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Many residential real estate agents wander into commercial real estate, often by circumstance (a longtime residential client calls for advice or assistance with a commercial lease or investment). Then there’s always the lure of that BIG commission that clouds your thinking – convincing you that there’s little difference between working with first-time buyers and first-time investors, or with high-end homeowners and commercial business tycoons.

 

But there are differences. Significant ones that may not be obvious to commercial customers, or even “top producing” residential agents. Commercial real estate is a highly specialized area of real estate brokerage, requiring more than cursory knowledge of geology, construction, financing, marketing, maintenance, management, real estate law, and other interrelated disciplines.  Brokering (listing, selling, leasing) commercial real estate is much different than residential real estate:

 

1. DIFFERENT PROPERTY TYPES: In residential, you deal with single family homes, duplexes, a lot, maybe a storefront. In commercial real estate, you deal with many different types of properties: 

• • Small rental properties
  • Multi-family apartments
  • Office space
  • Retail stores and centers
  • Industrial/Warehouse
  • Mixed Uses
  • Land (for investment or development)

Each property type has its nuances, terminology, special “rules of thumb.”

 

2. DIFFERING ROLES & RESPONSIBILITIES:

In addition to various property types, there are differing roles or responsibilities where commercial brokers may specialize: 

• • Listing only
  • Tenant representation
  • Landlord representation
  • Property management
  • Business brokerage
  • Exchange specialists
  • And so forth…

Being up-to-date and savvy in ALL of these areas can be challenging, if not impossible.  For this reason, most commercial agents focus on one or two areas of specialization, e.g. office leasing and/or multi-family sales.

 

3. DIFFERENT LANGUAGE: Those new to commercial real estate will be exposed to different terminology, industry jargon, and complicated investment concepts. Terms can be confusing with acronyms such as CAM, NNN, etc.

4. DIFFERENT PRICING: Evaluation methods of commercial property are different. With owner-occupied houses, you gather recent comparable properties to arrive at fair market value. In commercial real estate, you’ll more likely evaluate it by how much net income it generates.
5. DIFFERENT FINANCING: Seller financing is common. Loans are “non-conforming,” often secured through private or “hard money” sources – often at higher interest rates and shorter loan terms.

6. DIFFERENT ENVIRONMENT & CLIENTELE: Commercial real estate agents work with knowledgeable investors, CEO’s, civic leaders, and business people on a regular basis.

7. MORE TIME CONSUMING: Commercial transactions can be more complex and time consuming. Sometimes, a large piece of property can take several years to sell. Therefore, commercial real estate brokers are not regularly paid. 

8. FEWER COMPETITORS: The commercial real estate field is not as popular or populated as residential brokerage. The opportunities for those willing to learn and apply, however, are boundless.

9. DIFFERENT SKILLS SETS: Whereas buying a home is fraught with emotion, commercial real estate is more analytical. Commercial properties are viewed more objectively by investors or potential users. Commercial specialists must be comfortable working “the numbers,” and different evaluation methods. Active prospecting for new business is essential.