What are Disposition Fees?
When investing in real estate through a syndication, you’ll come across disposition fees, which are a charge imposed by the property sponsor (in this case, Fish Capital Investments) upon the sale or disposition of a property. This fee serves as compensation for the sponsor’s role in facilitating the transaction, including significant efforts in marketing and promoting the property to attract potential buyers.
Selling an asset is usually an exciting time for investors and the general partner team. However, it involves considerable due diligence and time on behalf of the management team. Disposition fees enable us to allocate resources to finding the best sales team and developing effective marketing strategies to showcase the property. When selling an asset, we aim to achieve the highest possible price, which requires further time and monetary investment from our team.
Disposition Fees vs. Broker Fees
The difference between disposition and broker fees is simple in that they are the costs for using the services of two teams. Disposition fees are paid to the sponsor or general partner team, while broker fees are paid to the third-party commercial real estate broker team who markets the property.
Like sponsors, brokers bring their expertise, network, and market knowledge to the table, acting as intermediaries between the property sponsor and potential buyers. They leverage their industry experience to execute effective marketing strategies, negotiate deals, and ensure a smooth transaction process. By engaging a broker, Fish Capital Investments aims to optimize the sale process and achieve the best possible outcome for our investors.
Example of a Disposition Fee
Let’s assume that Fish Capital Investments, as the property sponsor, charges a disposition fee of 1.5% for the sale of an $18,000,000 property. To calculate the disposition fee amount, we’ll use the following formula:
Disposition Fee = Sales Price *
Disposition Fee Percentage
Disposition Fee = $18,000,000 * 1.5%
Disposition Fee = $270,000
In this example, Fish Capital Investments would charge a disposition fee of $270,000 for the sale of the $18,000,000 property, based on a 1.5% fee percentage. This fee compensates Fish Capital for our efforts in marketing, promoting, and facilitating the successful transaction.
Fish Capital Investments charges disposition fees to cover the costs of marketing and selling properties, while broker fees are applicable when we engage a broker to handle the sale process. By clarifying these fees, we empower our clients to make well-informed decisions, ensuring transparency and reinforcing our commitment to their investment success.