\nA Commercial Leasing Broker", "replies": [{"id": "ffvgik5", "text": "yes what im concerned with is if you sell the property, sure there is plenty money to pay the broker. But if I lease it, I don't see the money for 2 years but they want their payment now? That's normal?", "replies": [{"id": "ffvhs4z", "text": "Yes, paying leasing brokers their percentage for the entire leasing consideration is standard in every market I've ever worked, both as a broker but also as a developer and asset manager.\n\nYou could try putting a sign up and lease it by owner, market it online, create professional marketing materials, pay for continuing education and certifications, network 20 hours a week to gain the market knowledge that will lead to a lease, cold call three hours a day, and CONSTANTLY be on the lookout for users for your space, AND have to deal with educating your own Clients/potential Tenants.\n\nOr have somebody else do all that and pay 3% (other half goes to tenant broker) of the deal you should be very grateful to have in hand.", "replies": [{"id": "ffvjxkk", "text": "you ok?", "replies": [{"id": "ffvkh1u", "text": "They\u2019re super not ok, but the point is, you can do it but it\u2019s harder.", "replies": [], "depth": 5}, {"id": "ffvluxo", "text": "All good, just wasting time giving free advice to an unappreciative slum lord who will undoubtedly go into foreclosure in order to save a couple grand, and/or who will undoubtedly sign up a tenant on a boilerplate lease (fuck attorneys, too!), and then end up in court.  Best of luck!", "replies": [{"id": "ffvqsgh", "text": "This poster is clearly not experienced in CRE and is asking very normal questions . You need to relax, man.", "replies": [{"id": "ffvuehw", "text": "Fair comment.  But at the same time his cutting brokers out of a deal is bad form, bad for his business.  While I might be blunt, it is the reality of the situation he's gotten himself into.  OP is asking for real advice on a public forum, and I'm offering realistic feedback based on 20+ years of experience.  If there's anything in my advice  that you disagree with, than let's discuss those merits.", "replies": [{"id": "ffwp12x", "text": "No, never once have I wanted to cut the brokers out of the deal this is completely your imagination. The questions I asked were is the fee structure normal and is payment immediately on the full term of the lease normal. And you blew up and really I have no idea why. We are talking about tens of thousands of dollars and I'm just doing due diligence.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}, {"id": "ffvtsuk", "text": "Take a walk or something, lol", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "ffvt2yf", "text": "AND have brokers purposely avoid directing tenants to your property because you\u2019re not playing by the standard \u201crules\u201d", "replies": [{"id": "ffvvest", "text": "By \"rules\" are you implying not paying brokers?  Not following state/federally mandated laws?  I mean.., who needs ADA bathrooms and building permits, ammirite?  Let's handshake on a deal, we'll figure out who pays for what later.\n\nYeah, I'm not bringing a tenant anywhere near your shit show of an asset, no matter how \"creative\" you think you might be.\n\nHow's that going for you?", "replies": [{"id": "ffvvn5x", "text": "I just mean there are \u201cthe way things are done\u201d. Like the 3/3 commission. It should be possible for a broker to come in and charge 2.5% and get way more business, but that broker will never get fed from other brokers because 2.5% is breaking the \u201crule\u201d. \n\nNever said anything about following FHA, ADA, name your acronym.\n\nAnd I don\u2019t even mind the system, but don\u2019t pretend it isn\u2019t a system.", "replies": [{"id": "ffvw8z3", "text": "Sure, just like insurance, or law, or any other service by which the payment is based on a commission or fee is a \"system\".  Everything is negotiable.  But if you try and cut corners and cheap the folks that you hire, you'll get the same level of service/professionalism.  I can list my house with the person who spends his career gathering the best comps, with the best tech, with a team of marketing professionals, or I can list it with the guy who has a sign 10 feet up a telephone pole ('we buy houses cheap\").   I can trust my estate to a lawyer that has an established business and a history, or the guy whose name is on a bus stop.  It's all business, all \"system.\"  I'm advising OP in good faith, for the best of his business.  Why is commercial real estate any different than the examples I just described?", "replies": [{"id": "ffvwob5", "text": "I\u2019m not trying to turn this into a shitpost. In your example, if attorneys all charged the same rate, it would be a fair comparison. Attorney fees are negotiable, but for a good one I will pay whatever their rate is. All of your examples are competitive professions. I choose the best rate insurance for the coverage that fits me. In brokerage land you pay 3%, or if you\u2019re able you negotiate a little and get them down to 2%. But everyone charges the same price with little ability to negotiate unless your selling massive $100M properties.\n\nMy point is, if a broker advertised their services for say 1.5% in all their materials. Other brokers would avoid that person like the plague because it disrupts the apple cart. Ideally, that broker would get so many listings it doesn\u2019t matter if it\u2019s only half of the regular fee.\n\nNot discounting the brokers role. You match tenant and landlord. There is obviously value to that service!!!", "replies": [{"id": "ffvxu1a", "text": "Ah, got your point better now.  Thanks (honestly) for taking the time, but I'm still a bit confused.\n\nIf a TENANT rep broker discounted his (or her...just realized how gender bias I'm being here, apologies but I'm running with it for continuity sake) services to his Client, thats between him and the Client.  Happens ALL the time with larger national accounts.  But that's not what I think you're talking about here.\n\nIf A LANDLORD broker discounted his fees, which happens, no TENANT broker would avoid him, as they would expect a market rate.  The 1.5% savings in your scenario would be eaten by the LL broker.  Which is bad business for the LL broker but non of the TT's business.\n\nIf your point is that the LL is going to pay half of a standard market commission, than that is a business risk that they should be counseled against but is certainly within their right (and they better have something awesome in terms of product/rate).  Yes, some unethical brokers will steer their client away from that asset, but if the space/deal makes sense a good broker will do that deal (and negotiate with their client and the LL appropriately).  I find this scenario to be incredibly, INCREDIBLY rare.", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ffver9u", "text": "6 percent is high.  \n\nits a sliding scale over lease term\nyear 1- 5\nyear 2-4.5 and so on\nyou don't need to pay upfront. most savvy owners don't.  you pay some at signing, some 90 days in, some whatever.  speak to other owners.  \nI'm a long time broker and owner.  this is more than fair. \n\n\n\nproperty management fees are typically 5 percent in major markets.", "replies": [{"id": "ffvg9wr", "text": "OK. I will try to negociate with the realtors on this one and check out other companies who might charge 5% to manage it going forward", "replies": [{"id": "ffvkla9", "text": "It should be structured as 6% if there is a tenant cobroker (split 3% each way) or 3% if there is not a cobroker, In our market no cobroker is leaning more towards 4% but 6% with cobroker 3% without is pretty standard.", "replies": [], "depth": 3}, {"id": "ffvq3hc", "text": "These are not realtors. These are leasing brokers who for the most part have a good understanding of finance and for without which you most likely wouldn\u2019t have a tenant for your space.", "replies": [], "depth": 3}], "depth": 2}, {"id": "ffvil9s", "text": "6% is NOT high if the LL broker is splitting with an outside/tenant broker.  If the deal is done without that outside rep, than 4% to LL broker is reasonable.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ffvmdq9", "text": "6% isn't high. 6% is a normal fee. I've seen brokers get paid 10% on the total lease. That total fee will then either go to one broker or be split as a cobroker fee between two brokers as mentioned above. When I bring tenants to fill another broker's listing I typically get paid 4% of the entire lease. 10% for property management is standard. If you're not local your property will not be taken care of as well as it should be unless you have family/friend to look after it for you. Even they aren't professionals and can only do so much to help you. If you do a triple net lease that will help out a lot with the tenant maintaining majority of the property if you don't want to pay for management.  Everything is negotiable. Paying someone 5% to manage your property is a steal. It's not impossible to find it but rare especially if you're only giving them one property to manage unless it's a massive property. 7% to 10% is more likely. If you're consistently buying properties you're more likely to receive the 5% management fee because it will be worth their time when you buy other properties using them as your broker. Single tenant triple net is typically the best when it comes to low maintenance and you as the owner will have less to worry about. Vet your tenant. Look at their company history, their financials, rental history, etc.", "replies": [], "depth": 1}, {"id": "ffvnhb1", "text": "6% would be normal if there\u2019s a landlord rep and a tenant rep. \n\n10% pm fee seems really high to me although I don\u2019t know anything about your property or market\n\nALSO:\nsounds like you\u2019re worried about paying the leasing broker money today when the value of the tenant is in the future income stream. If you\u2019re interested in selling the property it just became a whole lot more valuable now that there is a tenant in place. If the broker you have been using hasn\u2019t already explained this then I would not use him to sell the property", "replies": [], "depth": 1}, {"id": "ffvpqw9", "text": "Everything is negotiable! But yes, typically it's 6% of the entire lease upfront. 3% to the tenant's agent and 3% to the landlord's agent. In your case, it sounds like there is only one agent; if I were you, I'd speak with them and ask them to lower to 5%. I did a 5-year lease and the commission was quite large. Now typically as the landlord you do not want to pay out of pocket, I typically try to structure the commission so I take all or part of the Security Deposit to cover my commissions. And the remainder to be paid maybe at the end of the first year, or when tenant opens doors, or 3-6 months from the start. Like I said, it's all negotiable and you as the landlord should feel comfortable. Hope this helps.", "replies": [{"id": "ffvwamd", "text": "Hol up. I keep hearing 3%/3% split, but my market (DFW) the standard is 4% to tenant rep then listing agent only gets 2% or 2.75%, depending on our agreement with the landlord. Our brokerage asks for 4.5% unless cobroker involved then it jumps to 6 or 6.75%. I work landlord rep and tenant rep and 4% is always asked of tenant rep. As a landlord's agent should I be increasing our fee for landlord rep with cobroker? Maybe someone with local experience to me can answer this.", "replies": [{"id": "ffvwpuj", "text": "Yeah, Dallas is tough on LL reps.  Just.  So.  Much.  Product.  Always has been.  Dallas based TT reps (JLL, cough, cough) get so bent when they have to take a haircut in other markets...", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ffvt2a1", "text": "6% is normal for a leasing commission, especially if there's a tenant rep broker. 10% is not normal for management in commercial. Also, based on the info given I'm assuming this is a single tenant property. If so, can your broker negotiate a net lease so you won't need property management? 3 years is short for a single tenant property also. Since you're trying to sell you're most likely going to be far better off leasing then selling as an investment property.", "replies": [], "depth": 1}, {"id": "ffwjyn8", "text": "The question for me is did your listed agent bring the potential tenant or did they come through you. \n\nAs a broker I've seen this play out both ways and in my opinion weather you use and pay that agent on the lease depends on if you want to build a relationship with that agent to help you with other project. As an out of area landlord a broker can be a great resource if kept close.\n\nI do find the fees interesting, my market a 3 year deal would be about 15% of one years net and property management would 6% ish.\n\nSomeone in the comments had it right, you dont have to do anything other than what's in the contract. I would encourage you to think more on what you want the relationship with this broker is going to be for the next 10+ years while you have this property \n\nThat's my 2 cents.", "replies": [], "depth": 1}, {"id": "ffxixgu", "text": "You have to pay whatever your agreements say you do", "replies": [], "depth": 1}, {"id": "fg00zk2", "text": "Management should be 3% unless it\u2019s multifamily which would be 6-8% depending on number of units\n\nEdit. If it\u2019s a single tenant NNN you don\u2019t really need to pay management. I manage several of our NNNs remotely and save the management cost.", "replies": [], "depth": 1}]