Switch From Residential Agent to Commercial Agent

Understand How the Commercial Space Works

Unlike the residential industry where data, research and listings are willingly shared, commercial practitioners conduct business much closer to the vest. There’s still a ‘good old boys club,’ not from a gender perspective, per se, but in the way we operate. Most do not share details and they shy away from co-brokering deals. You have to be aggressive.

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Closing a Sale in Commercial Real Estate Takes Longer

Generally, the time it takes to close a residential real estate sale is between 30 and 45 days. Due to the nature of commercial real estate, however, closing a commercial deal can take as long as a year and never wraps up in less than two months. There are also fewer commercial properties than residential properties, so the market is more competitive. 

Key Factors to Switch from Residential Real Estate to Commercial Real Estate

• Be financially prepared

  • Planning for the Switch and Gearing Up

    Keep in mind, too, that you’ll need to invest time learning the business and generally you’ll be working on a commission.

  • Closing a Sale in Commercial Real Estate Takes Longer

    Sales generally take 60 days for fast and often 6 -12 months. Leases can be quicker is a simple lease, but often run 2-4 months.

• Strive to have six to nine months of your personal expenses saved to get you through your first year as a Commercial Agent. Desperation is not attractive, and clients do not trust agents whose financial security is contingent upon their deal closing. 

• Operating Costs are higher. Commercial Agents (in a larger market at least) use many softwares and tools which are expensive such as Costar, Loopnet, Buildout. Marketing Buildings for Sale and Lease cost more for digital and print marketing, signage, pictures, drone, floor plans, video, market analysis, financial analysis etc

• Skills

  • high degree of problem-solving

  • long hours

  • self-motivated

  • organized

  • contract law

• Education

  • Math - must be a whiz with a spreadsheet, the

  • CCIM - has some free classes.  Start with them. ( i wrote this in April 2020, not sure it is still true)

    https://www.ccim.com/education/promo/free-center-for-realtor-development-courses/?gmSsoPc=1

    Then next, take the week-long CCIM classes. Become a CCIM. CCIM stands for Certified Commercial Investment Member. 

• Become a CCIM. CCIM stands for Certified Commercial Investment Member. This may take a few years to complete, however, each class is valuable information that will help you understand how to evaluate the profitability of the asset and perform true financial and market analysis. CCIM designees are recognized as leading experts in commercial investment real estate. www.ccim.com

• Competency and Confidence is a MUST! 

• Other commercial agents are not going to “teach” you and “co-op” with you if you do not know what you are doing. Most Commercial Brokers do not appreciate residential agents trying to close commercial deals they do not understand.  If you are unsure, network with other commercial brokers, take classes, hire an attorney, do whatever it takes to KNOW YOUR STUFF!!!

• Commercial Brokerage is not something you wing, you have to build a base of knowledge and then build on the knowledge daily. 

• Find a Mentor or Broker who will help you transition with finesse. 

• It is ok to become a student under the direction of a mentor until you master the craft of representing commercial clients. 

• Mentors will be critical throughout your commercial career. Most days you will learn something new or be challenged by a scenario you have not encountered. Having friends and mentors in the industry means you can get help with a phone call or email. Be sure to reciprocate. Givers Get.

• Join the Central Texas Commercial Association Realtors  CTCAR

The Bar for Entry is Higher in Commercial Real Estate

The nature of commercial real estate makes it a more profitable endeavor for realtors. However, because the job requires more math-intensive analysis and a strong business background, commercial realtors tend to have college degrees in business, hospitality, or finance.

The Mentality of Residential vs. Commercial - LONG HOURS

While in residential real estate, you can routinely expect to work many evenings and weekends because that’s when clients are usually the most available to see properties, in CRE the majority of transactions are done Monday through Friday during normal working hours. Market research, education, client communication and networking add to the 40 hour work week. A new Commercial Agent can expect to work a minimum of 60 hours a week for the first 3-5 years and most successful agents keep up this pace for decades. Education and Market Knowledge are critical.

LIABILITY

The Courts expect Sophistication and so do your clients

The allure of transitioning from residential to commercial real estate brokerage is undoubtedly compelling, with potentially larger deals and broader portfolio diversification. However, professionals making this switch should be keenly aware of the increased complexity and liability inherent to commercial transactions.

In residential real estate, laws typically favor consumer protection. This framework provides a safety net for buyers and somewhat mitigates risks for agents. On the other hand, commercial real estate operates under a vastly different legal landscape where the courts generally adopt a neutral stance based on their view that all parties in Commercial Real Estate transactions are sophisticated.

They expect that you understand the intricacies of the contract and are capable of fully comprehending the terms and conditions. Ignorance or misunderstanding of these terms is rarely accepted as an excuse for not fulfilling contractual obligations. Absent explicit illegality or demonstrable fraud, you and your client will be held to the terms stipulated in the sales or lease agreement.

Therefore, as you contemplate this transition, it's essential to recognize that the higher financial stakes and legal responsibilities require a heightened level of diligence and expertise. You'll need not only to scrutinize agreements more closely but also to possibly seek legal counsel to ensure that contracts are sound and your interests are protected.

The Importance of Networking

Commercial Brokers get many phone calls and emails, they are quicker to return the call if they know the Agent. Like in any industry, who you know is key in commercial real estate. While you may already have a strong list of residential leads, you’ll likely need to canvas your contacts for clients who are looking to buy, sell, or lease on the commercial side. This means pressing the flesh and trying to make connections any way you can.

FAST ADVICE

The fastest way to get some education and maybe get a foot in door with a Senior Broker that can show you the ropes for next 3-5 years. They are the “Rain Maker” and take majority of Commission. You will do all of the work at their direction.

Get involved with commercial organizations and take more commercial classes (commercial contracts, commercial leasing, commercial lease analysis, commercial lease vs own)

• CTCAR

• CCIM

• CREW

• Texas Realtors - Commercial

Commercial Realtors Undergo More Intensive Training

Net Operating Income

Abbreviated to NOI, this term refers to a calculated estimation of a property’s profitability after operational costs have been subtracted out. Profitability is determined by obvious factors — such as the income from your tenant’s rent. 

Return on Investment

In real estate, the ROI is a calculation that gives you the measurement of a property’s value as compared to its cost. This is given as a percentage of the initial investment cost. To calculate a property’s ROI, take the profit and subtract out the initial cost. Then, divide that by the initial cost. 

Capitalization Rate

The cap rate estimates the annual profit a piece of commercial property may generate. It is a useful tool for comparing similar commercial properties’ potential ROI. To calculate the cap rate, take the net operating income (NOI) and divide it by its market value. This calculation delivers a percentage that can be compared to the cap rates of other properties. 

Internal Rate of Return

The internal rate of return, abbreviated to IRR, is a useful metric that tells potential investors the growth rate an investment will return over time. Different from ROI, the IRR reveals the growth rate over time rather than a percentage of the initial investment after a period of time. 

This is an extremely abbreviated guide on how to transition from Commercial Real Estate to Commercial Real Estate. But hopefully, it gives you an idea if you are suited to the different level of work and clients. If you believe this is exactly what you are ready to do - build up your nest egg so you can get started. Many people believe the best time to switch is during a downturn in the economy, I agree.

E-Mail is the best way to get a hold of us. Email Office@Beckreit.com if you have questions or want more insight.