Who Pays the Commission and How Much Should You Charge?

Brecht Palombo: This week, we have a question from Shelby, which is who pays the point. So in a couple of places, you’ll find in our articles and our interviews, we’ll talk about getting paid It sometimes it’s a point sometimes it’s more than a point or even less than a point on an appoint as a percent on a transaction.

[00:00:21] So let’s talk about commissions a little bit, is what that brings us to there’s. A couple of different ways to get paid commissions or fees, but what it comes down to is who are you working for? So if you are working for the seller, then you should get paid by the seller. If you’re representing the seller and you are working to get them the most money for the sale of the assets, then at the end, you should be paid by the seller.

[00:00:51] If you’re working for a buyer for an investor on acquisitions and your sourcing deals, then you want to add that point on for the buyer. But let’s just talk about points. Generally, there’s a lot of different ways that you can price how you get paid and what those points look like and what the scale is.

[00:01:12] One pretty common practice is the Lehman scale. And what this is, it’s a graduated scale. So the lower, the dollar amount of the actual transaction. The bigger the commission. And then as the transaction size goes up, the commission size goes down. So I have been paid as much as 10% plus marketing fees for a deal from a bank.

[00:01:36]And that was where I charged somewhere. I think it was about five or $10,000 for the marketing fee and then a 10% success fee for the liquidation of some assets. And that was down. In the lower range, like half a million dollars transaction size. And I’ve been paid as little as three quarters of a point on deals like 20 and $30 million.

[00:02:00]Once you get up there, you’ll find that the commissions get compressed. And if you’re competing let’s say you’re doing like commercial deals or something. If you’re competing with some of the bigger brokers out there, if you’re getting in there with. Cushman and Wakefield and those kinds of folks CVRE, they will compress their commissions also once you get up into the bigger transactions and so you need to be competitive with that.

[00:02:22]The answer is on who pays the commission. It depends on who you represent. If you’re representing the buyer, get paid by the buyer. If you’re representing the seller, get paid by the seller, how much should you charge? It depends. And it depends on what makes it worth your while to do, and you should get as much as you can and in that deal.

[00:02:43]And I know folks like our friend Mike Ruscica, you can listen to some of the episodes that we have in our interviews with him. He charges on UPB on the unpaid principal balance. Whereas some folks charge based on the actual transaction value. The way that you structure these deals, especially if we’re talking about notes is really up to you and you need to structure it so that you can get the most that you can for that deal.

[00:03:09]And the most that the seller or the buyer will agree to pay and the least that you’re willing to work for. That’s how this value gets met. It’s the same as when you’re selling a piece of real estate, what’s the value of it. It’s whatever the most is that somebody is willing to pay on that day and the least is that the sellers willing to take and somewhere that number gets met.

[00:03:31] And that’s what the fee is or that’s what the amount is. I hope this is helpful. But in general, you want to pin. The the fees to whomever it is that you’re representing or working for. If you don’t have a representation agreement in place and how much you charge should scale with the size of the transaction, hope that’s helpful.

[00:03:54]I can’t wait to get to your Q and A next week. This was our first week of this. And I look forward to hearing from you. If you’ve got questions that you want me to answer for next week’s Q and a .