Brokers are a valuable resource. I often get asked for details about how they get paid.
Let’s work through an example of how brokers are paid by commission:
A franchisee has agreed to rent a 4,000-sf space at a rental rate of $25 per square foot. The annual total is calculated by multiplying the square footage of the space by the rental rate:
Annual Rent = 4,000 sfx$25.00 psf
Annual Rent = $100,000
The landlord and the franchisee agree on an initial lease term of 5 years. Multiply the Annual Rent by the number of years in the initial lease term:
Rent Total for the Initial Term = $100,000×5 Years
Rent Total for the Initial Term = $500,000
Brokers’ commissions are usually 6% of the Rent Total for the Initial Term. Multiply the Rent Total for the Initial Term by 6%
Total Brokers Commission = $500,000
Total Brokers Commission = $30,000
The Total Brokers Commission is typically split between the landlord’s broker, and the tenants broker. Each broker gets 3%. Divide the Total Brokers Commission by 2.
Landlords Broker + Tenants Broker Commission = $30,000
Landlords Broker Commission = $15,000
Tenants Broker Commission = $15,000
If either Broker is a part of a brokerage house or partnership, their commission is split even further.