How Do Commercial Real Estate Agents Get Paid?
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If you're considering a career as a commercial real estate agent, you're probably wondering how you would get paid. Many agents are independent professionals, so they often don't make traditional wages or salaries.
Instead, most commercial real estate agents get paid on commission. Here, we'll cover everything you need to know about how commercial real estate agents get paid, how their commission structures work, and more.
Let's get started.
What Is a Commercial Real Estate Agent?
But first, what exactly is a commercial real estate agent? A commercial real estate (CRE) agent facilitates buying, selling, and leasing commercial buildings.
If an investor wanted to buy a commercial property, they would most likely hire an agent to help them research real estate markets, find properties, negotiate leases/sales, and attend to clerical duties (i.e., filing paperwork, handling financials, etc.).
In that sense, CRE agents play a crucial role in real estate ecosystems by connecting buyers and sellers. Agents receive a specialized education and must hold a license to practice in their state.
Commercial Real Estate Agent Commission Structures
Most CRE agents get paid on a commission basis, meaning they take a percentage of every transaction they facilitate, whether it's a sale or a lease. In either case, the agent collects a commission from the two involved parties. In the case of a lease, it's the landlord and the tenant—with a sale, it's the seller and buyer.
This payment structure means that, unlike many professions, CRE agents usually don't have a set salary or wage. Instead, their income directly correlates with how many transactions they facilitate. As such, income between different CRE agents can vary widely.
How Do Commercial Real Estate Agents Get Paid on Sales?
If they are overseeing a commercial property sale, CRE agents get paid a percentage of the total sale value of the property. If there is more than one agent involved in the sale, the agent parties would split the commission.
For instance, say a building sells for $1 million, and the commission rate is 4%. The total commission the agent would receive is $40,000. If a second agent connected the buyer and the seller, the two agents would split the commission 50/50 and each makes $20,000.
Generally speaking, the new property owner is the one that pays the agent commission when they close the deal. Agent fees are usually included in closing costs when investors budget funds.
How Do Commercial Real Estate Agents Get Paid on Leases?
CRE agents also get paid a commission for leases, though the commission calculation is a bit different than with sales transactions. For a lease, the agent's commission is a percentage of the total consideration or lease value. Similar to sales transactions, if agents of both parties facilitate the transaction, they split the commission 50/50.
For instance, a commercial tenant signs a five-year lease for 12,000 square feet at $5 per square foot—a total lease consideration of $300,000. Assuming a 6% rate, the commission would be $18,000. If there were two real estate agents, each would receive $9,000.
In the case of a lease transaction, the owner of the property pays the relevant commission. Most of the time, they pay 50% when the lease is signed and the remaining 50% after the tenant remains in the spot for a specific period. Landlords often split commission fees like this in case the tenant vacates the lease early.
How Much Commission Do Commercial Real Estate Agents Make?
Generally speaking, the commission rate is a percentage of the total value of the transaction. The exact percentage differs depending on the specifics of the transaction. Antitrust laws prevent states from establishing industry-standard commissions, but typical commission percentages for real estate transactions are between 4% and 6%.
Many agents work for brokerages, so they pay the broker a percentage of the total commission they receive. Exact agent-brokerage splits vary depending on the specific firm and agent, but common splits are 60/40 agent-to-broker. Agents that produce a high number of transactions typically receive a higher percentage of the split.
Most agents work on a per-commission basis, but some brokerages employ agents as full-time employees that receive a salary. This kind of payment arrangement is relatively rare, and agents often receive additional bonuses based on customer satisfaction.
How Much Do Top Commercial Real Estate Agents Make?
According to data from ZipRecruiter, the average annual salary for a CRE agent in the US is about $94,000. About 15% of CRE agents make more than $110,000 a year Top earners (<2%) make $150,000+ a year.
Regardless of the state, CRE agents generally make above-average annual salaries.
How Do Real Estate Agents Pay Taxes?
Whether you are an independent broker or work as a CRE agent for a broker, you'll need to pay taxes on any commission you make. The vast majority of real estate agents are considered self-employed for tax purposes, even if they work for a larger brokerage. Work contracts at brokerages typically define their agents as independent contractors.
Since most CRE agents are independent contractors, employers don't withhold taxes from commissions. CRE agents must pay taxes on a quarterly basis. Additionally, independent contractors must also pay social security and Medicare taxes.
If you work for a brokerage, your employer should give you a 1099-MISC tax form documenting the income you received at the end of the financial year.
Tax Deductions for CRE Agents
Fortunately, the IRS allows CRE agents and similar independent professionals to deduct certain business expenses and reduce their taxable income. For example, CRE agents can write off costs for:
- Home office;
- Accounting software;
- Vehicle mileage & depreciation;
- IRA contributions;
- Marketing expenses; and
- Business supplies (e.g., computers, work phones, office equipment, etc.).
If you make business expense deductions on your taxes, the IRS may ask for proof of transactions. As such, it's good practice to save receipts for all business-related transactions for tax season.
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