I recently discovered a commercial property I've been pitching to friends and family had an expired listing after a series of price drops. After running several rounds of due diligence, including speaking directly with the tenants about future renewal plans, my sphere of influence put together $1M to buy the peoperty ($4.5M with assumption of existing commercial loan).

My question as a novice agent looking to close the transaction is (1) how to approach the property owner to relist (preferably with myself) and (2) if I will bringing in the buyers, how much of a commission should I be asking from the seller. In residential transactions, 6% would be adequate, but is that the same case in ~$5 million commercial transactions?

Thanks agents online!

Commercial is very different. In commercial there are no RESPA laws etc. It is very wide open for just about anyone to do a deal.

If it expired and the former listing broker gave you or your buyer information they are owed a commission. In my state Georgia for commercial I can actually lien the property and stop a sale from happening until I get paid my money. You have to be a broker though and your state might be different.

The next item is the seller in bad financial shape or behind in payments ? Does the seller have a non-recourse loan or a recourse ?

If non-recourse the owner can simply hand the keys back to the bank because their other assets are protected.

On assuming the loan the bank may or may not go for that. Sometimes if the buyer has experience in that asset class and plenty of reserves the bank might go for it. If the seller is much stronger with a recourse loan than the buyer wanting to assume the bank might say no.

As far as commissions there is no set rule but generally structures or income properties 6 to 7 and land for development 10 percent.Sometimes I get up to 10 for income producing it just depends on what all you will do for them. Your commission you can put in your LOI and then the purchase and sale later.

Thanks for the quick reply super realtor.

As far as the expired listing, the previous broker is actually out of state and no longer represents the seller (who also lives out of state). The loan is assumable, but I am not sure whether or not it is recourse/no recourse. However, the new buyers are part of an LLC, so as to protect their personal assets should the property suddenly go south.

How should I approach the owner regarding having her relist the property? Should I mention that I have buyers already prepared to make a reasonable offer, and then negotiate the commission, or should I not say anthing about the buyers at this point? Of course the buyers want to know more details about the loan terms, especially assumability, and are eager to get the property locked up in contract as soon as possible.

Finally, because the listing has expired and the previous broker no longer represents the seller, does that mean that she still is entitled to a split in the commssion? I thought expireds were fair and open game for everyone?

Please advise.

Thanks!

Well I can't give advice because I am not involved in this transaction.

In my state in our listing agreements we have what is called PROTECTION PERIODS. In the paragraph we can put whatever number of days in there usually 60 or 90. What it is meant to do is to keep sellers from doing a back door deal with a buyer by withdrawing the listing early or waiting for it to expire so the seller does not have to pay a commission.

You said the loan is assumable but in another paragraph state that your buyers want to know if it is assumable or not.

I wouldn't invest 1 million cash and do an assumption unless I was very clear I was making a sound decision. Did the property ever go under contract and then go active again? If it did there could be a great reason for that and cause for concern.

This building they want to buy have you seen copies of the lease with number of years left and escalation clauses built in?

What type of tenant mix do you have? Are any national rated tenants with guarantees in there or is most of the income derived from mom and pop shops? Is there a clause in the lease that if the anchor leaves the tenants can renegotiate the lease or terminate with no penalty?

What about age of the building? Has building been let go a little and when you buy you will have immediate capital improvement costs within the first year of ownership? Does the building have easy access or is it hard to get to? Is the road being widened in the future which will cut down existing parking space and cause problems for the current tenants?

I could go on and on but basically you need to partner with a commercial broker in your area for you first deal.If not ask your broker and if you want to do a lot of commercial and you are at a mainly residential firm you need to go to a commercial brokerage where you can be given the tools and training to succeed.

Good luck

Super Realtor, you are a fantastic wealth of knowledge. A couple clarifications:

- The building is newer so no deferred maintenance is required in the forseeable future

- THe tenant mix is appropriate fro the area and appeals to the needs of local residents.

- The unknown variable with the tenants (not mom and pop shops) is that a couple have leases that are set to be renewed in the next year or two. With today's market, I can only imagine they will be pushing and fighting for lower rates and better terms, which translates to a diminished (yet still positive) cash flow after debt service.

- The loan assumption terms are set, and my buyers will need to meet the qualifying standards of the bank that currently holds the note on the property.

- THe former listing broker is out of state, which complicates matters, and I still don't know how to determine when the "PROTECTION PERIOD" is after the listing expired.

I just met with a managing broker at John L Scott, a local firm active in the PNW region. Once my license is activated, I will ask for step-by-step assistance in (1) getting the listing without being sued by the former broker, and (2) negotiating a sale between the seller the and the buyers I currently know.

Even if this transaction closes (still a long shot) I need to learn a lot more about agency law and how to protect that almighty commission.

By the way super broker, cash down to existing loan is risky as you say, but I know this property well, the tenants, and do feel it will be a good investment under the right terms. I feel that it was both overpriced and the rent roll was too unpredictable for other investors to consider performing greater due diligence and making an offer. Whether or not it was ever under contract before the listing exppired, I cannot be sure but would wager that it wasn't.

Thanks again for your insight and I hope this deal does prove successful.

The leases and cash flows were based off of better times. Knowing that many of the leases are coming up presents a great risk to your buyers.

If the leases are at 18 sq ft but market rents for the same A,B,C location and A,B,C location are now trading at 14 sq ft I would base more weight on 14 sq ft cash flow to come at my offer price.

So even though they might justify a 10 cap today with leases coming up and reduced rent you could be looking at a 7 cap with the new leases in place.

In this situation the seller needs to either get new leases signed in advance and you base offer price off of that or they take the reduction in price.Given the option many will leave if they do not get a great lease to go down the street for a same or better location.

You can also do a graduated lease where you give the tenant a reduced rate for the 1st or second year of say a 5 year lease then it increases each year when the market recovers.

You could also give a base rent plus a percentage of sales and once sales go up again and hit a certain level the tenant can go back to the sq ft lease rate.

Either way having the leases coming due is a big x factor. I would take care of that issue before purchasing.

Regarding "market commission", in Nevada there is no set standard and the establishment of such is against the law. So realistically, you could ask for anything, but I think the % you are looking at is fair. Be prepared that they may beat you up on that seeing that you are working against them, but if they have no other prospects, you can stand your ground for what you want.

When you write up the purchase offer, make sure that your commission is clear and if you have an "Duties Owed" type forms required by your state, make sure to get it signed by all parties.

It's been about a month since I've updated any information about this property. My broker helped me write up a P&S offer replete with a laundry list of addendas which we had reviewed by the attorneys representing the buyers. The seller (also represented by an attorney) has since requested a "nonlisting agreement," whereas I bring in the buyers for a yet-to-be-determined brokerage fee. I can only assume his motives are to avoid being sued by the previous listing broker and/or collect a commission of his own for brokering the deal with the seller.

I am learning very quickly that this is where the true stategy and art of commercial real estate brokerage comes into play. It takes a certain amount of finesse to decide precisely when to negotiate the brokerage fee, and better yet, how to justify my being paid a 5-6% commission for a $5 million property. (Naturally, a considerable cut of that will go to the house, taxes, and sunk costs involved in meeting-entertaining-qualifying the 50+ potential investors just to get to this point.)

Any other suggestions towards working with a seller in this type of arrangement, particularly related to keeping the commission intact, would be greatly appreciated.

(The seller (also represented by an attorney) has since requested a "nonlisting agreement," whereas I bring in the buyers for a yet-to-be-determined brokerage fee.)

NO,NO,NO!

The commission is set up front on what will be paid. The seller is wanting to use the commission as a negotiation tool in the future to increase their net depending on what the buyer offers.Your commission needs to be set in stone upfront so that is off the table. Also the agreement needs to state no other brokers/agents are a party to this agreement other than those listed herein.

In my state if a seller was trying to screw me over on a buyer or agent I had contact with while it was listed I could file a lien and stop the sale until I was paid. This is in Ga only and lien laws and commission recourse vary by state.In my state a lien only applies as an option for commercial and not residential.


You don't have to justify anything to the seller. You are bringing a buyer to the table and they can either play ball or not.I never negotiate commission period.

Super realtor,

Let me be clear that I will NOT be submitting the Purchase & Sale offer to the seller without getting the brokerage commission agreed IN WRITING in advance.

Therein lies the dilemma however, the seller's attorney already knows our offer for the full asking price, per a previous phone conversation. I am using the full asking price to help justify the "high" 5% commission for bringing in the buyers. Any other broker would have probably tried to negotiate at least 5% off the asking price, especially in today's market.

It appears that the attorney does want a piece of the sales commission, hence the harball tactic of asking for a straight, one time P&S offer without committing to a listing agreement. He doesn't care about my (potential) abilities to find other investors should this deal fall through. It's as if he's allowing a one shot deal, leave it or take it.

Like I mentioned earlier, I think he's scared stiff of being sued by his previous broker during the protection period, which is why he wants to keep this transaction off the grid.

Luckily here is GA attorneys are rarely used and the commercial brokers negotiate most of the transaction. Attorneys like to bill by the hour and find reasons to make things COMPLICATED.

The less attorney involvement usually the easier a transaction is.

Let us know how it goes..............

Yeah, the guy seriously tries to make use of the "silent treatment" strategy by not returning phone calls or emails for days. I actually wish the property were listed by a broker instead. This is turning out to be a very slow and painful process indeed.