While residential real estate and commercial real estate definitely overlap, there are some key differences that make the type of real estate agent you work with important for getting the best deal on a commercial transaction. In the same way that an oral surgeon is a dentist with additional expertise, commercial real estate agents are real estate agents with additional expertise. While real estate agents working in the commercial sector are qualified to work in residential real estate, the opposite isn’t necessarily true.
So, what’s the difference? We’ll discuss that shortly. But first, let’s discuss the primary differences between the fields of residential vs commercial real estate.
The Differences & Overlap in Commercial vs Residential Real Estate
It’s a given that, at the end of the day, all real estate is about investing, buying, selling, and leasing properties. But what kinds of properties? And what are the processes that go into each type of real estate transaction? Let’s compare:
Residential real estate is single and/or multifamily properties like land, houses, apartments, condos, etc. However, to be considered residential, a property must have 4 or less units. So while an apartment is residential, the apartment building is commercial.
Commercial real estate also includes industrial properties, commercial land, office spaces, retail locations, residential developments, etc. While real estate agents in the residential sector buy, lease and sell residences, commercial realty is comprised of many more property types, so brokers and agents working in this sector need to know the legal and financial ins and outs of them all.
In residential real estate, you’re often leasing to an individual, whereas in commercial real estate you’re leasing to a business/organization/entity. Residential leases tend to be short – one or two years, whereas leases for commercial properties can be for ten or twenty years.
Another couple of key differences between residential and commercial leases are the terms, and part of this is the nature of renting for a couple years vs 30. When leasing a living space, you’ll be lucky to get the landlord to switch the flooring out before you move in. This is in stark contrast to commercial leases.
Most brokers in commercial real estate can negotiate lease terms like build-to-suit, tenant renovations, tax abatements, and more. But, commercial property leases office buildings or warehouses will also come with comprehensive site management services. So, commercial leases are also much more complicated than their residential counterparts. Yet another field every commercial realtor needs to be able to deep-dive into for any given client.
Often, tax incentives and abatements are only available for commercial/industrial real estate projects in anticipation of the commerce the project will add to the community at-large.
While capital gains are significantly more sizable in commercial real estate investments, they’re also susceptible to a more volatile market than the residential housing market.
It takes significantly less cash to enter the residential real estate market than the commercial or industrial property market. It follows then, that it also takes a lot less research to enter the residential market than the commercial one.
Comparing/Contrasting Residential & Commercial Real Estate Agents
So now that we understand some key differences between residential and commercial real estate, let’s look at the differences in working as an agent or broker in either field:
While a residential real estate agent works in a brokerage with a set commission, commercial real estate agents tend to become brokers so they can control their commissions.
Understanding of the Market:
Both types of real estate agents should constantly study the market – where it’s at and where it’s going. But residential real estate agents understand better how to work in a volatile market that can change on a dime. We all remember the housing crash of ’08.
Commercial real estate tends to be a more stable market when you compare it month-by-month to residential real estate. But by nature, investments in commercial properties are much larger and longer-term, so brokers in the commercial field have to have one eye on the current property market, and the other at years’-ahead projections. And both eyes have to be 20/20.
You can become a residential real estate agent without a college degree – it’s a licensing process. Commercial real estate agents go through that same licensing process, but are typically required to have a college degree related to finance and business. However, it varies by state whether or not a realtor needs additional certification to practice in the commercial property market.
The licensing process for a real estate agent is the same in most states regardless of the field they work in. Credentials are more based on employer expectations and standards in the residential vs commercial property markets.
Further, real estate agents of all kinds tend to have specialties; commercial vs residential is one in and of itself. But within the field of commercial real estate, agents may specialize specifically in industrial properties, land sales and development, or retail leases, among a dozen other things.
Both commercial and residential real estate agents and brokers have properties they specialize in. In residential, an example of specializing might be condos or luxury apartments. In commercial, this might be land development for new construction, or acquiring existing buildings to retrofit.
Think about specialization in commercial real estate this way: While all lawyers have the same law degree, you likely wouldn’t hire a divorce lawyer to handle an insurance dispute, or use a criminal lawyer for an adoption.
Because the industrial and commercial property markets are complex and sometimes opaque, choosing to work with a commercial realtor that specializes in the specific sub-field of properties you’re interested in can have great advantages.
All commercial agents and brokers need to be on top of their game, whatever kind of property they’re handling. But if you’re, for instance, constructing a zero-energy, green, state-of-the-art warehouse, you might ask the development company you’re working with if they have agents who specialize in those types of projects. There’s something to be said for specialized experience that surpasses even the best of specialized training.
Commercial real estate agents tend to work closely with a mentor when they enter the field, and receive focused training at the brokerage firm in which they work. Commercial brokerages usually have much stricter hiring criteria as well.
As we said before, commercial real estate projects are exponentially more costly, risky and complicated than their residential counterparts. It follows, then, that a commercial real estate management firm would want their agents to have more detailed knowledge and skills than are necessary to be successful in the residential field.
However, as far as formal certifications go, most states don’t require different licenses for residential vs commercial real estate agents. In practice, though, commercial real estate development firms tend to have higher expectations for experience and ongoing education in the field once hired.
When you become a residential real estate agent, it’s simple to step into the property market and/or a firm and hit the ground running. To become a successful commercial real estate agent, however, almost requires an unofficial apprenticeship at a brokerage firm.
While residential real estate agents tend to work round-the-clock and commercial real estate agents have more of a typical work schedule, commercial real estate agents have significantly higher salaries. Both kinds of agents’ salaries are commission-based, but where residential agents rely on numerous, consistent transactions throughout a year, commercial agents rely on a few slower-moving, higher-yielding transactions.
We’ve already discussed people vs private entities, but there are a couple other differences in the client relationships between residential and commercial real estate agents. In residential real estate, there are usually always people looking to buy or lease homes in any given region, especially if it’s a growing one. Client relationships tend to be short-term.
Commercial real estate is different. Client influx is very dependent on the economic climate and growth potential of a region, and there’s more potential for long-term relationships with clients as their business continues to grow. On the other side of the coin, agents working in commercial leases may have a harder time drawing in tenants than residential agents do.
It’s projected that there will be a small but consistent increase in the demand for residential and commercial real estate agents through the next few years. And if we’re talking specifically about the real estate markets in Southwest Ohio, Northern Kentucky and Southeast Indiana, consistent growth is all but a sure thing.
Commercial real estate agents tend to work more hours and juggle more clients, properties and other variables than do residential real estate agents. This is due to the long-term and ongoing nature of client relationships in commercial real estate vs residential.
Businesses Looking to Grow: Choosing Between a Residential & Commercial Real Estate Agent
Depending on the type of business you have, it’s possible you might still want to work with a residential real estate agent. Many small businesses like daycares, apothecaries, and bed-and-breakfasts are located in single-family homes, especially in small towns. Think about local landlords and house-flipping businesses.
But if you’re looking at a commercial or industrial property like a warehouse, office space, or a lot in a business park, you want to go with a commercial real estate agent. Commercial projects are typically much more complicated to navigate, with longer purchasing processes and more intricate financial factors.
Additionally, opposed to residential real estate agents, commercial agents are usually also involved in more facets of the real estate development process. The most well-rounded commercial realtors you’ll find work in vertically-integrated brokerages, where they are exposed to and experienced in all aspects of commercial transactions. For this reason, choosing a commercial agent who work in a real estate development firm that offers 360-degree commercial real estate services is the best strategy for a growing business looking to begin a development and construction project.