Broker fee incentives/kickers. How to achieve the highest price possible?
Hi guys,

In a CRE transaction process, when we want to sell, my firm usually hires a broker -- BNP, JLL, etc. In the country I live in, it is usual to have a base fee, for example, 0.5% of the selling price. Then, if the agent reaches a certain price, usually high, then they will reach a prenegotiated incentive threshold - or otherwise called a kicker.For example, if they reach a price up to 90m the broker gets 0.5%. If they pass 95m, they would get in addition to the 0.5% a 10% on everything above that (the kicker). So, if they reach 95m they get 475,000, if they reach 96m they get 480,000 + 100,000.

**My question is... as a seller who is trying to reach the highest price possible, what is the best way to negotiate the level of those kickers? At what price should they be set?** Tell me what do you guys think about that theoretically and from experience. If you have some academic studies/website articles that will be helpful as well.

I feel that sometimes we negotiate the kickers to be too high, so the brokers don't believe they can reach them, so they are disincentivized to try to reach them and they just prefer to close the deal at a slightly lower price and to work less. In the above example, if the agent believes the market price of the property is at best 90-92m, then it will be pointless for them to try to reach the 95m threshold. My theory is that if in this example the kicker is set to 92m, a price that the broker believes will not be easy to reach but definitely doable, then he could then maybe call more people, invest more time and even reach 94m. That's my point of view.Let me know what you think or what you sources you have.

Thanks
[{"id": "g237c2y", "text": "I always just set the kicker to flip on at the midpoint if the BOV. Put your money where your mouth is broker", "replies": [{"id": "g23d62s", "text": "Yeah I think you and OP are saying the same thing. He's saying that he thinks if the kicker is too high it won't have the intended effect. I think your approach is more reasonable. It is less of an incentive to get an extraordinary sales price, and more just something that might get you over the hump and closer to the stated amount of the BOV.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g23ctcd", "text": "If the BOV says it's worth 90 million then the kicker shouldn't be above the BOV. The broker has told you what they think the reasonable market price is and that's what they're going to shoot for. Anything above that value will be realized through the base commission amount just by the underlying value being created. so I would agree with you that you don't want the kicker to be too high. You might consider having a kicker just below the BOV amount to ensure that you at least reach that amount. \n\nThe only time I might put in a tiered commission structure - sometimes what we'll do is actually have several tiers, not just one kicker, but several - is when we haven't done a BOV and we don't have a really good sense of what the market value actually is. Mabye because of the complexity of the transaction. Maybe there are a lot of environmental issues. Maybe the entitlements are flexible or it's a planned development situation and one developer's idea of value could vary widely from another's. \n\nThis probably varies a ton by country, asset, and transaction type. In the US, if it's a land sale or ground lease, maybe we'll tier/kicker, but not always. For an existing, improved asset, I'm not sure that I've seen that many tiered structures, but I don't do a lot of sales of existing assets so someone else may know better.", "replies": [], "depth": 1}, {"id": "g23ffan", "text": "I get what you\u2019re saying but really the broker won\u2019t work extra hard for the last 5% of the price and the market sets the price anyway, it\u2019s really a way to protect your downside so I would like to see a lower than market fee to the low BOV price and the kicker above that so they are motivated to hit at least their low but they\u2019d have to get above that to make a \u201cmarket fee\u201d.", "replies": [], "depth": 1}, {"id": "g23uf3e", "text": "Do kickers really have the intended effect on 90m dollar properties? Most brokers just want the deal done (at the highest price) but the number of truly qualified buyers is usually pretty small.", "replies": [{"id": "g243alg", "text": "I agree.  Agents aren't going to work harder.", "replies": [], "depth": 2}, {"id": "g24ozo3", "text": "I have a 90MM property in market now and have over 100 signed CAs. Super deep market for big stuff, lot of institutional capital in the world", "replies": [], "depth": 2}], "depth": 1}]