Working with a Commercial vs Residential Real Estate Agent

On the surface, buying a commercial property may seem a lot like buying a residential property — but these are fundamentally different types of transactions. Buying a house is an emotional decision: picking a place to live is all about comfort and ambiance. On the other hand, buying a commercial property is a more objective decision. When it comes to an investment property, it’s all about the numbers.

Considering that these types of transactions use different standards — and unfold according to unique timelines and regulations — it makes sense that you’d need a different agent for each type of property. 

So what are the distinctions between a commercial vs residential real estate agent? Let’s examine the benefits of partnering with a CRE agent to acquire your first commercial property.

Commercial Real Estate Agents Have Specialized Knowledge

When you’re looking at houses, you want to know about characteristics like nearby schools, amenities, and public transportation. Your residential agent can provide that information, but most of it is also publicly available.

As a commercial real estate buyer, the scope of local and property knowledge informing your decision should be much broader. You’ll want to know about details such as foot traffic, comparable retail sales in the area, and local demographics and population trends. That information isn’t so easy to track down — but a commercial agent will have it on hand. They know this information from the natural process of building their network and from reading proprietary market reports that every commercial brokerage compiles. These reports are detailed, comprehensive, and expensive; the information they contain isn’t available with a few clicks on Zillow. 

When you hone in on individual properties of interest, a commercial real estate broker will be able to bring you up to speed on issues such as zoning restrictions and local development trends. Whether you’re trying to acquire an entire office building or just looking for retail space for your home-based business, this kind of insider knowledge is hard to come by. Think of it as the equivalent of a residential agent telling you what neighborhood the artists are moving into, where property values are about to skyrocket.

Commercial Real Estate Brokers Keep a More Predictable Schedule

Residential agents work around their clients’ schedules, which means they do most of their work on evenings and weekends. They aren’t in the office much so it can be hard to get in touch with a residential agent during the day. Not so with a commercial agent.

Commercial agents generally work a 9-5 schedule and can usually be found by their office phone. They’re much more predictable and accessible than most residential agents —  don’t expect a call back on Sunday afternoon.

Commercial Real Estate Agents Have More Training

Residential agents are trained and licensed, but commercial real estate agents generally have more specialized training. Once commercial brokers pass a complex written exam, most states require them to complete up to 90 hours of educational courses. On top of that, they must renew their license every few years, which often requires them to retake the commercial agent exam. 

Some commercial agents even have a Bachelor’s degree in real estate. The fact is, commercial real estate is far more complex, and the stakes are much higher than in the residential field. The education required of CRE agents reflects that simple fact. But look at this upside: a well-trained and seasoned CRE agent will mitigate the need for a real estate attorney down the line.

Commercial Real Estate Broker Transactions Are Often Much Longer Than Residential Transactions

If you’re buying a house, it takes an average of 30-45 days to close the deal. That may seem like a long time when you’re itching to move, but it’s a lightning-fast pace compared to the average commercial transaction. 

A commercial real estate deal can easily take a year to close or even longer. There are several reasons for this: there’s more money involved, which means more financing to arrange, more decision-makers who have to sign off and on the deal, a more onerous regulatory environment. Commercial real estate deals take a long time, so when you’re searching for a CRE agent, make sure you pick someone you get along with — you’re probably going to be working with them for quite a while.

Commercial Real Estate Agents Charge Higher Commission

A residential transaction typically comes with a 3-6% commission fee, which is split between two agents. For a commercial transaction, commission averages 6-8%, with rates up to 10% not uncommon.

This commission decreases as the price of the property increases: the 6% to 8% commission is on properties under $1 million. Once you hit the $20 milliothe n level, commission goes down to 1% or even 0.5%. The takeaway here is that alththe ough commercial commission is higher, it’s also more flexible, so it’s worth it to try and negotiate commission savings.

Why is a CRE agent’s commission so much higher than a residential agent’s? Think of it from an agent’s perspective. An agent’s salary is basically their commission divided by the number of days they spent working on the deal. For a residential deal that took 30 days to close, that average 3% commission probably breaks down to a pretty lucrative wage.

But that same commission for a commercial agent who just spent six months or a year closing their deal would break down to peanuts. Commercial deals simply take more time and effort to close — so they come with a larger commission. Make sure you’re taking that into account when you’re putting together your budget.

Commercial Real Estate Brokers Are Focused on ROI

Residential agents deal with a lot of emotional clients, and they have to play a lot of different roles — everything from therapist to life coach to interior designer to friend. 

A commercial real estate agent doesn’t generally work like that. They want their clients to be satisfied, of course, but only to the extent that their client’s satisfaction is connected to their investment’s ROI (return on investment). You’re looking at these properties because you want to make commercial space rent money, and they want to help you make money. They’re called commercial real estate agents because they’re all business — and that’s exactly what you want going into your first property investment.