In Seattle, the standard market commission for a Tenant Representative (TR) negotiating an office lease is $1.00 per square foot per year of the lease term. This is why we try to convince you to take more space and sign a million year lease 😉
Sometimes the commission will be 5% of the total lease value. This is a conflict because the more a tenant pays the more the tenant’s representative gets paid. However, when a TR is offered 5% instead of $1/sf/yr it is generally because the rent for the space is less than $20/sf. $1/sf/year is exactly the same as 5% of the total lease value when the average rental rate is $20/sf. A committed TR won’t care whether it is $1/sf/yr or 5% because a committed TR is interested in developing a long term relationship. A good TR will align their interests with their client in the hopes of retaining the business in the future. Also, many buildings offer commission bonuses (which is similar to increasing their marketing budget) so ask your TR to identify these buildings.
Even though a Tenant Representative represents the tenant, a TR is paid by the landlord. The fees earned by a TR are no ‘up-front’ cost to the tenant. However, TR fees are built into every tenant’s rent. TR fees are included with all other opportunity costs or expense line items on a landlord’s P&L/balance sheet along with: marketing, tenant improvements, possible downtime, operating expenses, capital improvements, etc. The rent any landlord needs to charge a tenant in order for a transaction to pencil includes all of these expenses and opportunity costs. To understand why you would use a TR see my post: http://seattleofficespace.wordpress.com/2012/05/14/why-use-a-tenant-representation-specialist-trs-2/.
In very rare circumstances a building owner will refuse to pay a TR. In these cases the tenant pays the TR. Per the link to my post above, more times than not a good TR is able to provide enough value to offset their fees. When this happens a TR can negotiate several months of free rent at the beginning of a new lease so that their clients can pay them during the free rent period and not disrupt cash flow.
A Tenant Representative will be paid when a lease is fully executed. All of the work a TR performs prior to lease execution is speculative and in the hopes that a transaction will be completed. Sometimes a TR will be paid ½ when a lease is fully executed and ½ upon move in. Whether a TR is paid in full upon lease execution or ½ – ½ is negotiable.