Downward pressure on real estate commissions is everywhere these days. On the residential side of the business, agents and companies are up against an abundance of discount companies offering homeowners the ability to list and sell their homes at substantially reduced rates.

On the commercial side of the business, agents are experiencing downward pressure on listing commissions as well as on commissions paid for tenant representation. And in both of these situations, the pressure is normally more intense the higher the amount of the transaction.

On the listing side of commercial transactions, agents are telling me about commissions on $25 million dollar transactions sometimes being in the neighborhood of one half of one per cent. Now this isn't completely across the board for all transactions in this price range, but still one half of one per cent is an extremely low commission rate. Sometimes on transactions of both this magnitude and larger, agents will feel fortunate to negotiate commissions in the 1-2 percent range these days. And, when the commissions are this low on a property, the listing agents sometimes even require the procuring agents to obtain all of their commission from their buyers.

Now on the tenant rep side of the business, a very successful agent I've known for years told me about what happened with a lease he recently signed while representing a major, extremely recognizable company in Corporate America:

"I've represented this company on a number of large transactions," he told me, "and on this most recent one I was paid a $600,000.00 commission. But the problem was the company insisted I pay them 25 percent of the $600,000.00 commission just for the right to represent them this time."

The agent then continued with, "But in looking back, I was happy with that agreement. And do you want to know why?"

And of course I answered with, "Yes."

"Because on all future transactions with them, they now insist I give them 65 percent of my commission, not 25 percent."

And such is the case in the commercial real estate business these days. On the larger transactions principals insist on digging into the agents' pockets, and taking a big bite out of what used to be their normal commission.

So knowing that this is going on, what may be an effective game plan to counterattack all of this? Well the answer may lie in focusing on transactions that are a bit more below the radar screen, the midsized transactions, and this is because of the following:

1. There's a lot less competition from other agents on midsized transactions, transactions between about $1,000,000.00 and $6,000,000.00, than there is on larger transactions.

2. On midsized transactions, it's still very normal to receive a full 5 percent or 6 percent commission from the principals without anyone digging into your pocket for some of it. And normally, in a worst-case situation, you still can end up getting paid a 4 percent commission on these transactions.

3. On the larger transactions, agents are oftentimes working in teams of 2-4 when representing the landlords on the listing side. And if we're talking about a one half of one per cent commission split between 2-4 people on a $25,000,000.00 transaction, versus a 6 percent commission on a $6,000,000.00 transaction with all of it going to one agent. Well you do the math and determine which commission check you'd rather be receiving.

4. Midsized transactions are normally far more abundant and easier to find in one's territory than large transactions are. And, in addition, the principals are often more entrepreneurial, too. This oftentimes allows for negotiations and signing of agreements to occur much faster than with transactions involving larger companies.

5. And finally, as one 20-year veteran in our industry once said to me, "Whenever there are more than two agents working together representing a principal, oftentimes very little work gets done. The agents are fully aware of how many ways the commission's going to be split, and they oftentimes want to make sure they're not working any harder on the deal than their teammates."

And, in addition to what I've been discussing here, one of my coaching clients has found what I believe may be the best overall approach to deal with this situation. He's a 20-year veteran and SIOR member, and he recognizes the value of working on these midsized transactions also. In addition, he's become very successful at listing these midsized properties for 8-10 percent commissions, instead of the more traditional 6 percent commission rates.

"When I go in and meet with owners," he tells me, "and I mention listing their property at a 10 percent commission rate, they respond with something like, 'Isn't 10 percent a bit high?' Then I come back with, 'Well I really wanted to charge you 20 percent, but 10 percent will have to do.'"

And he's been very successful at utilizing this approach with the owners he's been representing on these properties, too.

Whatever the case is in your situation, you must find a way to respond to any downward pressure on commissions you're feeling on the transactions you're working on. Your time is extremely valuable as an agent, and you have to make sure you're maximizing what you're worth for every single hour you're working. With this in mind, consider focusing on midsized transactions in your real estate business to maximize your income every single year.

Published: December 27, 2005

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Jim Gillespie, Ph.D., is America's Premier Real Estate Coach℠. He has over 20 years of experience in real estate sales and is a past president of three different real estate companies. His FREE real estate E-newsletter with tips and creative ideas to help agents make more money is now read by over 35,000 agents nationwide. You can subscribe to his FREE E-newsletter by visiting RealEstateSalesCoach.com or contact him at Jim@RealEstateSalesCoach.com.