Is Commercial Real Estate Right for You?
August 1, 2019
Vice President, Realty Executives
Anybody that has familiarity with both residential and commercial real estate would say that the differences between the two are greater than the similarities. Other than the fact that both disciplines are ultimately about bringing buyers and sellers or lessors and leasees together, many aspects are wildly different.
If you are considering working within the commercial market, here are a couple of elements to consider.
1. The Process is Very Pragmatic and Analytic
Buyers of commercial properties are businesses. The approach to purchasing or leasing commercial real estate is very much about the numbers, money, business financials and the viability of the investment. Whether the owners are using the property for personal business usage like Amazon buying a warehouse, or if buyers will be leasing to tenants, it must make good business sense. Obviously, residential consumers are concerned about financials as well, but there is often a good deal of emotion that goes into the purchase of a home.
If you feel comfortable or thrive working in an environment where statistics and return on investment will often drive the decision process, then commercial real estate could be a good fit for you. It is not unusual for an agent who is more familiar or experienced in residential to describe commercial as more cutthroat and ruthless. It really isn’t, it just feels that way because of the pragmatic approach to the market.
2. Strong Understanding of Business
Taking the conversation about numbers and analytics further, good commercial agents have a good understanding of business. They understand how the primary use of their buyer is going to use the property. They understand and are passionate about demographics, traffic patterns, zoning issues, future development of an area, licensing, city and municipality requirements.
As an example, a large insurance firm was considering moving into the Valley. The facility they were looking for was going to house over 300 employees, which needed to be hired locally. The agent that represented the firm needed to understand the demographics of the potential employee population among other things. The company was specifically looking for a location that was easy to get to via major roads and highways and also had a dense population of people with higher education and white-collar work experience.
Commercial Agents equipped with the right mindset, education experience are critical in the navigation of their clientele’s location selection which will best serve their businesses financial and strategic planning goals.
3. The Tools of the Trade are very different
Commercial Agents are proficient with tools that provide deep analytic capacities like Costar and LoopNet. Having a systematic mind and mastering these and other resources are essential to an agent’s effectiveness. In addition, unlike residential real estate, no standard contract is utilized. This means that attorneys are very much involved in the contract creation and review process. Being adept at supporting in the contract process and having a thorough understanding of the terminology is vital.
4. Longer Sales Cycles
The sales cycle of commercial transactions is typically 5-10 times longer than residential. The deal fall-out is also three times that of residential. The potential volume and income in commercial are often much larger, but agents must be prepared to ride things out due to longer sales cycles. According to the National Association of Realtors, the average commercial Real Estate Agent makes 2-3 times the average residential agents but it often takes three times longer to get well established in the market.
5. Stiffer Education and Entry Requirements
Both residential and commercial real estate agents require a license. However, commercial real estate firms often have specific strict hiring requirements. Most expect a college degree that focuses on business or finance, plus they often expect a proven sales track record along with it. Both commercial and residential agents have the opportunity to obtain industry-specific designations. Obtaining a CCIM designation, which is considered one of the premier designations among Commercial Agents, takes 1-3 years of work, a range of experience including meeting transactional portfolio expectations, plus a comprehensive exam.
At the end of the day, in order to be effective and successful in a real estate career, it is best to engage in some thought and considerations of your talents, passion, and background to determine the market you are best suited to serve.
Eden Sunshine is an entrepreneur, the creator of The Level 7 System, a speaker, author and Vice President of Operations for Realty Executive in Phoenix Arizona. Eden has coached and consulted with over 300 of the top Real Estate agents and teams throughout the USA and Canada since 2003. Eden specializes in helping businesses become scalable, positioned for exponential growth and productivity while establishing a meaningful, high performing business culture.
Eden developed the Level 7 System, which is a one of a kind, simple and systematic business development approach that guides businesses to become scalable, systems-driven with great cultures. He also has developed other ancillary programs like the Systemize Your Business in 90 Days Program. He is in the process of publishing two books: The Book on Building Great Businesses and Woo Hoo: Successfully Transforming Your Business and Your World.