broker commission on $6M transaction
What is market broker fee for a $6M deal?
A broker contact tied up a deal and I was on the GP side of the deal making, literally, 12 months later he is pushing to sell the deal and he will be the listing broker.
I don't think the property is ready for sale which has led to a conflict. I have made it clear he has to hit the equity multiple, I am less focused on IRR for a one year hold when we promised investors a 2x multiple over 6-7 year hold.
We have to pay a pre-payment penalty and this guy wants a 4% fee for what could be a $5.5M - 6M deal. I am thinking fee should be 3 to 3.5% but also want to know what reality is when it comes to negotiate his fee. Also, want to know if it should be different if he double ends the deal.
Want him to make his commission if the deal is a "win win" but not at my expense or friends/family I bought in the deal because his broker fee is almost at the promote amount I have to share with him and a few folks.
Would love to hear from brokers or investors of smaller deals what fee might look like or what you will put in the contract if he is the listing broker. I don't want this asset to be a stained asset 5 years down the road if we don't sell today and the world knows the broker who brought it to market the first time is also now involved again if things go sideways. Thoughts? Am I over analyzing?
Everything is negotiable and 3 or 4% is a huge % in commercial. Ive seen institutional deals that were a ton of work with ~half a million dollar fee. I'd offer 1% depending on the property type/ work involved.
He works for you, is there any reason you even have to hire him / any broker? If you don't have to sell it and already know your price just list it yourself, with no timeline. Eventually if you aren't getting traction and want to move on then consider a broker, and let multiple brokers compete for the opportunity to list your deal.
What? 3-4% is huge under what circumstances? In my particular market, as listing brokers, we charge 6% with a coop broker and 4% if we double end a deal. This usually goes for transactions from $1M-$10M.
3%-4% is pretty typical for this size of transaction. Unfortunately (or fortunately?) broker fees don't really change that much for deals $5mm+, they're mostly going to be in the $250k-$500k range. For portfolios/large deals ($100mm++) you might see it go over that, but it typically won't be more than $1mm from what I've seen.
We have two deals on the market right now, one will sell for ~$15mm and one will sell for ~$55mm and the broker fees are going to be within $50k of each other.
I would think in the 2.5-3% range. Pretty small deal so cant much be lower than that for his efforts.
I guess it depends on type/market. If it's multi in a tight market it sells itself, and someone will do it for 50k and be happy. Other product types are a different story
Thanks for the responses. This is a private capital deal! Priority is commission range. Want to motivate him and the buyers agent to get top dollar. Sadly, if we go 2 vs 1.5 fee for buy side, we would get brokers who only care about their collision finding a client to pay top dollar. This broker is part of gp team and also gets first dips at selling! He is pushing for sale 12 months after acquisition even though we had a longer term business plan. He wins and we all lose even if irr is 40 percent, EM isn’t what we promised investors.
I feel like you are bringing up two questions:
(1) When to sell. If you pitched a long-term, income-focused strategy to your investor, you need to make sure that they would be happy with cashing out early. As you noted, IRR can be a misleading metric in the short-term and selling early favors you as the GP (assuming your carry is based on an IRR hurdle). Another option could be to sell if you identify another, better opportunity to trade into, which would keep your money working. Maybe get the broker to line you up some potential deals on the upleg side. This would minimize taxes for your investors while allowing them to realize your value-add in the short term.
(2) Brokerage Fee. For deals less than $10mm, I’ve seen 3-6% total commissions, though it varies across the board (I typically don’t see it compressing below $8-10mm too often). If he is a quality broker, he should be adding more value to the transaction than the commission and I would try to keep him happy. At the end of the day, if he brought you a great deal and keeps adding value, a point here or there on the commission shouldn’t be a bid deal.
I get why he is pushing for sale; the question is why the fuck does his opinion on the situation matter at all. I never let brokers who get roped into the GP have any actual voting power in the transaction decisions. It is a blatant conflict of interest. The needs of your capital investors trump his needs. That is how being a capital fiduciary works. Your needs and his take the back seat to theirs. The LP's get paid first, then the brokers get paid, then the GP get paid. End of story.
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