Is Commercial Real Estate Right for You?
September 1, 2021
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 bring buyer and sellers or lessors and lessees together, most aspects are wildly different.
If you are considering working the commercial market, here are five things to consider.
- 1. The Process is Very Pragmatic and Analytical
Buyers of commercial property are businesses. The approach to buying a property is very much about the numbers, money and the viability of the investment. Whether the owners are using the property for personal business usage, like Amazon buying a warehouse, or will be leasing it to tenants, it must make good business sense. Obviously, residential consumers are concerned about numbers as well, but there is often a good or great deal of emotion that goes into the purchase of a home. If you feel comfortable or thrive working in an environment where numbers and return of 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. It is All About Business
Taking the conversation about numbers and analytics further, good commercial agents understand business. They understand 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 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 and experience can be critical to helping a business select optimal locations that will best serve the businesses goals and objects. This supports the adage that the key to success in business is location, location, location.
- 3. The Tools of the Trade are Very Different
Commercial Agents are well equipped with tools that provide deep and reach analytic capacities like Costar and LoopNet. Having an analytical mind and mastering theses resources and others are essential to an agent’s effectiveness. In addition, unlike residential real estate, there is no standard contract that 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 is vital.
- 4. Longer Sales Cycles
The sales cycle of commercial is typically 5-10 times longer than residential. The deal fall-out is also three times higher than residential. The potential volume and income in commercial will be much larger, but agents must be prepared to ride things out. According the National Association of Realtors, the average commercial Realtor makes $85,000 versus $39,300 for residential agents.
- 5. Stiffer Education and Entry Requirements
Both residential and commercial real estate agents require a license. However, commercial real estate firms have stiffer hiring requirements. Most expect a college degree that focuses on business or finance plus they often expect an agent to have a proven sales track record. Both commercial and residential agents have opportunities 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. Obtaining a CCIM also requires included 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 do engage in some thought and considerations of your talents, passion and background to determine the market you are best suited to serve.