Residential or Commercial Real Estate?
Every so often, people who know I was in commercial real estate before entering residential ask me which one I preferred and why. My first 14 years in real estate were strictly commercial, and my last 27 years have been strictly residential, so I'm kind of a hybrid. But I have a good understanding of what both careers offer, and can certainly give you my honest answer by highlighting the major differences.
Is Access to Information the Same in Both Commercial and Residential?
Residential—The number one thing that stood out when I switched from commercial to residential was the incredible amount of information at my fingertips on the MLS (multiple listing service). With those sales, I had all the information I needed to begin forming an opinion of a home's value, and from there, I could talk intelligently with a client. Of course, I had to walk through the homes to understand the physical differences, but the data was all there for me. I call the MLS “the great equalizer” because whether you’re brand new to the business or a 30-year veteran, you all have access to the exact same information.
Commercial – Commercial agents, on the other hand, are notorious for keeping their lease and sale transactions close to the vest. They have a shared database, but it’s primarily for property availability, not for sale or lease comparables.
Because commercial brokers and agents don’t share their own transaction data, the only way to get it is by doing what I did 35 years ago: I started meeting with other commercial agents to share information between us. I brought two sale-or-lease comps I could verify and shared them with the group; they did the same. I’d walk out with 20 good comparables that weren’t showing up on any shared agent service. Those groups are still meeting to this day.
Can you imagine how difficult it is to form an opinion of value on a lease space without comparables to work with? That’s what you’re fighting against right from the start as a new commercial agent.
Why are Lockboxes Better than Door Keys?
Residential - Agents place a key box on any listed property they want. Other agents within the MLS can access the box electronically with a microchip that records when the home was entered and how long the agent was there. When an agent wants to see a home, a third-party service handles the showings. The listing agent never has to leave their office for a showing. It’s an extremely seamless process perfected over decades of use.
Commercial – Commercial agents don’t use electric key boxes, and there is no showing service. The buyer agent contacts the listing agent to set up the appointment. Then the listing agent has to drive to meet the buyer agent to open the door. It might take 45 minutes to get to the building, then half an hour at the building, then 45 minutes back, all for one showing. That’s half a day wasted by the listing agent that they’ll never get back.
Are the Contract Forms the Same?
Residential – Talk about a big difference. Residential contracts are simple, easy-to-understand, and standardized forms provided by our own Texas Association of Realtors or the Texas Real Estate Commission. They can be filled out in half an hour, including the needed addenda. All the agents have to do is fill in the blanks. In fact, that’s all they’re allowed to do. After 3- 4 transactions, the agents know these contracts well and can either generate or respond to an offer.
The beauty is that buyers, sellers, and agents alike trust these standardized contract forms. Attorneys create them, and because we all use them, there’s no reason to bring in an attorney to review them. Of course, the client can if they wish, but that happens very rarely. You can literally have a contract generated, sent to the other agent, countersigned, and fully executed in an hour and a half if the clients are available to sign.
Commercial – As I mentioned, commercial transactions are much, much more complex and varied. There isn’t one, simple, standardized contract that fits all commercial properties. Therefore, the contracts are usually generated by a different attorney for every property. Whichever side creates the contract will invariably make it favorable to their side, which means the other party must bring in an attorney. When each side has an attorney, agent, and client involved, the process can quickly become a bottleneck. Every change must be reviewed and approved by multiple people, so getting a contract fully executed can take days or sometimes even weeks.
How Long Does It Take to Get Paid After A Closing?
Residential - Closing and funding on a home usually take 30 to 45 days from the day the contract is signed, but I’ve sold homes in less than two weeks. The title company cuts the agent a check on the day the home closes and funds, unless it’s too late in the day. If that happens, it’s given to them on the first business day thereafter. That’s nice.
Commercial - If it’s a commercial lease with the agent representing the tenant (and that’s a big part of a commercial agent’s business), the landlord pays the commission. The landlord might not pay the agent until the tenant has moved into the building or until all tenant improvements are completed. It can take weeks or longer for tenant representatives to be paid after a lease is signed. Some landlords have a reputation for never being in a hurry to pay the commission
How Do You Meet the Decision Makers?
Residential – The beauty of residential is there are no gatekeepers to get through, keeping you away from the decision-makers. You don’t have to find a way past the receptionist to talk to the person you want to meet with. When you call a homeowner or knock on their front door, they are the decision-makers. There’s no one above them they have to answer to.
Commercial – Try walking into an office and asking to meet with a senior official of the company about their real estate needs. It’s probably not going to happen because the receptionist has probably been told to keep agents at bay. You have to find a way to break through the wall.
How Long Will You Be Able to Keep Your Clients?
Residential - If you do a good job helping your clients buy or sell a home and stay in touch with them over the years, you might end up selling them five or six more homes. They might also recommend you to their family members or friends.
Commercial – You’re dealing with business executives who often move around in an organization. They could be promoted, moved within the company, or even retire. They may or may not be there in a year. If they leave, you’ve lost that relationship and will find yourself starting over, trying to build one with the new person in charge.
You might develop a relationship with someone at the local level who really likes and trusts you. Then, out of the blue, word comes down from the ivory tower that they want to use another agent at another company. Remember, the decision-makers at the highest levels are always being contacted by real estate companies in hopes of earning all of their business. When that happens, the local decision-maker isn’t going to risk his/her job to protest.
It's just very rare to keep those long-lasting local relationships in commercial unless you’re lucky enough to be working with the person at the top.
Is There a Gender Bias?
Residential – Although the National Association says 62% of residential agents are women, I wouldn’t be surprised if it’s really a higher number than that. I know in our office of 220 agents, men are not. Men have become much more prevalent in residential areas since I started. In my opinion, most of the heavy hitters I see are women.
Is it a disadvantage to be a man selling residential real estate? I could never have gotten to my level of success if that were true, but I remember losing a listing to a female agent even though I’d sold many homes all around hers. She told me she just felt her home needed a “female touch”. So, I guess there can be biases in either residential or commercial.
There are no statistics on this, but I think female homeowners tend to relate better to female agents, and male homeowners tend to relate better to male agents, especially if the male homeowner is in a position of authority in his business.
Commercial – Commercial real estate has long been shaped by a traditional “good old boy” culture. Men still hold many of the key decision-making roles in companies and often connect more easily with male agents. As a result, successful female commercial agents often must work harder to overcome that bias.
Is There an Age Bias?
Residential – According to the National Association of Realtors, the median age of a residential broker is 57. Residential is often a second career for those who have lost their jobs, retired from their first career, or simply become bored and want to spend their time productively.
If there’s any age bias in residential, I haven’t seen it. Younger home buyers and sellers might prefer to work with younger agents, and older home buyers and sellers might prefer to work with older agents. That’s only natural, but other than that, most clients just want someone experienced who will work to protect their interests.
Commercial – Quoting the NAR again, the average age of a commercial broker is 55 to 60. If anything, there might be a bias against younger commercial agents just breaking into the business. When decision-makers choose an agent for their real estate needs, they usually lean toward more experienced, older agents. If they go with a younger agent and the agent makes a mistake, it could affect their standing with their company.
The huge real estate transactions are almost always controlled by older, more seasoned agents, usually with large national brokerages. Those deals go to highly skilled and experienced agents.
Here’s something to keep in mind about those mega-deals. The commissions are often cut in so many ways that there isn’t a tremendous amount of money left over for the agents who put it together. The corporate contact who procured the listing for the brokerage gets their cut; then there’s the brokerage split with each agent, and finally, the two or three agents who really worked the deal have split what’s left between themselves. The commissions get whittled down quickly.
Can You Work Both Commercial and Residential?
Yes and no. If you’re a licensed real estate agent in Texas, you can work in either commercial or residential real estate. In smaller towns, doing both is often necessary.
In larger areas like Dallas/Ft Worth, there’s plenty to go around, and agents usually stay within their chosen discipline, either commercial or residential, with little, if any, crossover.
Once an agent steps out of their area of expertise, they just don’t have the knowledge required to do a good job for their client. Everything differs between commercial and residential, starting with the basic contract forms.
Many large commercial brokerages know this and won’t allow their agents to work on a home sale. It’s just too risky and not worth the cost of a lawsuit if the agent makes a mistake.
If you live in a larger city, I recommend choosing either commercial or residential real estate and staying focused on that path. Learn your niche thoroughly and resist the urge to work outside it. When I come across a commercial deal, I refer it out because I haven’t kept up with that market, and I wouldn’t be serving my client well.
When Do You Get Paid After a Closing?
Residential – The nice thing about selling a home is that the title company disburses the Realtor fees when the property closes and funds (and there is a difference). Homes typically take about 30 days to close after going under contract.
Commercial - If it's a building sale, you'll get paid right after the building closes and funds so there's no difference there. But most of your business will almost surely be working leases and that's a different ballgame. Just because you’ve got a signed lease doesn’t mean you’re going to get paid right away. Some landlords have a reputation for delaying the lease commission for way too long. They're in no hurry to pay them out and they control the purse strings.
There might be a stipulation you get one half when the lease is signed and the balance when the tenant occupies the space. You might end up waiting 2-3 months after the lease is signed to get paid in full. They might delay paying the lease until the TI's (tenant improvements) have been completed. It's rarely as cut and dried as a sale where the title company is holding the funds.
Where Can You Make the Most Money?
Residential – I’ll use our office as an example. Our Keller Williams office in Allen, Texas, has about 235 agents, and we’re the number one office in sales volume in Collin County. We have many very professional high-volume agents. We’re also an open book when it comes to agent income, so we all know how much the other agents in our office are earning.
We have agents with only two to three years of experience making up to $150K per year. Their first year, they were in the $70K range. I’d say $250-$300K per year is a reasonable expectation for a good, hard-working agent in our office by their fifth year or so and they should be able to grow it through the years.
Then there are the agents who have been in business for 10 years or longer. They’re usually well into the $400K per year range, and several have reached the million-dollar range.
The opportunities for residential agents are endless because thousands of new homes are being built yearly. The longer you’re in the business, the more referrals and repeat business that will come your way.
Commercial – I contacted some of my commercial agent friends from 30 years ago who are still in the business and asked how they're doing now. These are very smart, savvy agents who know the business inside and out. I was surprised to hear them say they’re making about the same thing they were 25 years ago, and that’s in a great year. That’s nothing to sneeze at, but many of us were also in the $250K-$350K range back then. I asked them why, with all their experience and longtime contacts, they aren’t just crushing it now. They all said the same thing.
They told me the commercial side is much more difficult now than it was when I was working in it 27 years ago. There are countless younger agents coming into the business, taking a big bite out of it. They said those agents are doing what we used to do when we got started: cold-calling and knocking on doors. They’re outworking them.
Of course, many more residential agents enter real estate each year than commercial agents, but the Dallas area is also adding many thousands of new homes each year, on top of the millions of homes already on the ground. Commercial real estate, by contrast, offers only a limited number of new buildings and lease opportunities each year.
They went on to say they’ve lost most of their long-time relationships over the years. Some retired, some resigned or were fired, some moved up in the company, and some have died. Even with all their experience and knowledge, they’re back to square one, competing with the younger agents coming into the business.
Are the Working Days the Same?
Residential – Early in your career and before you start getting listings, you’re going to be spending a lot of time on weekends and evenings. Your clients probably work Monday through Friday, so weekends and after work may be the only time they have to look at homes.
In later blogs, I’ll discuss the pros and cons of becoming a listing specialist or buyer specialist.
Commercial – If you like your weekends off, the commercial side might appeal to you. Business pretty much shuts down on Saturdays, Sundays, and holidays. It follows the working hours of businesses. Agents might do their research or drive an area to learn it like I did when starting out, but other than that, I can’t remember ever showing a home or having a listing appointment on a weekend or holiday. If it happened, it wasn’t very often.
If I Could Do It All Over Again
Although my learning experiences working in both commercial and residential real estate were very valuable, if I had to do it all over again, I would have done two things differently. First, I would have entered residential and stuck with it. Second, I would not have been so stubborn, and instead of “lone wolfing it” as a one-man shop, I would have joined a top company like Keller Williams and learned from experienced agents.
Honestly, my having to learn everything from the ground up in residential without help probably made me a more complete agent, but it also cost me time building my business up. Things worked out for the best, however, and I’m completely satisfied with my career.
