New construction projects heat up broker commission game

Real estate pros are getting as much as 8 percent earlier in the buying process

Apr.April 10, 2012 10:30 AM

A rendering of MyBrickell

Miami’s residential real estate market is beginning to divide into two sectors: the rapidly shrinking inventory of existing condominiums and the quickly-developing pool of pre-construction units.

The tension between the two is benefiting real estate agents and brokers, who are seeing increased commissions and quicker payoffs than they would in a traditional market.

The standard has generally been around 5 percent.

“We’ve pretty much always been at a 5 percent commission level,” said Nick Grossi, director of sales at downtown Miami tower Vizcayne. “What we’ve done is try to create some new business by offering up to 7 percent.”

That process incentivizes brokers to do multiple deals in projects like Vizcayne, although the actual percentage can vary depending on the number of units brokers sell (the more units, the higher percentage) and other factors.

Generally, when a broker sells an existing, or fully-constructed, unit, she will get a commission upon closing — typically 60 days. When a pre-construction unit is sold, the broker will typically get paid over the life cycle of construction.

That dynamic has changed, however. Now, developers are increasingly offering quicker payouts to brokers who sell pre-construction units.

Related ISG Principal Philip Spiegelman said that his firm had dabbled in the practice at two projects: MyBrickell and Apogee Beach, at one point giving 75 percent of a total 7 or 8 percent commission when clients paid a 40 percent deposit.

At the end of March, Related announced it would be paying out $2 million in commissions in advance of a total of $5 million in broker payouts for sales of units at Apogee Beach in Hollywood, which has nearly sold out its inventory since a late 2011 launch.

“[Paying] 75 percent of 8 percent gives [brokers] more than they would get if they could walk into a [existing condo] and get 5,” he said. “The dynamic has been going on for the last six months.”

Developer Martin Margulies, whose Bellini Williams Island development is slated for completion in May 2013, said his project had generally been giving brokers half of an 8 percent commission upon the signing of the contract on a unit after the purchaser pays the deposit, and the remainder upon closing.

“It gives them an incentive,” he said. “They don’t really have to wait for the bulk of their money that long — getting 4 percent up front is pretty significant.”

Part of the impetus for the shift has been the new condo sales model being pioneered in Miami for the Latin American market.

In the Latin American model, buyers have historically paid in installments over the course of the project, and a greater sum at the beginning.

Because of the higher initial deposit, it puts more money in the hands of developers sooner.

“In previous years it was 6 percent,” Margulies said. “Today, you have to deal in the foreign market, and it’s a lot of South Americans and Europeans, and those brokers in South America and Europe tend to want more money.”

The trend may not last for long, however, and the 5 percent commission could return.

“The market is so good, if anything, you may start to see commissions coming down,” Grossi said.

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