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March 25, 2015

Kidder Mathews offers higher commissions to staff new office

San Diego Source | The Daily Transcript

Thor Kamban Biberman

With Kidder Mathews staffing its new office with brokers from other San Diego firms, the topic of broker/agency commission splits is front and center.

But some of the firm's competitors insist there is more involved than how commissions are divided.

Seattle-based Kidder Mathews, which lured 15 brokers from Cushman & Wakefield's San Diego offices and several more from other firms since last fall, has a different formula.

The Kidder Mathews brokers, like most in the industry, initially retain half of any commissions that come to the firm. Generally, in the industry this may become a 60/40 split or in some cases, as much as a 70/30 split in favor of the broker after certain thresholds are reached.

What differs at Kidder Mathews is that once the brokers gross $125,000 in any given year, they receive 90 percent of the commission that flows to the brokerage.

Mark Read, Kidder Mathews San Diego managing partner, said his firm can manage the high commission splits because it doesn't have the high overhead of its larger competitors. The privately-held company is also employee-owned.

"It's also not like a public company where there are shareholders. The profits are distributed to our employees,"Read said.

According to Yahoo Business & Finance, the standard model is half the commission for the buyer's agency and half for seller's agency. The agency and the agent then split the commission evenly so each agent receives 25 percent of the total.

"Keep in mind also that all fee structures are usually negotiated in advance," Yahoo wrote. "For example, 4 percent if no co-broker is involved, and 6 percent if there is a co-broker. Tenant rep brokers often require 4 percent no matter what, which means that the listing broker only gets 2 percent out of the deal."

Jay Alexander, JLL (NYSE: JLL) managing director of the San Diego division, explained that lease commissions are typically 2 to 3 percent to the landlord's agency, and 4 percent to the tenant's brokerage of a lease up to five years.

If the lease is longer, the commission percentages are halved, Alexander said, adding that "sales commissions are all over the boards."

Alexander said while a 6 percent commission may flow to a brokerage (evenly divided with the broker) for a $2 million sale, the commission percentage decreases as the value of the sale increases.

Alexander was among several top broker/managers who said that for the Kidder Mathews model to be successful, something has to give.

"It depends on the services provided to the brokers," Alexander said. "It's difficult to sustain something like this. We [JLL] have healthcare benefits for the brokers, a high level of administrative support, and a national/international platform."

Alexander also said a high commission system could be self-defeating if brokers are competing against each other in the same office.

"Our [method of operation] is to have no internal competition," he said.

Steve Avoyer, Flocke & Avoyer president, also said "the devil's in the details" when it comes to generous commission splits.

"Are they paying for computers, marketing budgets, signs and are they paying for parking? These are the kinds of things that need to be asked," Avoyer said.

Avoyer, who complimented Kidder Mathews on its success thus far, argued that while favorable commission splits are a lure, "they're not as important as what you get from your office."

Dan Broderick, DTZ regional managing principal, also isn't sure a favorable commission split itself is the best measure of value.

"Whether it works depends on a case-by-case basis. It has to be balanced against the level of support. Are they [the brokers] paying for their own phones and computers?" Broderick asked. Broderick added that occupancy costs ranging from utilities to insurance have only gone up in recent years.

"Someone has to pay for this or it doesn't get provided," Broderick said. Calls to Cushman & Wakefield, which has seen all those brokers leave for Kidder, were not returned.

Read declined to reveal what is or isn't supplied to the broker at Kidder Mathews, adding he didn't want to go line item by line item.

Read said while he might not have ties to an international office in Beijing, for example, "the company provides excellent research and marketing, and a strong support staff."

"We have a bunch of business lines and operate from San Diego to Seattle,"Read said, adding that the company's appraisal operation is very strong.

"We also have 30 million square feet in property management,"Read said.

Kidder Mathews handled $3.2 billion in sales and leasing volume last year.

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