How Are Brokers Paid in Southern California’s Commercial Real Estate Market?
Brokers play a pivotal role in getting your deal done.
Southern California’s commercial real estate market is fast-moving and highly specialized. Brokers play a pivotal role, not just in site tours, but in structuring deals, advising clients, and moving transactions forward.
Yet despite their influence, how brokers are compensated remains widely misunderstood. Clarifying the commission structure helps tenants, buyers, and landlords align expectations and avoid surprises at closing.
What Is the Standard Commission Structure for Commercial Brokers?
The most common compensation model for brokers in Southern California’s commercial real estate market is commission-based. Unlike salaried employees, commercial brokers typically earn a fee based on a percentage of the total lease value or sales price. For sale transactions, this percentage usually falls in the range of 3% to 6%, depending on the size and structure of the deal.
Lease transactions typically range from 4% to 6%, with adjustments based on the lease’s duration and square footage.
In most cases, this commission is split between two brokers: the listing broker who represents the seller, and the cooperating broker who represents the buyer. For example, in a standard industrial lease for 100,000 square feet in Ontario, the commission might be 6%, split evenly between both parties’ agents.
Importantly, the seller is usually the one responsible for paying this commission. This arrangement aligns with the broader marketing strategy for the property. Just as an owner might invest in digital advertising, signage, or third-party photography, broker commissions are treated as part of the cost of attracting and closing a qualified buyer.
Who Pays Commercial Brokers and When Is Commission Earned?
In Southern California’s commercial real estate market, broker commissions are typically structured around two primary transaction types: leases and sales. Understanding who pays and when the commission is earned is essential for tenants, landlords, buyers, and sellers to align expectations and avoid surprises.
Lease Transactions
The landlord, or lessor, generally covers the broker’s commission. This fee is calculated as a percentage of the total base rent over the entire lease term and is usually paid once the lease is executed. The commission amount can be influenced by factors such as the length of the lease, tenant creditworthiness, and any negotiated rent escalations or abatements. In complex leases, payment may be staged to reflect renewal options or expansion clauses.Sales Transactions
The seller is typically responsible for paying the broker commission, which is deducted directly from the sale proceeds at closing. In competitive sales markets like the South Bay, where industrial assets often command a premium, brokers provide critical services including underwriting guidance, buyer vetting, and controlled marketing strategies. Their expertise is a decisive factor in securing top market pricing and smooth closings.
This commission payment structure reflects the broker’s fiduciary duty to their client while recognizing that the broker’s contributions create value for all parties involved in the transaction.
How Is Broker Commission Split Between Parties in CRE Transactions?
In a typical transaction, commissions are split between two brokers, one representing the seller, and the other representing the buyer. However, the structure can shift depending on the dynamics of the deal.
Dual agency occurs when one broker represents both sides of a transaction. In these cases, the full commission is retained by a single brokerage. This structure is legal in California but requires full disclosure and consent from both parties. While it can streamline communication, dual agency may introduce complexities in negotiation that require careful handling to avoid conflicts of interest.
Co-brokerage arrangements are more common, especially in high-velocity submarkets such as the Inland Empire. There, a landlord’s broker and a tenant rep might work collaboratively to finalize a lease on a Class A logistics facility. The commission is split, often 50/50, but the specific terms can vary based on pre-negotiated agreements or listing contracts.
In sales, co-broker splits work similarly. A buyer rep might be brought in mid-process, especially when the asset is marketed discreetly. Understanding how the fee will be allocated upfront ensures alignment and prevents disputes at the closing table.
Do Commercial Brokers Charge Retainer or Consulting Fees?
While the traditional commission remains the cornerstone of broker compensation, institutional and advisory-level brokers often employ alternative fee models to meet the sophisticated needs of clients in Southern California’s complex CRE market. These options provide flexibility for engagements where traditional commissions do not fully capture the scope or duration of services rendered.
Retainers
Applied when the work is strategic or long term. Common in multi-site relocations or phased expansions. Retainers guarantee ongoing broker availability and sustained advisory involvement.
Consulting Fees
Charged for specialized tasks such as market research, entitlement reviews, or portfolio evaluations where no immediate transaction is guaranteed. Frequently used by institutional clients for pre-acquisition due diligence or repositioning strategies.
Hybrid Models
Combine fixed fees with performance-based incentives to align broker compensation with client objectives over time. These models incentivize outcomes while ensuring dedicated service.
For example, a regional company executing a phased relocation involving multiple warehouses might engage a broker on retainer to ensure continuous guidance. Similarly, a private equity firm repositioning industrial properties in Santa Ana could contract consulting services to analyze zoning regulations and tenant dynamics prior to acquisition. These alternative fee structures reflect the evolving demands of the Southern California market and the value brokers provide beyond simple transaction facilitation.
Sophisticated occupiers and institutional owners increasingly appreciate these flexible arrangements, particularly when brokerages offer a full-service advisory platform capable of delivering tailored, high-impact strategies.
Is It Worth Hiring a Broker in SoCal’s Commercial Real Estate Market?
Southern California’s industrial and commercial real estate environment is among the most complex in the country. To make sound decisions, you need market knowledge, transactional expertise, and access to real-time data. These aren’t optional — they’re essential.
Brokers bring much more than tour scheduling and basic comps. They understand entitlement risk in cities like Carson, have inside access to off-market opportunities in markets such as San Pedro and know how to structure early termination rights that protect tenants in uncertain macroeconomic climates. In tight conditions, relationships are often the difference between securing a strategic asset or losing out to a better-prepared bidder.
Commission payments are not just for finding space. They cover the guidance, advocacy, and insight needed to navigate a competitive and constantly evolving market.
How to Strategically Navigate Southern California’s Commercial and Industrial Real Estate Market
Partnering with industry experts like The Klabin Company can significantly elevate your decision-making process — with over 60 years of experience specializing in the Southern California industrial and commercial markets, we are dedicated to delivering unparalleled service and expertise tailored to your needs. Our deep knowledge of local market dynamics, coupled with our commitment to integrity and innovation, equips our clients with critical insights into emerging trends and opportunities. We prioritize transparency and collaboration, ensuring that your strategy aligns seamlessly with your business’s growth and operational objectives. By leveraging our extensive network and expertise, you can navigate the complexities of the market to position your business for sustained success in this dynamic and competitive environment.
This blog post is provided for informational purposes only and does not constitute legal, financial, or professional advice. Real estate laws and regulations vary by jurisdiction, and the information herein may not be accurate or applicable to your specific situation. Before making any real estate decisions, consult a qualified local real estate attorney, financial advisor, or other relevant professional. The Klabin Company is not liable for any actions taken based on the information in this article.